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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATCO GROUP INC.
(Exact Name of Registrant as specified in its charter)
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DELAWARE 3443 22-2906892
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
WILLIAM B. WIENER III
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
BROOKHOLLOW CENTRAL III BROOKHOLLOW CENTRAL III
2950 NORTH LOOP WEST, SUITE 750 2950 NORTH LOOP WEST, SUITE 750
HOUSTON, TEXAS 77092 HOUSTON, TEXAS 77092
(713) 683-9292 (713) 683-9292
(Address, including zip code, and telephone number (Name, address, including zip code, and telephone
including area code, of Registrant's principal number,
executive offices) including area code, of agent for service)
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Copies To:
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VINSON & ELKINS L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
FIRST CITY TOWER 1700 PACIFIC AVENUE, SUITE 4100
1001 FANNIN STREET DALLAS, TEXAS 75201-4618
HOUSTON, TEXAS 77002-6760 (214) 969-4780
(713) 758-2222 ATTN.: SETH R. MOLAY, P.C.
ATTN.: WILLIAM E. JOOR III
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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 registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Section 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=====================================================================================================================
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) OFFERING PRICE(2)(3) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
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Common Stock, par value $0.01 share(4)............... $82,200,000 $24,249
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(1) In accordance with Rule 457(o) under the Securities Act, the number of
shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for purposes of calculating registration fee.
(3) Includes shares of Common Stock being offered by the Selling Stockholder
and shares issuable upon exercise of the Underwriters' over-allotment
option.
(4) Including a number of Preferred Stock Purchase Rights issuable pursuant to
the Company's Rights Agreement equal to the number of shares of Common
Stock registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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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.
PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 30, 1998
, 1998
SHARES
[LOGO]
NATCO GROUP INC.
COMMON STOCK
Of the shares of common stock, $0.01 par value ("Common Stock"),
being offered hereby (the "Offering"), shares are being sold by NATCO
Group Inc. (the "Company") and shares are being sold by the Selling
Stockholder named under "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholder.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated 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.
The Company intends to make application to list the Common Stock on the New
York Stock Exchange, under the symbol "NTG."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 HEREIN, FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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 UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total(3)........................ $ $ $ $
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(1) The Company and the Selling Stockholder have 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 expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional shares of Common Stock on the same terms as set
forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts
and Commissions and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock offered hereby are offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters and
subject to various prior conditions, including their right to reject orders in
whole or in part. It is expected that the shares of Common Stock offered hereby
will be ready for delivery on or about , 1998, against payment
therefor in immediately available funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY
SIMMONS & COMPANY
INTERNATIONAL
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MAPS OF LOCATIONS AND OTHER GRAPHICS
[Map of North America depicting locations in which the Company maintains
offices.]
[Inset map of Japan depicting the location in which the Company maintains an
office.]
[Inset map of Venezuela depicting locations in which the Company maintains
offices.]
[Inset map of England depicting the location in which the Company maintains an
office.]
[Inset map of Kazakhstan, depicting the location in which the Company maintains
an office.]
[Photograph of 250 million standard cubic feet per day bulk carbon dioxide
removal membrane unit.]
[Photograph of 100,000 barrel per day (12' x 66') desalter in operation in
Japanese refinery.]
[Photograph of gas dehydration package including glycol contactor and glycol
regenerator capable of processing up to 30 million standard cubic feet per day.]
[Photograph of integrated production module for floating production vessel
capable of processing 20,000 barrels of oil, 24 million standard cubic feet of
gas and 4,000 barrels of water per day.]
[Photograph of horizontal, three-phase, high-pressure test separator package
capable of processing 93 million standard cubic feet and 17,000 barrels of
liquid per day.]
[Oil and gas processing schematic]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COM-
MON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION
WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information contained herein (i) gives effect to the
pending acquisition of The Cynara Company ("Cynara"), (ii) gives effect to the
Company's 4 for 3 stock split effected March 6, 1998 and (iii) assumes that the
Underwriters' over-allotment option is not exercised. Unless the context
indicates otherwise, references in this Prospectus to "NATCO" or the "Company"
mean NATCO Group Inc. and its subsidiaries. The Company's pro forma financial
data set forth herein give effect to (i) the acquisition of Total Engineering
Services Team, Inc. ("TEST") in June 1997, (ii) the acquisition of Cynara, (iii)
the issuance by the Company of 1,479,258 shares of Common Stock to certain
stockholders in exchange for outstanding indebtedness of the Company and (iv)
the sale by the Company of shares of Common Stock and the use of the net
proceeds therefrom as if the acquisitions of TEST and Cynara and the other
transactions occurred on April 1, 1996 for the pro forma statements of
operations data and give effect to the transactions described in clauses (ii),
(iii) and (iv) as if they had occurred on December 31, 1997 for the pro forma
balance sheet data.
THE COMPANY
NATCO is a leading provider of wellhead equipment, systems and services
used in the production of oil and gas. The Company's production equipment and
systems are primarily used at or near the wellhead to separate oil and gas
within a hydrocarbon stream and to remove contaminants from the oil and gas
stream. Separation and decontamination at the wellhead are necessary to meet the
specifications of transporters and end users. The Company's products and
services are used in onshore and offshore fields in most major oil and gas
producing regions in the world. The Company's revenues and Adjusted EBITDA (as
defined herein), on a pro forma basis, were approximately $185.3 million and
$11.3 million, respectively, for the fiscal year ended March 31, 1997, and
approximately $174.6 million and $15.9 million, respectively, for the nine
months ended December 31, 1997.
The Company designs and manufactures a diverse line of production
equipment, including: (i) separators, which separate a hydrocarbon stream into
oil, gas and water; (ii) dehydration and desalting units, which remove water and
salt from oil and gas; (iii) heaters, which prevent solids from forming in gas
and reduce the viscosity of oil; (iv) gas conditioning units, which remove
carbon dioxide and other contaminants from a gas stream; (v) water filtration
systems, which remove oil and contaminants from water derived from the
production process; and (vi) control systems, which monitor and control
production equipment.
The Company has designed, manufactured and marketed production equipment
and systems for over 70 years and believes it has the largest installed base of
production equipment in the industry. The Company has developed its position as
a leading provider of production equipment and services by maintaining its
technological leadership, capitalizing on its strong brand name recognition and
offering a broad range of products and services. The Company has utilized these
strengths to enter into formal and informal alliances with certain key
customers. Revenues from such alliance customers represented approximately 35%
of the Company's revenues for the nine months ended December 31, 1997, on a pro
forma basis.
The Company offers its products and services either as integrated systems
or individual components. The Company generally categorizes its products and
services based on the degree of engineering, design and customization provided,
the size and scope of the project and the organization used to market such
products and services. These categories include the following:
Traditional Production Equipment and Services. The Company designs,
manufactures, refurbishes, distributes, installs and services a wide variety of
new and used traditional production equipment, such as separators, dehydration
units, heaters, gas conditioning units and water filtration systems. The Company
sells
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and services both its new and refurbished traditional production equipment
primarily through a network of 33 field offices in the United States and three
in Canada, the largest such network in North America. The refurbishment of used
equipment for resale enables the Company to reduce delivery times and lower
equipment costs relative to new equipment. The Company maintains a proprietary
database of surplus production equipment in order to respond to customer
requests for refurbished equipment quickly and efficiently.
Engineered Systems. The Company provides turnkey, single source design and
manufacturing of integrated production systems. Engineered systems products are
typically designed and manufactured for large production development projects
throughout the world and include large scale oil and gas processing trains for
offshore platforms and onshore flow stations, floating production systems, oil
treating and desalting facilities and large gas processing facilities. The
Company's engineered systems typically require a significant amount of
technology, engineering and project management. The Company markets its
engineered systems through direct sales forces based in Houston, Calgary,
London, Tokyo and Caracas, augmented by independent representatives in other
countries.
Instrumentation and Electrical Control Systems. The Company designs,
constructs, installs and services instrumentation and electrical ("I&E") control
and safety systems and supervisory control and data acquisition ("SCADA")
systems under its TEST brand name. Control systems monitor, control and shutdown
equipment on production platforms, compressor stations and other production
facilities. SCADA systems provide remote monitoring and control of equipment,
production facilities, pipelines and compressors via wireless communication
links. The Company markets its I&E products through a four branch network
primarily in the Gulf Coast area.
THE INDUSTRY
Demand for oil and gas production equipment and services is driven
primarily by (i) levels of production of oil and gas in response to worldwide
demand, (ii) the discovery of new oil and gas fields, (iii) the changing
production profiles of existing fields (meaning the mix of oil, gas and water in
the hydrocarbon stream and the level of contaminants therein) and (iv) the
quality of new hydrocarbon production. Generally, oil and gas exploration and
production companies tend to reduce exploration activity during periods of weak
oil prices and demand while maintaining production activity. Accordingly, the
Company believes that the production equipment and service industry tends to be
characterized by more stable revenues than those of companies that primarily
provide products and services to the oil and gas exploration industry. The
Company also believes that, at times of stronger oil prices and demand,
companies that primarily provide products and services to the oil and gas
exploration industry realize increases in revenues more quickly than the
production equipment and service industry. The extent to which the revenues of
the production equipment and service industry increase depends upon the success
of the exploration efforts and, in general, lag increased revenues in the
exploration industry. These lag times can be up to several years in offshore
operations but are generally shorter with respect to onshore operations. Over
the last three years, worldwide oil and gas exploration and production
expenditures have increased 14% annually. As a result, the Company believes that
the demand for products and services from the production equipment and service
industry attributable to new field discoveries will increase in the near future.
Changing production profiles in existing fields also increase the demand
for products and services in the production equipment and services industry. As
existing fields are reworked or enhanced recovery methods are employed,
additional and more complex equipment may be required to produce oil and gas
from such fields. This can result from a change in the mix of oil and gas
produced in the field or an increase in contaminants such as water or carbon
dioxide that may occur naturally over time or as a result of enhanced recovery
techniques, such as waterflooding or carbon dioxide injection, that may be
implemented to accelerate production or extend a field's productive life. In
addition, many new oil and gas fields contain lower quality hydrocarbon streams
that require more complex production equipment. Examples include carbon dioxide
rich formations in West Texas and Southeast Asia and heavy crude in Western
Canada and in the Orinoco Delta in Venezuela. The Company believes that these
factors will result in increased demand for surface production equipment,
systems and services.
4
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STRATEGY
The Company has achieved a 25% compounded annual growth rate in Adjusted
EBITDA over the four fiscal years ended March 31, 1997, principally as a result
of increasing its market penetration of the production equipment and services
industry. The Company's strategy for increasing EBITDA and earnings per share in
the future is to expand its existing market position and improve productivity
through:
Focusing on Customer Alliances. Exploration and production companies have
reduced production costs and delivery times for oilfield equipment by
establishing alliances with leading oilfield equipment and service suppliers
that can provide a broad range of products and services on a cost effective and
timely basis. The Company has generated substantial revenue growth and expanded
its market position, principally as a result of alliances established with
subsidiaries of major oil companies and large independent producers such as
Amoco Production Company, BP Exploration (Alaska), Inc., Chevron Canada
Resources, Mobil Oil Canada, Sonat Exploration Company and Union Pacific
Resources Group Inc. The Company is actively engaged in discussions with other
potential alliance customers. The Company believes its breadth of products and
services, geographic scope, technological expertise and service orientation
provide it with a competitive advantage in establishing such alliances.
Providing Turnkey Integrated Systems and Solutions. The Company believes
its turnkey, single source design and manufacturing capabilities enable it to
reduce its customers' production equipment and systems costs and shorten
delivery times. In certain applications, such as skid-mounted gas conditioning
packages for offshore applications, the Company intends to increase the degree
of standardization to reduce engineering costs and shorten delivery times.
Introducing New Technologies and Products. Since its formation, the Company
has developed leading technologies for the surface production equipment industry
to address the market demand for increasingly sophisticated production
equipment. For example, the Company developed the first high capacity oil and
gas separator and the first emulsion treating system in the industry, and its
electrostatic oil treating technology is the most advanced in the industry. In
addition, the Company developed the industry standard separation technology on
floating production vessels. Further, the Company has recently developed the
Electro-Pulse Inductive Coalescer (EPIC(TM)), a commercial application of
electrostatic technology that can extend production in oil streams that have
increasing water content.
Pursuing Complementary Acquisitions. The Company pursues complementary
acquisitions that expand its ability to offer integrated production systems and
leading technologies. The acquisition of Cynara will provide the Company with
bulk carbon dioxide separation technology. Combined with the Company's
experience with lower concentration carbon dioxide removal processes, Cynara's
membrane technology will allow the Company to provide removal solutions for the
entire range of carbon dioxide concentrations. The production equipment industry
is highly fragmented with smaller competitors that have narrow product lines and
geographic scope. The Company believes an industry trend is for customers to
work with vendors, such as the Company, that provide broader product and service
lines and the ability to offer integrated systems. The Company believes that its
size, scope of products and services and, following the Offering, its status as
a public company, provide it with a competitive advantage in making
consolidating acquisitions in the production equipment industry.
Expanding International Presence. The Company has been and intends to
continue expanding its international presence in targeted geographic regions in
which it either has a relationship with a customer or has technology that
provides it with a competitive advantage. Examples include Venezuela and
Kazakhstan, where the Company has existing relationships with customers that are
expanding operations in such regions, and Southeast Asia, where Cynara's
membrane separation technology has applications in carbon dioxide rich fields.
Moreover, the Company is frequently invited to bid on international production
equipment and service projects because of its international reputation and its
large installed base of production equipment. Finally, the Company intends to
continue to expand its international presence through the acquisition of
companies with complementary overseas operations.
5
<PAGE> 7
Improving Productivity. The Company believes unrealized efficiencies remain
in its operations and intends to increase profitability through implementation
of a strategic business planning process across the Company and total quality
management ("TQM") principles in its United States operations. The Company
implemented TQM principles in its Canadian operations beginning in 1993 and
believes that it is in part responsible for improvements in results of Canadian
operations over the past four years. The Company believes that significant
opportunities for process and productivity improvements across the Company will
be identified and implemented as a result of these efforts.
RECENT ACQUISITIONS
TEST. In June 1997, the Company acquired TEST, a leading provider of I&E
control systems and services, from Weatherford Enterra, Inc. for $19.4 million
in cash. The acquisition of TEST broadened the Company's product line and
increased the Company's ability to provide fully integrated engineered systems.
For the year ended December 31, 1997, TEST had revenues and EBITDA of $45.3
million and $4.0 million, respectively.
Cynara. In March 1998, the Company entered into a definitive agreement to
acquire Cynara (the "Cynara Acquisition"), a leader in the design, construction,
installation, operation and servicing of membrane separation systems that remove
carbon dioxide from gas streams. The Cynara Acquisition will expand the
Company's ability to offer integrated systems and services and will complement
its gas conditioning product line. Aggregate consideration for the Cynara
Acquisition will consist of $7.5 million in cash, 906,667 shares of Common
Stock, the repayment of $8.8 million of Cynara debt and an additional 20.1
shares of Common Stock for each $1,000 of gross margin generated by projects in
Southeast Asia that are awarded to Cynara over the next two years, up to a
maximum of 906,667 additional shares. For the year ended December 31, 1997,
Cynara's revenues and EBITDA were $18.6 million and $4.4 million, respectively.
Proceeds from the Offering will be used, in part, to fund the cash portion of
the purchase price. The closing of the Cynara Acquisition is contingent upon the
contemporaneous closing of the Offering.
National Tank Company was founded in 1926 in Tulsa, Oklahoma. The Company
was incorporated in Delaware in 1988 and acquired National Tank Company in 1989.
National Tank Company is the Company's principal operating subsidiary. The
Company's address at its principal executive offices is Brookhollow Central III,
2950 North Loop West, Suite 750, Houston, Texas 77092, and its telephone number
is (713) 683-9292.
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THE OFFERING
The shares of Common Stock offered hereby are being offered by the Company
and the Selling Stockholder.
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Common Stock offered:
By the Company.............................. shares
By the Selling Stockholder.................. shares
Total............................... shares
Common Stock to be outstanding after the
Offering and the Cynara Acquisition(1)(2)... shares
Use of Proceeds............................... The net proceeds to the Company from the Offering
will be used to (i) pay the cash portion of the
consideration for the Cynara Acquisition, (ii) repay
outstanding indebtedness under the Company's Bank
Credit Facilities (as defined herein) and under the
Cynara Credit Facility (as defined herein), (iii) pay
deferred compensation owed by the Company to certain
TEST employees and incentive compensation owed under
an existing arrangement with the Chairman and Chief
Executive Officer of the Company tied to the
successful completion of the Offering and (iv) for
general working capital. See "Use of Proceeds."
Proposed New York Stock Exchange ("NYSE")
symbol...................................... NTG
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(1) Includes an aggregate of 1,479,258 shares of Common Stock to be issued
immediately prior to the commencement of the Offering to Capricorn I
(1,010,333 shares) and Capricorn II (468,925 shares) pursuant to the
Securities Exchange Agreement with the Company described under "Certain
Transactions -- Securities Transactions."
(2) Does not include: (i) 1,755,115 shares of Common Stock reserved for
issuance upon exercise of stock options outstanding under the Company's
stock option plans and certain option agreements with Management (see
"Management -- Executive Compensation"); (ii) any additional shares of
Common Stock, up to a maximum of 906,667 shares, which may be paid in the
Cynara Acquisition under certain circumstances (see "The Cynara
Acquisition"); (iii) approximately 120,000 shares of Common Stock which the
Company will issue to participants in certain of the Company's employee
benefit plans within 90 days of the Offering (see "Risk
Factors -- Potential Effect of Shares Eligible for Future Sale on Price of
Common Stock") or (iv) 173,050 shares of Common Stock that the Company has
an option to repurchase as described under "Certain
Transactions -- Miscellaneous" (which would reduce the shares of Common
Stock outstanding).
RISK FACTORS
Prospective investors should consider the factors discussed in detail
elsewhere in this Prospectus under the caption "Risk Factors."
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SUMMARY FINANCIAL INFORMATION
The following summary consolidated financial information should be read in
conjunction with the consolidated financial statements and notes thereto of the
Company, the financial statements and notes thereto of Cynara and TEST,
"Selected Consolidated Financial Data," "Unaudited Condensed Pro Forma Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The unaudited
summary pro forma balance sheet data gives effect to the Cynara Acquisition and
the consummation of the Offering as if each of such events had occurred on
December 31, 1997. The unaudited summary pro forma income statement data for the
fiscal year ended March 31, 1997 and the nine months ended December 31, 1997
give effect to the acquisitions of TEST and Cynara and the consummation of the
Offering as if each of such events had occurred on April 1, 1996. Such pro forma
data are presented for illustrative purposes only and do not purport to
represent the Company's actual results if such events had occurred at the dates
indicated, nor do such data purport to project the results of operations for any
future period or as of any future period. The selected historical financial data
for the nine months ended December 31, 1996 and 1997 have been derived from the
unaudited consolidated financial statements of the Company, which include all
adjustments, consisting of normal recurring adjustments, that the Company
considers necessary for a fair presentation of its financial position and
results of operations for these periods. Operating results for the nine months
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for the entire fiscal year.
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NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997 1996 1997 (1) 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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INCOME STATEMENT DATA (2):
Revenues............................ $109,909 $112,724 $126,657 $185,311 $91,375 $146,653 $174,568
Cost of goods sold.................. 88,229 91,258 99,984 145,937 71,070 116,153 134,783
-------- -------- -------- -------- ------- -------- --------
Gross profit........................ 21,680 21,466 26,673 39,374 20,305 30,500 39,785
Selling, general and administrative
expense........................... 22,483 21,754 22,051 29,059 16,230 21,302 25,662
Restructuring charges(3)............ 984 776 21 21 182 282 282
Depreciation and amortization
expense........................... 903 731 862 2,597 573 909 2,387
Interest expense.................... 3,358 2,422 1,861 247 1,422 2,180 220
Interest cost on postretirement
benefit liability(4).............. 1,064 932 957 957 676 786 786
Revaluation (gain) loss on
postretirement benefit
liability(4)...................... (4,781) 2,273 1,466 1,466 -- -- --
Interest income..................... (1,692) (336) (116) (120) (89) (96) (188)
Gain on sale of investment(5)....... (10,124) (6,320) -- -- -- -- --
-------- -------- -------- -------- ------- -------- --------
Income (loss) from continuing
operations before income taxes.... 9,485 (766) (429) 5,147 1,311 5,137 10,636
Income tax provision (benefit)...... 4,495 (430) 59 2,577 551 718 3,082
-------- -------- -------- -------- ------- -------- --------
Income (loss) from continuing
operations........................ $ 4,990 $ (336) $ (488) $ 2,570 $ 760 $ 4,419 $ 7,554
======== ======== ======== ======== ======= ======== ========
Basic earnings per share from
continuing operations............. $ 0.77 $ (0.06) $ (0.08) $ $ 0.13 $ 0.59 $
Diluted earnings per share from
continuing operations............. $ 0.77 $ (0.05) $ (0.08) $ $ 0.12 $ 0.56 $
Basic earnings per share............ 0.82 0.08 0.90 0.22 0.70
Diluted earnings per share.......... 0.82 0.08 0.85 0.21 0.66
Basic weighted average number of
shares of common stock............ 6,502 6,056 6,032 6,032 7,451
Diluted weighted average number of
shares of common stock............ 6,502 6,243 6,371 6,371 7,895
OTHER DATA:
EBITDA(6)........................... $ 12,054 $ 2,051 $ 2,178 $ 7,871 $ 3,217 $ 8,130 $ 13,055
Adjusted EBITDA(7).................. 5,298 7,240 9,453 11,290 8,104 11,775 15,887
</TABLE>
(footnotes on following page)
8
<PAGE> 10
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------
----------------------------- PRO FORMA
1995 1996 1997 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................... $ 4,415 $ 3,935 $13,487 $27,438 $ 33,953
Net property, plant and equipment.................... 6,506 6,660 6,833 9,133 17,931
Total assets......................................... 68,061 58,520 71,279 96,743 128,689
Long-term debt(8).................................... 25,649 23,245 27,566 36,514 4,909
Stockholders' equity (deficit)....................... (4,073) (8,033) (5,801) 5,470 65,499
</TABLE>
- ------------------------------------
(1) Includes the results of operations of TEST from June 30, 1997, the date on
which the Company acquired TEST.
(2) In June 1997, the Company's investment in PTH (as defined herein) was
distributed to its shareholders in a tax free transaction. In accordance
with generally accepted accounting principles, the results of operations of
PTH are accounted for as discontinued operations for all periods presented.
Accordingly, the net income of PTH is excluded from income (loss) from
continuing operations in the Company's income statements for the periods
presented. The results of operations of PTH are presented as income from
discontinued operations and gain on disposal of the PTH division in the
Company's income statements for the periods presented. In addition, the net
assets of PTH are included as a separate line item in the Company's balance
sheets for the periods presented.
(3) The Company recorded charges of (i) $984,000 in fiscal 1995 consisting of
relocation, severance benefits and recruiting costs related to the
relocation of engineering and administrative personnel to corporate
headquarters, (ii) $776,000 in fiscal 1996 of which $500,000 related to the
closing of the Company's Singapore operations and $276,000 related to
recruiting and employee relocation expenses and (iii) $282,000 in the nine
months ended December 31, 1997 related to the closing of the Company's
United Kingdom operations.
(4) Pursuant to agreements relating to the acquisition of National Tank Company
by the Company in 1989 from Combustion Engineering, Inc., the Company is
required to provide certain health care and life insurance benefits to
employees of National Tank Company who retired prior to June 21, 1989. These
agreements provide that the Company's annual cash costs of these benefits
are reimbursed by the seller through June 21, 1999 to the extent that they
exceed on an annual basis the lesser of one-third of the cash costs in that
year or $755,000 (as adjusted for inflation). For the fiscal years ended
March 31, 1996 and 1997, the Company's aggregate cash costs of these
benefits were $1,632,000 and $1,659,000, respectively, of which $1,148,000
and $1,149,000, respectively, were reimbursed. Based on preliminary
estimates, management believes that any loss from revaluation of
postretirement liability for the nine months ended December 31, 1997 will
not be significant. Commencing June 22, 1999, the Company will no longer be
reimbursed for any portion of these cash costs. The Company currently plans
to fund the cash requirements related to these retired employee benefits on
a current basis.
In 1989, the Company recorded as an expense the estimated liability,
discounted to present value, of the unreimbursable cost of these benefits.
This liability is evaluated annually by an actuarial firm for changes in
plan experience factors, health care cost trends and long-term interest
rates. The Company has elected to recognize gains and losses from such
evaluations immediately and reports them separately in its consolidated
statements of operations as gain or loss on revaluation of postretirement
employee liability. See "Risk Factors -- Uncertainty of Postretirement
Benefit Obligations" for further information regarding these obligations.
(5) In fiscal 1995, the Company sold a portion of its interest in American
Premier Holdings, Inc. ("APH") for a gain of $10,124,000. In fiscal 1996,
the Company completed the sale of its remaining interest in APH for a gain
of $6,320,000. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- History of the Company."
(6) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
consists of income (loss) from continuing operations plus (i) interest
expense, less interest income, (ii) income tax expense and (iii)
depreciation and amortization. The Company believes that EBITDA is a
meaningful measure of its operating performance; however, EBITDA is not a
measurement presented in accordance with generally accepted accounting
principles and should not be considered in isolation from or as a substitute
for net income or cash flow measures prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. In addition, EBITDA may not be comparable to similarly titled
measures reported by other companies.
(7) Adjusted EBITDA consists of EBITDA plus (i) restructuring expense, (ii)
interest cost on postretirement liability, (iii) revaluation loss on
postretirement liability and (iv) EBITDA of TEST as if such entity had been
included in the consolidated results of the Company over the entire period,
less (i) EBITDA from the operations of terminated subsidiaries (NATCO-UK,
NATCO-Singapore and NANA TEST, each as defined herein), (ii) revaluation
gain on postretirement liability and (iii) gain on investment. The Company
believes that Adjusted EBITDA is a meaningful measure of its continuing
operating performance; however, Adjusted EBITDA is not a measurement
presented in accordance with generally accepted accounting principles and
should not be considered in isolation from or as a substitute for net income
or cash flow measures prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. In addition, Adjusted EBITDA is not comparable to similarly
titled measures reported by other companies.
(8) Includes current portion of long-term debt and revolving lines of credit.
9
<PAGE> 11
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
INDUSTRY CONDITIONS
The Company's business is substantially dependent upon the condition of the
oil and gas industry and the industry's willingness to spend capital on the
production of oil and gas. The level of such capital expenditures is generally
dependent upon the prevailing view of future oil and gas prices, which are
affected by numerous factors affecting the supply and demand for oil and gas,
including the level of exploration activity, worldwide economic activity,
interest rates and the cost of capital, environmental regulation, tax policies,
political requirements of national governments, coordination by the Organization
of Petroleum Exporting Countries ("OPEC"), the cost of producing oil and gas and
technological advances. Oil and gas prices and activity have been characterized
by significant volatility in recent years. Accompanying this volatility have
been numerous changes in oil and gas company strategies and expenditure levels
and patterns. To the extent that oil and gas prices decline or remain at low
levels for an extended period of time, producers may react by reducing
expenditures, which would likely adversely affect the Company's results of
operations and could adversely affect its financial condition. No assurance can
be given as to the future price levels of oil and gas or the volatility thereof
or that the future price of oil and gas will be sufficient to support the level
of production-related activities necessary for the Company to grow or maintain
its business.
CONTRACT BIDDING RISKS
A substantial number of the Company's projects, including a number of
larger engineered systems projects, are performed on a fixed-price basis. The
Company is responsible for all cost overruns, excluding change orders. The costs
and gross profit, if any, realized on a fixed-price contract will often vary
from the estimated amounts on which such contracts were originally based because
of various reasons, including errors in estimates or bidding, changes in the
availability and cost of labor and material and variations in productivity from
the original estimates. These variations and the risks inherent in engineered
systems projects may result in reduced profitability or losses on projects.
Depending on the size of a project, variations from estimated contract
performance can have a significant impact on the Company's operating results for
any particular fiscal quarter or year.
NEED FOR SKILLED LABOR
The Company's ability to remain profitable depends in part on its ability
to attract and retain skilled manufacturing workers, equipment operators,
engineers and other technical personnel. The Company's ability to expand its
operations, particularly in the Gulf Coast areas, depends primarily on its
ability to increase its labor force. The demand for such workers is currently
high and the supply is extremely limited. While the Company believes that its
wage rates are competitive and that its relationship with its skilled labor
force is good, a significant increase in the wages paid by competing employers
could result in a reduction in the Company's skilled labor force, increases in
the wage rates paid by the Company, or both. If either of these events occurred,
in the near-term, the profits realized by the Company would be reduced and, in
the long-term, the production capacity and profitability of the Company could be
diminished and its growth potential impaired.
UNCERTAINTY OF POSTRETIREMENT BENEFIT OBLIGATIONS
Pursuant to agreements relating to the acquisition of National Tank Company
by the Company in 1989 from Combustion Engineering, Inc., the Company is
required to provide certain health care and life insurance benefits to employees
of National Tank Company who retired prior to June 21, 1989. These agreements
provide that the Company's annual cash costs of these benefits are reimbursed by
the seller through June 21, 1999 to the extent that they exceed on an annual
basis the lesser of one-third of the cash costs in that year or
10
<PAGE> 12
$755,000 (as adjusted for inflation). For the fiscal years ended March 31, 1996
and 1997, the Company's aggregate cash costs of these benefits were $1.6 million
and $1.7 million, respectively, of which $1.1 million and $1.1 million,
respectively, were reimbursed. Commencing June 22, 1999, the Company will no
longer be reimbursed for any portion of these cash costs. At December 31, 1997,
there were 527 retirees and surviving spouses and 337 dependents covered by
postretirement benefits obligations. No additional retirees were covered after
June 21, 1989. The benefits provided for retirees and surviving spouses over the
age of 65 are secondary to Medicare.
In order to account for this liability, the Company in 1989 recorded as an
expense the estimated liability, discounted to present value, of the
unreimbursable cost of these benefits. This liability is evaluated annually by
an actuarial firm for changes in plan experience factors, health care cost
trends and long term interest rates. The Company has elected to recognize gains
and losses from such evaluations immediately and reports them separately in its
consolidated statements of operations as gain or loss on revaluation of
postretirement employee liability. The Company reported a gain of $4.8 million
for fiscal 1995 and losses of $2.3 million and $1.5 million for fiscal 1996 and
1997, respectively.
Although the Company believes that the actuarial assumptions used in
adjusting the liability are reasonable, there can be no assurance that the costs
of the actual benefits will not exceed those projected or that future actuarial
assessments of the extent of those costs will not exceed the current assessment.
Under such circumstances, the adjustments required to be made to the Company's
recorded liability for such benefits could have a material adverse effect on the
Company's results of operations and financial condition.
CUSTOMER ALLIANCES
The Company has entered into alliances with major and large independent oil
producers and intends to enter into additional alliances as part of its strategy
to increase market penetration. The Company's alliance arrangements include
blanket purchase orders for specified amounts of standardized equipment,
project-specific integrated alliances and ongoing informal working
relationships. As is common in the oil and gas production industry, many of
these alliances are not formal contracts but represent informal arrangements in
which both parties undertake to satisfy the objectives of the alliance. Under
these alliances, the Company is typically designated as the preferred supplier
of equipment and/or services. See "Business -- Customers and Alliances." Neither
the Company nor the customer may be legally required to honor any commitments
made under an alliance. There can be no assurance that the Company's alliances
will be honored or maintained by the Company's customers in the future. The loss
of one or more of such alliances could have a material adverse effect on the
Company's business, results of operations and financial condition.
INTERNATIONAL OPERATIONS
The Company operates its business and markets its products and services in
oil and gas producing areas throughout the world and is, therefore, subject to
the risks customarily attendant to international operations and investments in
foreign countries. These risks include nationalization, expropriation, war and
civil disturbance, restrictive action by local governments, limitation on
repatriation of earnings, change in foreign tax laws and change in currency
exchange rates, any of which could have an adverse effect on the demand in
certain regions for the Company's products. To date, the Company has not
experienced any significant problems in foreign countries arising from local
government actions or political instability, but there can be no assurance that
such problems will not arise in the future. Interruption of the Company's
international operations could have a material adverse effect on its results of
operations and financial condition.
The Company may, from time to time, conduct a portion of its business in
currencies other than the United States dollar, thus subjecting the Company's
results to fluctuations in foreign currency exchange rates. There can be no
assurance that the Company will be able to protect itself against such
fluctuations in the future.
The Company conducts business, or may conduct business in the future, in
countries that have limited, or may in the future limit, repatriation of
earnings. Although the Company historically has not been adversely affected by
limitations on repatriation of earnings, there can be no assurance that the
countries in which the
11
<PAGE> 13
Company operates or may operate in the future will not adopt policies limiting
repatriation of earnings that could constitute in effect a conversion of the
earnings from such operations into an investment in such operations, prevent the
repatriation of cash and thereby have a material adverse effect on the Company's
liquidity. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
A portion of the Company's sales are made in Southeast Asia. The currencies
of several countries in Southeast Asia have undergone significant devaluations
against the United States dollar in 1997 and early 1998. The devaluation of such
currencies and the related consequences to the economies in such countries have
adversely affected economic growth in the region. To the extent the economies of
countries in Southeast Asia continue to be adversely affected, there can be no
assurance that the demand for the Company's products and services in such region
will continue at historical or anticipated levels.
AVAILABILITY AND INTEGRATION OF ACQUISITIONS
As part of its strategy, the Company has pursued, and intends to pursue in
the future, the acquisition of other companies, assets and product lines that
complement or expand its existing business. Each such acquisition involves a
number of potential risks, such as the diversion of management's attention to
the assimilation of the operations and personnel of the acquired businesses and
possible short-term adverse effects on the Company's operating results during
the integration process.
By virtue of this strategy, the Company routinely conducts preliminary
discussions with numerous companies concerning possible acquisitions. The
Company is unable to predict whether or when any prospective candidate will
become available or the likelihood of a material acquisition being completed.
The Company may seek to finance any such acquisition through borrowings under
credit facilities or the issuance of new debt or equity securities. If the
Company proceeds with an acquisition, and if such acquisition is relatively
large and consideration is in the form of cash, a substantial portion of the
Company's financial resources could be used to consummate any such acquisition.
CONCENTRATION OF SALES TO SINGLE CUSTOMER
For the nine months ended December 31, 1997, approximately 11% of the
Company's revenues were attributable to sales to BP Exploration (Alaska), Inc.
There may be periods where a substantial portion of the Company's revenues are
derived from a single or small group of customers. A prolonged failure of any
such customer or group of customers to fulfill contractual obligations to the
Company or a termination of any such projects could materially adversely affect
the Company's results of operations and financial condition.
POTENTIAL PRODUCT LIABILITY CLAIMS
Certain products of the Company are used in potentially hazardous
production applications that can cause personal injury or loss of life, damage
to property, equipment or the environment and suspension of operations. The
Company maintains insurance coverage in such amounts and against such risks as
it believes to be in accordance with normal industry practice. Such insurance
does not, however, provide coverage for all liabilities (including liabilities
for certain events involving pollution) or for business interruption, and there
can be no assurance that such insurance will be adequate to cover all losses or
liabilities that may be incurred by the Company in its operations. Moreover, no
assurance can be given that the Company will, in the future, be able to maintain
insurance at levels it deems adequate and at rates it considers reasonable or
that any particular types of coverage will be available. Litigation arising from
a catastrophic occurrence at a location where the Company's equipment and
services are used may in the future result in the Company being named as a
defendant in product liability or other lawsuits asserting potentially large
claims. If the Company were to incur substantial liability and such damages were
not covered by insurance or were in excess of policy limits or if the Company
were to incur such liability at a time when it is not able to obtain liability
insurance, its business, results of operations and financial condition could be
materially adversely affected.
12
<PAGE> 14
POTENTIAL WARRANTY CLAIMS
The Company typically provides warranties as to the proper operation and
conformance to specifications of the equipment it manufactures. Failure of such
equipment to operate properly or meet specifications may result in increased
costs for additional engineering resources, parts and equipment replacement or
service or monetary reimbursement to a customer. The Company's warranties are
often backed by letters of credit, of which the Company had approximately $5.3
million (on a pro forma basis giving effect to the Cynara Acquisition)
outstanding as of December 31, 1997. The Company has historically received and
expects to continue to receive warranty claims. The Company allocates a certain
portion of annual sales revenue in a warranty reserve against such claims. To
the extent that the Company incurs several large warranty claims against
equipment delivered to customers in any period, results of operations and
financial condition could be materially adversely affected.
ENVIRONMENTAL LIABILITY RISKS
The Company generates or manages hazardous wastes, such as solvents,
thinner, waste paint, waste oil, washdown wastes and sandblast material as a
result of its fabrication and refurbishing operations. Although the Company
attempts to identify and address contamination before acquiring properties and
to utilize industry accepted operating and disposal practices, hydrocarbons or
wastes may have been disposed of or released on or under properties owned,
leased or operated by the Company or on or under other locations where such
hydrocarbons or wastes have been taken for disposal. These properties and the
wastes generated as a result of the Company's operations may be subject to
federal or state environmental laws and regulations that could require the
Company to remove the wastes or remediate sites where they have been released as
well as impose civil and criminal penalties for violations. The Company and
approximately 37 other parties, some of which are major oil companies, have
received notice from the California Department of Toxic Substances Control (the
"DTSC") that each is currently considered a potentially responsible party
("PRP") in connection with the Eastside Landfill Facility, located near
Bakersfield, California. It is alleged that the Company or its predecessors
generated waste that was transported to the Eastside Landfill Facility. The DTSC
has indicated that it intends to remediate the site and has established an
initial site cleanup estimate of up to $5.0 million. See
"Business -- Governmental Regulation and Environmental Matters."
Various state and federal agencies from time to time consider adopting new
laws and regulations or amending existing laws and regulations regarding
environmental protection. While the Company may attempt to pass on to its
customers the additional costs of complying with such laws and regulations,
there can be no assurances that attempts to do so will be successful.
Accordingly, new laws or regulations or amendments to existing laws or
regulations could require the Company to undertake significant capital
expenditures and could otherwise have a material adverse effect on the Company's
results of operations and financial condition.
IMPACT OF GOVERNMENTAL REGULATIONS
Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulation, including those relating to oilfield operations, worker safety and
the protection of the environment. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, is
affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry generally. The adoption of laws and
regulations curtailing exploration for or production of oil and gas for economic
or other policy reasons could adversely affect the Company's operations. The
Company cannot determine the extent to which its future operations and earnings
may be affected by new legislation, new regulations or changes in existing
regulations. See "Business -- Governmental Regulation and Environmental
Matters."
FLUCTUATIONS IN QUARTERLY SALES AND EARNINGS
A substantial amount of the Company's revenues are derived from significant
contracts which are often performed over a period of two to four quarters. As a
result, revenues and earnings may fluctuate significantly
13
<PAGE> 15
from quarter to quarter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
BACKLOG
The Company's backlog is based on the price of awarded projects or, in the
case of certain awarded cost-plus projects, the estimated price, adjusted by
management's estimate of the percentage of the project that has been completed.
Awarded projects include those projects on which a customer has authorized the
Company to begin work or purchase materials pursuant to written contracts,
letters of intent or other forms of authorization. All projects currently
included in the Company's backlog are subject to change or termination at the
option of the customer, either of which could substantially change the amount of
backlog currently reported. In the case of a termination, the customer is
generally required to pay the Company for work performed and materials purchased
through the date of termination, and in some cases, pay the Company termination
fees; however, due to the large dollar amounts of backlog estimated for each of
a small number of projects, amounts included in the Company's backlog could
decrease substantially if one or more of these projects were to be terminated by
the Company's customers.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends heavily on the continued services of its
senior management, who possess bidding, procurement, transportation, logistics,
planning, project management, risk management and financial skills. The loss or
interruption of services provided by one or more of its senior officers could
adversely affect the Company's results of operations and financial condition.
Furthermore, there can be no assurance that the Company will continue to attract
and retain sufficient qualified personnel. The Company does not and does not
intend to maintain key man life insurance. See "Management."
COMPETITION
Production equipment companies servicing the oil and gas industry compete
intensely for available projects. Contracts for the Company's products and
services are generally awarded on a competitive basis. Customers may consider,
among other things, the availability and capabilities of equipment, the
contractor's reputation, experience and safety record. Price and ability to meet
a customer's delivery schedule are the principal factors in determining which
qualified contractor is awarded the job. Historically, the market for oilfield
services and equipment has experienced overcapacity which has resulted in
increased price competition in many areas of the Company's business. The Company
competes with a large number of companies, some of which may offer different
technologies or possess greater financial and other resources than the Company.
In addition, because of subsidies, import duties and fees, taxes imposed on
foreign operators and lower wage rates in foreign countries along with
fluctuations in the value of the United States dollar and other factors, the
Company may not be able to remain competitive with foreign contractors for
projects designed for use in international locations. See
"Business -- Competition."
CERTAIN TAX MATTERS
In June 1997, the Company, in connection with a financing effected to
provide funds for the acquisition of TEST and other corporate purposes (the
"1997 Financing"), distributed all of the outstanding stock of PTH then owned by
the Company to its then sole stockholder, Capricorn I (the "Distribution"). In
connection with the Distribution, the Company received an opinion of counsel to
the effect that the Distribution would be tax-free to both the Company and
Capricorn I. Tax-free treatment of the Distribution depends, in part, upon the
underlying facts and circumstances at the time of the Distribution. There can be
no assurance that the Internal Revenue Service will agree with the Company's and
its counsel's interpretation of such facts and circumstances. If the Internal
Revenue Service were to challenge the tax-free treatment of the Distribution and
such challenge were ultimately to prevail, the Company would be treated as
recognizing a gain with respect to the Distribution in an amount equal to the
excess of the fair market value of the PTH stock at the time of the Distribution
over its tax basis to the Company. Such treatment could have a material adverse
effect on the
14
<PAGE> 16
Company's results of operations and financial condition. See the notes to the
Company's consolidated financial statements.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS AND CERTAIN ANTI-TAKEOVER
PROVISIONS
As of December 31, 1997, 68.3% of the Company's outstanding Common Stock
was owned by Capricorn Investors, L.P., a Delaware limited partnership
("Capricorn I"), and the balance (31.7%) was owned by Capricorn Investors II,
L.P., a Delaware limited partnership ("Capricorn II"). See "Principal and
Selling Stockholders." Immediately following the sale of the Common Stock
offered hereby (including the sale of the Common Stock included in the Offering
by the Selling Stockholder) and the consummation of the Cynara Acquisition,
Capricorn I and Capricorn II will own approximately and ,
respectively, of the Common Stock of the Company ( and , respectively,
if the Underwriters' over-allotment option is exercised in full). As a result,
Mr. Winokur, who controls the managing general partner of Capricorn Holdings,
L.P. and is the managing member of Capricorn Holdings, LLC, which are the sole
general partners of Capricorn I and Capricorn II, respectively, will have
sufficient voting power to control the direction and policies of the Company and
the outcome of any matter requiring stockholder approval, including mergers,
consolidations, the sale of all or substantially all of the assets of the
Company and the election of directors, and to prevent a change in control of the
Company except on terms acceptable to Capricorn I and Capricorn II. Further, for
so long as Capricorn I or Capricorn II individually or in combination own at
least 20% of the Common Stock of the Company, the general partners of Capricorn
I and Capricorn II have the right to nominate two of the Company's directors.
The Company's certificate of incorporation and bylaws, each as amended,
contain various provisions, including certain notice provisions and provisions
authorizing the Company to issue preferred stock, that may make it more
difficult for a third party to acquire, or may discourage acquisition bids for,
control of the Company and could limit the price that certain investors might be
willing to pay in the future for shares of Common Stock. After the Offering, the
ownership by Capricorn I and Capricorn II, together with the beneficial
ownership of Common Stock by the Company's officers, directors and their
affiliates, of a substantial number of shares of Common Stock could also
discourage such bids.
In addition, the rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of any holders of preferred stock
which may be issued in the future and that may be senior to the rights of the
holders of Common Stock. See "Description of Capital Stock."
The Board of Directors of the Company has adopted a stockholders' rights
plan pursuant to which preferred stock purchase rights (the "Rights") have been
issued as a dividend on the outstanding Common Stock and will be issued in
conjunction with future issuances of Common Stock by the Company, including the
shares issued by the Company in the Offering. The Rights will become exercisable
upon the occurrence of certain events. See "Description of Capital
Stock -- Rights to Purchase Preferred Stock." The Rights have certain
anti-takeover effects. The Rights will cause substantial dilution to a person or
group that attempts to acquire the Company without the approval of the Board of
Directors of the Company. Furthermore, certain provisions of Delaware law could
delay or make difficult a merger, tender offer or proxy contest involving the
Company. Neither the Rights nor such provisions of Delaware law should, however,
interfere with any merger or other business combination that is approved by the
Board of Directors of the Company.
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock. While the Company intends to make application to list the Common Stock on
the NYSE, there can be no assurance that an active trading market for the Common
Stock will develop subsequent to the Offering or, if developed, that it will be
sustained.
The initial public offering price of the Common Stock will be determined
through negotiations between the Company and the Selling Stockholder on one hand
and the representatives of the Underwriters on the other and may bear no
relationship to the price at which the Common Stock will trade after the
Offering. For information relating to the factors to be considered in
determining the initial public offering price, see
15
<PAGE> 17
"Underwriting." Prices for the Common Stock after the Offering may be influenced
by a number of factors, including the liquidity of the market for the Common
Stock, investor perceptions of the Company and the energy services industry and
general economic and other conditions.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Sales of substantial amounts of Common Stock in the public market
subsequent to the Offering, or the perception that such sales may occur, could
adversely affect the market price of the Common Stock. Upon consummation of the
Offering, the Company will have shares of Common Stock outstanding
( shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 906,667 shares received by the stockholders of
Cynara and the shares of Common Stock outstanding prior to the
Offering will be "restricted securities" within the meaning of Rule 144 under
the Securities Act and will be eligible for resale subject to the volume, manner
of sale, holding period and other limitations of Rule 144 (although the holding
period restrictions under that Rule have lapsed with respect to a substantial
portion of the holdings of Common Stock by Capricorn I). Capricorn I, Capricorn
II and, upon consummation of the Cynara Acquisition, the stockholders of Cynara
will have registration rights with respect to their holdings of Common Stock.
See "Certain Transactions -- Securities Transactions." In addition, options to
purchase 1,279,778 shares of Common Stock will be exercisable upon consummation
of the Offering. In addition, the Company intends to contribute approximately
120,000 newly issued shares of Common Stock into certain of the Company's
employee benefit plans within 90 days of the Offering. The Company, the
executive officers and directors of the Company, certain other stockholders and
the Selling Stockholder have agreed not to sell any shares of Common Stock for a
period of 180 days from the date of this Prospectus without the consent of
Donaldson, Lufkin & Jenrette Securities Corporation. See "Shares Eligible for
Future Sale" and "Underwriting."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their Common Stock of
$ (assuming an initial public offering price of $ per share).
To the extent outstanding options and warrants to purchase the Company's Common
Stock are exercised, there may be further dilution. See "Dilution."
FORWARD-LOOKING INFORMATION
All statements other than statements of historical fact contained in this
Prospectus, including statements in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," are
forward-looking statements. Forward-looking statements in this Prospectus
generally are accompanied by words such as "anticipate," "believe," "estimate,"
"project," "expect" or similar statements. Such forward-looking information
involves important known and unknown risks and uncertainties and other factors
that may cause the actual results, performance or achievements of the Company to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations will prove correct.
Factors that could cause the Company's results to differ materially from the
results discussed in such forward-looking statements include the risks described
under "Risk Factors," such as the fluctuations of the prices received or demand
for oil and gas, acquisition risks, requirements for capital, general economic
conditions, the competition from other production equipment providers and the
effects of governmental and environmental regulation. All forward-looking
statements in this Prospectus are expressly qualified in their entirety by the
cautionary statements in this paragraph and potential investors are cautioned
not to place undue reliance on the forward-looking statements made in this
Prospectus.
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (assuming an initial public offering price of $ per
share and after deducting underwriting discounts and estimated offering
expenses) are estimated to be approximately $ million (approximately $
million if the Underwriters' over-allotment option is exercised in full). Of
such net proceeds, (i) $7.5 million will be used to fund the cash portion of the
purchase price of the Cynara Acquisition, (ii) approximately $31.0 million will
be used to repay borrowings by the Company under the U.S. Credit Facility and
the EXIM Credit Facility and by Cynara under the Cynara Credit Facility, (iii)
approximately $2.4 million will be used to pay deferred compensation to certain
TEST employees and incentive compensation owed under an existing arrangement
with the Chairman and Chief Executive Officer of the Company tied to the
successful completion of the Offering and (iv) approximately $ million will
be used for working capital and general corporate purposes. See "The Cynara
Acquisition," "Description of Bank Credit Facilities" and
"Management -- Employment Agreement."
Outstanding borrowings at February 28, 1998 by the Company under the U.S.
Credit Facility and the EXIM Credit Facility were approximately $22.2 million
and $17,000, respectively, and by Cynara under the Cynara Credit Facility were
$8.8 million. The borrowings by the Company under the U.S. Credit Facility were
used to pay the purchase price for TEST and for general working capital and
those under the EXIM Credit Facility were used to finance working capital for
export projects. The borrowings by Cynara under the Cynara Credit Facility were
used by its prior owners to fund the acquisition of Cynara and for general
working capital. For a description of each of these credit facilities, including
the interest rates applicable thereto, see "Description of Bank Credit
Facilities."
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholder in the Offering.
Pending use of the net proceeds of the Offering as described above, the net
proceeds will be invested in short-term money market securities.
DIVIDEND POLICY
The Company intends to retain its earnings for use in its business rather
than to pay cash dividends on the Common Stock in the foreseeable future. In
addition, the Bank Credit Facilities currently restrict the ability of the
subsidiaries of the Company to pay dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of Bank Credit Facilities" and the notes to the
consolidated financial statements of the Company.
17
<PAGE> 19
DILUTION
The historical net tangible book value of the Company as of December 31,
1997 was $ per share of Common Stock. Net tangible book value per share
is determined by dividing the tangible net worth of the Company (tangible assets
less total liabilities) by the total number of outstanding shares of Common
Stock. After giving pro forma effect to the Cynara Acquisition as if it had been
consummated on that date, the pro forma net tangible book value per share as of
December 31, 1997 was $ . After giving effect to (i) the sale of the
Common Stock offered hereby and the receipt of the estimated net proceeds to the
Company and (ii) the pro forma effect of the Cynara Acquisition as aforesaid,
the net tangible book value of the Company at December 31, 1997, would have been
$ per share. This represents an immediate increase in the net tangible
book value of $ per share to existing stockholders (including the
stockholders of Cynara) and an immediate dilution (i.e., the difference between
the initial public offering price and the pro forma net tangible book value
after the Offering) to new investors purchasing Common Stock in the Offering.
The following table illustrates the dilution of $ per share to new
investors purchasing Common Stock in the Offering:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $
Net tangible book value per share at December 31, 1997.... $
Increase per share attributable to the Cynara
Acquisition...........................................
Increase per share attributable to new investors.......
-----
Pro forma net tangible book value per share after the
Offering.................................................. $
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table sets forth, as of December 31, 1997 (after giving pro
forma effect to the Cynara Acquisition), the number of shares of Common Stock
purchased from the Company, the total consideration paid therefor and the
average price per share paid by existing stockholders, the stockholders of
Cynara and by new investors:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 8,145,926 % $26,944,000 % $ 3.31
Cynara stockholders........... 906,667
New investors.................
---------- ----- ----------- -------
Total....................... 100.0% $ 100.0%
========== ===== =========== =======
</TABLE>
The foregoing computations with respect to existing stockholders give
effect to the conversion of approximately $7.9 million of notes payable of the
Company to Capricorn I and Capricorn II that will be exchanged for an aggregate
of 1,479,258 shares of Common Stock prior to consummation of the Offering. See
"Certain Transactions -- Securities Transactions." The foregoing computations
assume that no outstanding individual employee stock options granted prior to
1998 otherwise than pursuant to a plan ("Individual Employee Stock Options") or
outstanding stock options ("Plan Stock Options") granted under the Company's
1998 Director Stock Option Plan and its 1998 Employee Stock Option Plan (the
"Stock Option Plans") are exercised. Individual Employee Stock Options covering
a total of 1,541,781 shares of Common Stock are outstanding at exercise prices
ranging from $1.47 to $5.03. Plan Stock Options covering a total of 213,334
shares of Common Stock have been granted and are outstanding under the Stock
Option Plans, of which 13,334 are exercisable at $8.81 per share, and the
remainder are exercisable at the initial offering price per share. See
"Management -- Stock Option Plans." If the shares of Common Stock currently
subject to outstanding Individual Employee Stock Options and Plan Stock Options
were included in the foregoing calculations, the net tangible book value per
share before the Offering (after giving pro forma effect to the Cynara
Acquisition) would be $ , the pro forma net tangible book value per
share after the Offering (after giving pro forma effect to the exercise of all
such options) would be $ and the dilution per share to new investors
would be $ . In addition, the average price per share paid by existing
stockholders would increase to $ per share.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
December 31, 1997 and (ii) the pro forma capitalization of the Company as of
such date after giving effect to the Cynara Acquisition as if it had been
effected on such date and as adjusted as of that date to reflect the sale of the
shares of Common Stock offered hereby and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements of the Company,
the financial statements of TEST and Cynara and the unaudited pro forma
condensed financial statements of the Company and in each case the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-------------------------
HISTORICAL PRO FORMA
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 1,447 $ 3,302
======= ========
Current portion of long-term debt and revolving credit
facility(1)............................................... $ 7,594 $ 3,285
Long-term debt (excluding current portion)(1)............... 28,920 1,624
Stockholders' equity:
Preferred Stock, par value $0.01 per share, 5,000,000
shares authorized; no shares outstanding............... -- --
Common Stock, par value $0.01 per share, 26,666,667 shares
authorized; 6,666,668 shares outstanding; 50,000,000
shares authorized; shares outstanding, pro
forma(2)............................................... 50 123
Additional paid-in capital................................ 18,962 79,570
Accumulated deficit....................................... (8,024) (8,676)
Treasury stock, 470,188 shares at cost...................... (4,350) (4,350)
Cumulative translation adjustments.......................... (1,168) (1,168)
------- --------
Total stockholders' equity........................ $ 5,470 $ 65,499
------- --------
Total capitalization.............................. $41,984 $ 70,410
======= ========
</TABLE>
- ------------------------------
(1) For a description of the Bank Credit Facilities, see "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Bank
Credit Facilities."
(2) Does not include the 1,541,781 shares of Common Stock reserved for issuance
upon exercise of Individual Employee Stock Options outstanding at December
31, 1997 or the 213,334 shares of Common Stock reserved for issuance upon
exercise of Plan Stock Options granted subsequently. See
"Management -- Stock Option Plans."
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
five fiscal years ended March 31, 1997 have been derived from the audited
consolidated financial statements of the Company. The selected historical
financial data for the nine-month periods ended December 31, 1996 and 1997 have
been derived from the unaudited consolidated financial statements of the
Company, which include all adjustments, consisting of normal recurring
adjustments, that the Company considers necessary for a fair presentation of its
financial position and results of operations for these periods. Operating
results for the nine months ended December 31, 1997 are not necessarily
indicative of the results that may be expected for the entire fiscal year. This
data should be read in conjunction with the consolidated financial statements
and notes thereto of the Company and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The selected financial data for the fiscal years ended and as of
March 31, 1994 and 1993 and the balance sheet data as of March 31, 1995 have
been derived from audited consolidated financial statements of the Company,
which are not included in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1996 1997(1)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (2):
Revenues.................................... $94,272 $89,073 $109,909 $112,724 $126,657 $91,375 $146,653
Cost of goods sold.......................... 74,464 70,269 88,229 91,258 99,984 71,070 116,153
------- ------- -------- -------- -------- ------- --------
Gross profit................................ 19,808 18,804 21,680 21,466 26,673 20,305 30,500
Selling, general and administrative
expense................................... 18,930 18,258 22,483 21,754 22,051 16,230 21,302
Restructuring charges(3).................... 670 913 984 776 21 182 282
Depreciation and amortization expense....... 1,387 1,294 903 731 862 573 909
Interest expense............................ 3,559 3,930 3,358 2,422 1,861 1,422 2,180
Interest cost on postretirement benefit
liability(4).............................. 1,447 1,382 1,064 932 957 676 786
Revaluation (gain) loss on postretirement
benefit liability(4)...................... -- -- (4,781) 2,273 1,466 -- --
Interest income............................. (2,131) (2,126) (1,692) (336) (116) (89) (96)
Loss (gain) on sale of investment(5)........ 985 (6,874) (10,124) (6,320) -- -- --
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing operations
before income taxes....................... (5,039) 2,027 9,485 (766) (429) 1,311 5,137
Income tax provision (benefit).............. 296 1,152 4,495 (430) 59 551 718
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing operations.... (5,335) 875 4,990 (336) (488) 760 4,419
Cumulative effect of change in accounting
for income taxes.......................... -- 13,690 -- -- -- -- --
Cumulative effect of change in accounting
for postretirement benefits, net of
deferred income tax....................... -- 1,171 -- -- -- -- --
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing operations
after the cumulative effect of changes in
accounting principles..................... $(5,335) $15,736 $ 4,990 $ (336) $ (488) $ 760 $ 4,419
======= ======= ======== ======== ======== ======= ========
Basic earnings (loss) per share from
continuing operations..................... $ (0.82) $ 0.13 $ 0.77 $ (0.06) $ (0.08) $ 0.13 $ 0.59
Diluted earnings (loss) per share from
continuing operations..................... (0.82) 0.13 0.77 (0.05) (0.08) 0.12 0.56
Basic earnings (loss) per share............. (1.34) 1.70 0.82 0.08 0.90 0.22 0.70
Diluted earnings (loss) per share........... (1.34) 1.70 0.82 0.08 0.85 0.21 0.66
Basic weighted average number of shares of
common stock.............................. 6,502 6,502 6,502 6,056 6,032 6,032 7,451
Diluted weighted average number of shares of
common stock.............................. 6,502 6,502 6,502 6,243 6,371 6,371 7,895
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1996 1997(1)
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(6)................................... $(2,224) $ 5,125 $ 12,054 $ 2,051 $ 2,178 $ 3,217 $ 8,130
Adjusted EBITDA(7).......................... 3,853 2,601 5,298 7,240 9,453 8,104 11,775
Cash flows used in operating activities..... (3,624) 4,033 (5,160) (5,411) (3,616) (3,520) (4,021)
Cash flows provided by (used in) investing
activities................................ 330 9,303 15,457 9,544 (798) (468) (20,792)
Cash flows provided by (used in) financing
activities................................ 4,107 (11,459) (8,547) (6,676) 3,642 2,435 25,448
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------------------------------ ------------
1993 1994 1995 1996 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $ 8,561 $(1,016) $ 4,415 $ 3,935 $13,487 $27,438
Net property, plant and equipment.................. 3,788 3,721 6,506 6,660 6,833 9,133
Total assets....................................... 65,090 72,361 68,061 58,520 71,279 96,743
Long-term debt(8).................................. 41,685 36,939 25,649 23,245 27,566 36,514
Stockholders' equity (deficit)..................... (20,069) (9,249) (4,073) (8,033) (5,801) 5,470
</TABLE>
- ------------------------------
(1) Includes the results of operations of TEST from June 30, 1997, the date on
which the Company acquired TEST.
(2) In June 1997, the Company's investment in PTH was distributed to its
stockholders in a tax free transaction. In accordance with generally
accepted accounting principles, the results of operations of PTH are
accounted for as discontinued operations for all periods presented.
Accordingly, the net income of PTH is excluded from income (loss) from
continuing operations in the Company's income statements for the periods
presented. The results of operations of PTH are presented as income from
operations of discontinued operations and gain on disposal of PTH division
in the Company's income statements for the periods presented. In addition,
the net assets of PTH are included as a separate line item in the Company's
balance sheets for the periods presented.
(3) The Company has recorded charges of (i) $670,000 in fiscal 1993 for
severance compensation and related benefits associated with employees
terminated in a restructuring of Company operations and management, (ii)
$213,000 in fiscal 1994 for additional severance benefit costs related to
the 1993 restructuring, (iii) $700,000 in fiscal 1994 of which $400,000
related to the planned relocation of certain administrative departments and
$300,000 related to executive recruiting costs, (iv) $984,000 in fiscal 1995
consisting of relocation, severance benefits and recruiting costs related to
the relocation of engineering and administrative personnel to corporate
headquarters, (v) $776,000 in fiscal 1996 of which $500,000 related to the
closing of the Company's Singapore operations and $276,000 related to
recruiting and employee relocation expenses and (vi) $282,000 in the nine
months ended December 31, 1997 related to the closing of the Company's
United Kingdom operations.
(4) Pursuant to agreements relating to the acquisition of National Tank Company
by the Company in 1989 from Combustion Engineering, Inc., the Company is
required to provide certain health care and life insurance benefits to
employees of the Company who retired prior to June 21, 1989. These
agreements provide that the Company's annual cash costs of these benefits
are reimbursed by the seller through June 21, 1999 to the extent that they
exceed on an annual basis the lesser of one-third of the cash costs in that
year or $755,000 (as adjusted for inflation). For the fiscal years ended
March 31, 1996 and 1997, the Company's aggregate cash costs of these
benefits were $1,632,000 and $1,659,000, respectively, of which $1,148,000
and $1,149,000, respectively, were reimbursed. Based on preliminary
estimates, management believes that any loss from revaluation of
postretirement liability for the nine months ended December 31, 1997 will
not be significant. Commencing June 22, 1999, the Company will no longer be
reimbursed for any portion of these cash costs. The Company currently plans
to fund the cash requirements related to these retired employee benefits on
a current basis.
In 1989, the Company recorded as an expense the estimated liability,
discounted to present value, of the unreimbursable cost of these benefits.
This liability is evaluated annually by an actuarial firm for changes in
plan experience factors, health care cost trends and long-term interest
rates. The Company has elected to recognize gains and losses from such
evaluations immediately and reports them separately in its consolidated
statements of operations as gain or loss on revaluation of postretirement
employee liability. See "Risk Factors -- Uncertainty of Postretirement
Benefit Obligations" for further information regarding these obligations.
(5) In fiscal 1995, the Company sold a portion of its interest in APH for a gain
of $10,124,000. In fiscal 1996, the Company completed the sale of its
remaining interest in APH for a gain of $6,320,000. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- History of the Company."
(6) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
consists of income (loss) from continuing operations plus (i) interest
expense, less interest income, (ii) income tax expense and (iii)
depreciation and amortization. The Company believes that EBITDA is a
meaningful measure of its continuing operating performance; however, EBITDA
is not a measurement presented in accordance with generally accepted
accounting principles and should not be considered in isolation from or as a
substitute for net income or cash flow measures prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. In addition, EBITDA may not be comparable to
similarly titled measures reported by other companies.
(7) Adjusted EBITDA consists of EBITDA plus (i) restructuring expense, (ii)
interest cost on post-retirement liability, (iii) revaluation loss on
postretirement liability, (iv) loss on investment and (v) EBITDA of TEST as
if such entity had been included in the consolidated results of the Company
over the entire period, less (i) EBITDA from the operations of terminated
subsidiaries
21
<PAGE> 23
(NATCO-UK, NATCO-Singapore and NANA TEST), (ii) revaluation gain on
postretirement liability and (iii) gain on investment. The Company believes
that Adjusted EBITDA is a meaningful measure of its operating performance;
however, Adjusted EBITDA is not a measurement presented in accordance with
generally accepted accounting principles and should not be considered in
isolation from or as a substitute for net income or cash flow measures
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. In addition, Adjusted
EBITDA is not comparable to similarly titled measures reported by other
companies.
(8) Includes current portion of long-term debt and revolving lines of credit.
22
<PAGE> 24
UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed pro forma financial statements consist of
unaudited statements of operations for the fiscal year ended March 31, 1997 and
the nine months ended December 31, 1997 and the unaudited balance sheet as of
December 31, 1997 and related notes. The unaudited condensed pro forma financial
statements give effect to (i) the acquisition of TEST as if such transaction had
occurred on April 1, 1996 for the pro forma statement of operations, (ii) the
Cynara Acquisition, (iii) the issuance of shares of Common Stock in
the Offering and the use of the proceeds thereof and (iv) the exchange of
subordinated notes into Common Stock as if the transactions described in (ii),
(iii) and (iv) had occurred on April 1, 1996 for the pro forma statement of
operations and December 31, 1997 for the pro forma balance sheet.
The historical data of the Company for the fiscal year ended March 31, 1997
have been derived from the Company's audited consolidated financial statements.
The historical data of TEST and Cynara for the fiscal year ended March 31, 1997
have been derived from their unaudited monthly financial statements for the
twelve months ended March 31, 1997. The historical data of the Company for the
nine months ended December 31, 1997 have been derived from the unaudited
consolidated financial statements of the Company, which include all adjustments,
consisting of normal recurring adjustments, that the Company considers necessary
for a fair presentation of its financial position and results of operations for
such period. The historical data of TEST and Cynara for the nine months ended
December 31, 1997 have been derived from their unaudited monthly financial
statements for the nine months ended December 31, 1997.
The unaudited condensed pro forma financial statements are based on
assumptions and include adjustments as explained in the notes thereto. The
unaudited condensed pro forma financial statements are not necessarily
indicative of the actual financial results if the transactions described in the
preceding paragraph had been effective on and as of the dates indicated and
should not be indicative of operations in future periods or as of future dates.
The unaudited condensed pro forma financial statements should be read in
conjunction with the notes thereto and the historical audited and unaudited
consolidated financial statements of the Company, Cynara and TEST and the notes
thereto included elsewhere in this Prospectus.
23
<PAGE> 25
NATCO GROUP INC.
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS(1)
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL TEST(2) CYNARA ADJUSTMENTS(3) PRO FORMA
<S> <C> <C> <C> <C> <C>
Revenues............................... $126,657 $52,044 $6,610 $ -- $185,311
Cost of goods sold..................... 99,984 42,928 3,025 -- 145,937
-------- ------- ------ ------- --------
Gross profit........................... 26,673 9,116 3,585 -- 39,374
Selling, general and administrative
expense.............................. 22,051 6,574 1,851 (1,417)(a) 29,059
Restructuring charge................... 21 -- -- -- 21
Depreciation and amortization
expense.............................. 862 458 698 579(b) 2,597
Interest expense....................... 1,861 224 508 (2,346)(c) 247
Interest cost on postretirement
liability............................ 957 -- -- -- 957
Revaluation loss on postretirement
benefit liability.................... 1,466 -- -- -- 1,466
Interest income........................ (116) -- (4) -- (120)
-------- ------- ------ ------- --------
Income (loss) from continuing
operations before income taxes....... (429) 1,860 532 3,184 5,147
Income tax provision................... 59 886 -- 1,632(d) 2,577
-------- ------- ------ ------- --------
Income (loss) from continuing
operations........................... $ (488) $ 974 $ 532 $ 1,552 $ 2,570
======== ======= ====== ======= ========
Basic earnings per share from
continuing operations................ $ (0.08)
Diluted earnings per share from
continuing operations................ $ (0.08)
Basic weighted average number of shares
of common stock...................... 6,032
Diluted weighted average number of
shares of common stock............... 6,371
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
24
<PAGE> 26
NATCO GROUP INC.
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS(1)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL TEST(2) CYNARA(A) ADJUSTMENTS(3) PRO FORMA
<S> <C> <C> <C> <C> <C>
Revenues............................ $146,653 $11,861 $16,054 $ -- $174,568
Cost of goods sold.................. 116,153 9,155 9,475 -- 134,783
-------- ------- ------- ------ --------
Gross profit........................ 30,500 2,706 6,579 -- 39,785
Selling, general and administrative
expense........................... 21,302 1,910 3,136 (682)(a) 25,666
Restructuring charges............... 282 -- -- -- 282
Depreciation and amortization
expense........................... 909 111 934 433(b) 2,387
Interest expense.................... 2,180 -- 1,064 (3,024)(c) 220
Interest cost on postretirement
liability......................... 786 -- -- -- 786
Interest income..................... (96) -- (92) -- (188)
-------- ------- ------- ------ --------
Income (loss) from continuing
operations before income taxes.... 5,137 685 1,537 3,273 10,632
Income tax provision................ 718 370 0 1,992(d) 3,080
-------- ------- ------- ------ --------
Income from continuing operations... $ 4,419 $ 315 $ 1,537 $1,281 $ 7,552
======== ======= ======= ====== ========
Basic earnings per share from
continuing operations............. $ 0.59
Diluted earnings per share from
continuing operations............. $ 0.56
Basic weighted average number of
shares of common stock............ 7,451
Diluted weighted average number of
shares of common stock............ 7,895
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
25
<PAGE> 27
NATCO GROUP INC.
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET(1)
AS OF DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL CYNARA(A) ADJUSTMENTS(3) PRO FORMA
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,447 $ 2,556 $ (7,500)(a) $ 3,302
41,315(b)
(32,111)(c)
(2,405)(d)
Restricted cash................................... 551 262 -- 813
Trade accounts receivable, net of allowance for
doubtful accounts............................... 47,363 968 -- 48,331
Inventories....................................... 19,507 2,632 -- 22,139
Deferred income tax benefits...................... 3,181 -- -- 3,181
Prepaid expenses and other current assets......... 2,730 211 200(e) 2,741
------- ------- -------- --------
Total current assets....................... 74,779 6,629 (901) 80,507
------- ------- -------- --------
Property, plant and equipment, net................ 9,133 8,798 -- 17,931
Cost in excess of fair value of net assets
acquired........................................ 6,036 -- 17,275(a) 23,311
Deferred income tax benefits...................... 5,874 -- -- 5,874
Other assets, net................................. 921 145 -- 1,066
------- ------- -------- --------
Total assets............................... $96,743 $15,572 $ 16,374 $128,689
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt............ $ 1,680 1,300 (2,729)(c) $ 251
Revolving credit bank loan........................ 5,914 -- (2,880)(c) 3,034
Accounts payable.................................. 20,444 1,837 -- 22,281
Accrued expenses and other........................ 16,119 2,143 (694)(d) 17,568
Customer advances................................. 1,174 236 -- 1,410
Income taxes payable.............................. 2,010 -- -- 2,010
------- ------- -------- --------
Total current liabilities.................. 47,341 5,516 (6,303) 46,554
------- ------- -------- --------
Long-term debt, excluding current installments.... 28,920 7,138 (26,502)(c) 1,624
(7,932)(f)
Postretirement benefit liability.................. 15,012 -- -- 15,012
------- ------- -------- --------
Total liabilities.......................... 91,273 12,654 (40,737) 63,190
------- ------- -------- --------
Stockholders' equity:
Common stock, $.01 par value per share............ 50 -- 73(a)(b)(f) 123
Additional paid-in capital........................ 18,962 1,659 9,749(a) 79,570
41,282(b)
7,918(f)
Accumulated deficit............................... (8,024) 1,259 (1,911)(d)(e) (8,676)
Treasury stock, 470,188 shares at cost............ (4,350) -- -- (4,350)
Cumulative translation adjustments................ (1,168) -- -- (1,168)
------- ------- -------- --------
Total stockholders' equity................. 5,470 2,918 57,111 65,499
------- ------- -------- --------
Total liabilities and stockholders'
equity................................... $96,743 $15,572 $ 16,374 $128,689
======= ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
26
<PAGE> 28
NATCO GROUP INC.
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(1) BASIS OF PRESENTATION
The following sets forth the assumptions used in preparing the Company's
unaudited condensed pro forma balance sheet as of December 31, 1997 and
unaudited condensed pro forma statements of operations for the fiscal year ended
March 31, 1997 and for the nine months ended December 31, 1997.
The unaudited condensed pro forma financial data should be read in
conjunction with (i) the consolidated financial statements of the Company as of
and for the fiscal year ended March 31, 1997 and as of and for the nine months
ended December 31, 1997 (unaudited) and the notes thereto included elsewhere in
the Prospectus, (ii) the financial statements of TEST as of and for the year
ended December 31, 1996 and as of and for the six months ended June 30, 1997
(unaudited) and the notes thereto, included elsewhere in the Prospectus and
(iii) the financial statements of Cynara as of and for the year ended December
31, 1997 and the notes thereto included elsewhere in the Prospectus. Pro forma
financial data are not necessarily indicative of future operations of the
Company. Certain information normally included in financial statements prepared
in accordance with generally accepted accounting principles has been condensed
or omitted pursuant to the rules of the Securities and Exchange Commission (the
"Commission").
(2) RESULTS OF TEST
The statement of operations data for TEST represents results of operations
for the four quarters ended March 31, 1997 and for the quarter ended June 30,
1997 prior to its acquisition by the Company.
(3) ADJUSTMENTS TO THE HISTORICAL FINANCIAL STATEMENTS
The unaudited condensed pro forma financial statements give effect to (i)
the acquisition of TEST, (ii) the Cynara Acquisition, (iii) the issuance of an
aggregate of 1,479,258 shares of Common Stock to Capricorn I and Capricorn II
pursuant to the Securities Exchange Agreement and (iv) the issuance of
shares of Common Stock in the Offering and the use of the proceeds
thereof, as if all such transactions had occurred on April 1, 1996 for the pro
forma statement of operations and give effect to the transactions described in
clauses (ii) and (iii) as if they had occurred on December 31, 1997 for the pro
forma balance sheet.
The following assumptions and pro forma adjustments have been made with
respect to the historical financial statements of the Company:
STATEMENT OF OPERATIONS
(a) To reflect elimination of management fees paid and corporate
overhead charged to the Company, Cynara and TEST, in the amount of $350,
$124 and $943, respectively for the fiscal year ended March 31, 1997 and
$125, $290 and $267, respectively for the nine months ended December 31,
1997.
(b) To reflect additional goodwill amortization recorded in the
acquisition of Cynara and TEST of $432 and $147, respectively, for the
fiscal year ended March 31, 1997 and $324 and $109, respectively, for the
nine months ended December 31, 1997 amortized over a 40-year period.
(c) To reflect the elimination of interest on the U.S. Credit Facility
and the Cynara Credit Facility as a result of repayment of an aggregate of
$32,111 of principal under such facilities and the conversion of $7,900 in
subordinated notes held by Capricorn I and Capricorn II to equity. See
"Certain Transactions -- Securities Transactions."
(d) To reflect income tax effects of adjustments at a rate of 38%,
which does not include benefit for goodwill amortization. To also reflect
income taxes for Cynara (an S corporation) at a rate of 38%.
27
<PAGE> 29
NATCO GROUP INC.
NOTES TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE SHEET
(a) To reflect the consummation of the Cynara Acquisition; assumes
that the purchase price will be funded by the issuance of Common Stock and
the payment of $7,500 in cash. Goodwill of $17,275 was attributable to this
transaction and will be amortized over a 40-year period. Goodwill related
to the Cynara Acquisition is subject to increase by up to $12,694 based on
the results of an earnout under the Cynara Acquisition Agreement. See "The
Cynara Acquisition."
(b) To reflect the sale by the Company of shares of Common Stock
in the Offering at an assumed offering price of $ per share and the
related costs thereof.
(c) To reflect the repayment of $32,111 of outstanding borrowings
under the U.S. Credit Facility and the Cynara Credit Facility.
(d) To reflect non-recurring compensation expense to certain TEST
employees and the Chief Executive Officer of the Company related to the
Offering. Such expense will be recognized in the quarter in which the
Offering is consummated. See "Management -- Employment Agreement."
(e) To reflect a reduction in the expected amount of the receivable
from Capricorn Management (as defined herein).
(f) To reflect the exchange of the Company's subordinated notes held
by Capricorn I and Capricorn II for 1,479,258 shares of Common Stock.
28
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HISTORY OF THE COMPANY
The Company was incorporated in 1988 by Capricorn I. Capricorn I led a
group of investors in acquiring all the outstanding capital stock of the Company
by investing sufficient funds in the Company to enable the Company to acquire
National Tank Company in 1989 from Combustion Engineering, Inc. for cash.
National Tank Company is now the Company's principal subsidiary.
Concurrently with the acquisition of National Tank Company, the Company
also acquired all the outstanding capital stock of W.S. Tyler Incorporated
("Tyler") and American Premier, Inc. ("API"). In 1992, the Company formed APH
and caused API to be merged with a subsidiary of APH. The Company disposed of
its interests in APH in a series of transactions from 1993 through 1996.
In 1992, the Company formed Process Technology Holdings, Inc. ("PTH") and
contributed to it all the outstanding capital stock of Tyler. During 1992, the
Company sold 5% of its equity interest in PTH. In June 1997, the Company, in
connection with a financing transaction effected to provide funds for, among
other things, the acquisition of TEST (the "1997 Financing"), distributed all
the outstanding capital stock of PTH then owned by it to Capricorn I.
In December 1991, Capricorn I loaned the Company approximately $5.0 million
and received in exchange certain subordinated promissory notes. During the
period prior to June 1997, the maturities of these subordinated promissory notes
were extended. In connection with the distribution of the capital stock of PTH
in June 1997, PTH, with the consent of Capricorn I, assumed a portion of the
Company's obligations under these notes. In connection with the 1997 Financing,
the Company refinanced the balance of the subordinated promissory notes by
issuing in exchange therefor $5.1 million in principal amount of a 13%
Subordinated Promissory Note (the "Cap I Note").
During the period from June 1989 through January 1997, the Common Stock
owned by each investor other than Capricorn I was acquired by either Capricorn I
or the Company, with the result that at the end of January 1997 Capricorn I was
the Company's sole stockholder.
During 1996, the Company formed NATCO Holdings, Inc. ("NHI") and
contributed its investment in National Tank Company to NHI. Prior to the
creation of NHI, NATCO-Singapore Pte Ltd. ("NATCO-Singapore") and NATCO-(UK) Ltd
("NATCO-UK") were subsidiaries of NATCO. Subsequent to the formation of NHI,
these entities were no longer subsidiaries of NATCO but were consolidated at the
NHI level. NHI remains wholly-owned by the Company.
The Company in 1996 and 1997 began the termination of the operations of two
of its overseas subsidiaries, NATCO-Singapore and NATCO-UK. These subsidiaries
experienced high overhead costs, insufficient workloads and, in some instances,
significant losses on large projects. The operations of NATCO-Singapore have
been completely terminated. The operations of NATCO-UK have been significantly
reduced, and the Company is continuing to wind down its affairs.
In connection with the 1997 Financing, Capricorn II invested $13.0 million
to acquire $2.4 million in principal amount of a 13% Subordinated Promissory
Note due 2000 (the "Cap II Note") and 2,113,334 shares of Common Stock. The
Company used the proceeds from the sale of these securities, together with
borrowings under the U.S. Credit Facility, to acquire all the outstanding
capital stock of TEST. The Company has consolidated the results of operations of
TEST with those of the Company since the date of acquisition under the purchase
method of accounting for business combinations.
In March 1998, the Company entered into a Securities Exchange Agreement
with Capricorn I and Capricorn II pursuant to which the Company will issue
1,010,333 shares and 468,925 shares of Common Stock to Capricorn I and Capricorn
II, respectively, in exchange for the surrender for cancellation of the Cap I
Note and the Cap II Note. This exchange is required to be effected immediately
prior to the commencement of the Offering.
29
<PAGE> 31
Also in March 1998, the Company entered into the Cynara Acquisition
Agreement pursuant to which Cynara will be merged with and into a subsidiary of
the Company in exchange for cash, the repayment of debt, shares of Common Stock
and a right to receive additional Common Stock under certain circumstances.
Under the Cynara Acquisition Agreement, the Cynara Acquisition is to be effected
concurrently with the closing of the Offering. After the Cynara Acquisition, the
Company will consolidate the results of operations of Cynara with those of the
Company from the date of acquisition under the purchase method of accounting for
business combinations. See "The Cynara Acquisition."
OVERVIEW
The Company is a holding company and substantially all its operations are
conducted through wholly owned subsidiaries, including National Tank Company and
TEST. Products and services provided by the Company in the United States are
classified into three primary categories based on the degree of engineering,
design and customization provided, the size and scope of the project and the
organization used to market its products and services. These categories include
(i) traditional production equipment and services (including the refurbishment
of used equipment), (ii) engineered systems and (iii) instrumentation and
electrical control systems. The Company provides similar equipment and services
in Canada and its other international operations.
Percentage of Completion. Revenues from significant contracts (contracts
greater than $250,000 and longer than four months in duration) and all I&E
contracts and orders are recognized on the percentage of completion method.
Revenues and profits on other sales are recorded as shipments are made. Earned
revenue is based on the percentage that incurred costs to date bear to total
estimated costs. For fixed price engineered systems contracts in the United
States, the Company defers recognition of a portion of the total contract price
until the contract nears completion. As a contract nears completion, deferred
revenue is released and therefore additional gross profit may be recognized. If
estimated total costs on any contracts or work-in-process indicate a loss, the
entire loss is recognized immediately. Revenue and earnings to which the
percentage of completion method applies are generally recognized over a period
of two to four quarters, and the Company does not recognize holdback amounts
until a project nears completion.
Single Customer. Due to the size of certain projects undertaken by the
Company there may be periods where a substantial portion of the Company's
revenues are derived from a single customer or small group of customers. For the
nine months ended December 31, 1997, approximately 11% of the Company's revenues
were attributable to sales to BP Exploration (Alaska), Inc. A prolonged failure
of any such customer or customers to fulfill contractual obligations to the
Company or a termination of any such projects could materially adversely affect
the Company's financial condition and results of operations.
Postretirement Benefits. Pursuant to agreements relating to the acquisition
of National Tank Company by the Company in 1989 from Combustion Engineering,
Inc., the Company is required to provide certain health care and life insurance
benefits to employees of National Tank Company who retired prior to June 21,
1989. These agreements provide that the Company's annual cash costs of these
benefits are reimbursed by the seller through June 21, 1999 to the extent they
exceed on an annual basis the lesser of one-third of the cash costs in that year
or $755,000 (as adjusted for inflation). For the fiscal years ended March 31,
1996 and 1997, the Company's aggregate cash costs of these benefits were $1.6
million and $1.7 million, respectively, of which $1.1 million and $1.1 million,
respectively, were reimbursed. Commencing June 22, 1999, the Company will no
longer be reimbursed for any portion of these cash costs. At December 31, 1997,
there were 527 retirees and surviving spouses and 337 dependents covered under
such postretirement benefits obligations. No additional retirees were covered
after June 21, 1989. The benefits provided for retirees and surviving spouses
aged 65 or older are secondary to Medicare.
The Company adopted Financial Accounting Standards Board No. 106,
"Employer's Accounting for Post-Retirement Benefits other than Pensions," and in
1989 recorded as an expense the estimated liability, discounted to present
value, of the unreimbursable cost of these benefits. This liability is evaluated
annually by an actuarial firm for changes in plan experience factors, health
care cost trends and long term interest rates. The Company has elected to
recognize gains and losses from such evaluations immediately and reports them
30
<PAGE> 32
separately in its consolidated statements of operations as gain or loss on
revaluation of postretirement employee liability. The Company reported a gain of
$4.8 million for fiscal 1995 and losses of $2.3 million and $1.5 million for
fiscal 1996 and 1997, respectively.
Although the Company believes that the actuarial assumptions used in
adjusting the liability are reasonable, there can be no assurance that the costs
of the actual benefits will not exceed those projected or that future actuarial
assessments of the extent of those costs will not exceed or significantly exceed
the current assessment. Under such circumstances, the adjustments required to be
made to the Company's recorded liability for such benefits could have a material
adverse effect on the Company's results of operations and financial condition.
Distribution of PTH. In July 1997, the Company's investment in PTH was
distributed to its stockholders in a tax-free transaction. In accordance with
generally accepted accounting principles, the results of operations of PTH are
accounted for as discontinued operations for all periods presented. Accordingly,
the net income of PTH is excluded from income (loss) from continuing operations
in the Company's income statements for the periods presented. The results of
operations of PTH are presented as income from operations of discontinued
operations and gain on disposal of PTH division in the Company's income
statements for the periods presented. In addition, only the net assets of PTH
are included in the Company's balance sheets and identified as net assets of
discontinued operations for the periods presented.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------ ----------------------------------
1995 1996 1997 1996 1997
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $109,909 100.0% $112,724 100.0% $126,657 100.0% $91,375 100.0% $146,653 100.0%
Cost of goods sold......... 88,229 80.3 91,258 81.0 99,984 78.9 71,070 77.8 116,153 79.2
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Gross profit............... 21,680 19.7 21,466 19.0 26,673 21.1 20,305 22.2 30,500 20.8
Selling, general and
administrative expense... 22,483 20.5 21,754 19.3 22,051 17.4 16,230 17.8 21,302 14.5
Restructuring charges...... 984 0.9 776 0.7 21 -- 182 0.2 282 0.2
Depreciation and
amortization expense..... 903 0.8 731 0.7 862 0.7 573 0.6 909 0.6
Interest expense........... 3,358 3.0 2,422 2.1 1,861 1.4 1,422 1.6 2,180 1.5
Interest cost on
postretirement benefit
liability................ 1,064 1.0 932 0.8 957 0.8 676 0.7 786 0.5
Revaluation (gain) loss on
postretirement benefit
liability................ (4,781) (4.4) 2,273 2.0 1,466 1.2 -- -- -- --
Interest income............ (1,692) (1.5) (336) (0.3) (116) (0.1) (89) (0.1) (96) --
Gain on investment......... (10,124) (9.2) (6,320) (5.6) -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Income (loss) from
continuing operations
before income taxes...... 9,485 8.6 (766) (0.7) (429) (0.3) 1,311 1.4 5,137 3.5
Income tax provision
(benefit)................ 4,495 4.1 (430) (0.4) 59 0.1 551 0.6 718 0.5
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Income (loss) from
continuing operations.... 4,990 4.5 (336) (0.3) (488) (0.4) 760 0.8 4,419 3.0
Income from discontinued
operations, net of income
tax...................... 331 0.3 811 0.7 1,100 0.9 565 0.6 767 0.5
Gain on disposal of
division, net of income
tax...................... -- -- -- -- 4,788 3.8 -- -- -- --
-------- ----- -------- ----- -------- ----- ------- ----- -------- -----
Net income................. $ 5,321 4.8% $ 475 0.4% $ 5,400 4.3% $ 1,325 1.4% $ 5,186 3.5%
======== ===== ======== ===== ======== ===== ======= ===== ======== =====
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1996
Revenues. Revenues for the nine months ended December 31, 1997 increased
$55.3 million, or 60%, to $146.7 million from $91.4 million for the nine months
ended December 31, 1996. Of this increase, $22.0 million was attributable to the
inclusion of the results of TEST in the Company's results for the last six
months of 1997, $16.2 million was attributable to increased revenues from
traditional equipment and
31
<PAGE> 33
services in the United States and the remainder was attributable to increases in
revenues from Canadian operations, a significant portion of which was due to a
substantial engineered systems project for BP Exploration (Alaska), Inc.
Gross Profit. Gross profit for the nine months ended December 31, 1997
increased $10.2 million, or 50%, to $30.5 million from $20.3 million for the
nine months ended December 31, 1996 primarily due to the increases in revenues
discussed above. As a percentage of revenues, gross profits decreased from 22.2%
for the nine months ended December 31, 1996 to 20.8% for the nine months ended
December 31, 1997.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $5.1 million, or 31%, to $21.3 million for the
nine months ended December 31, 1997 from $16.2 million for the nine months ended
December 31, 1996. Of this increase, $3.0 million was attributable to the
inclusion of the results of TEST and the remainder was primarily attributable to
increased expenses associated with the increase in volume in the Company's
business.
Restructuring Charges. Restructuring charges increased $100,000, or 55%, to
$282,000 for the nine months ended December 31, 1997 from $182,000 for the nine
months ended December 31, 1996. The 1997 restructuring charge related to the
closing of the Company's United Kingdom subsidiary. The 1996 restructuring
charge related to recruiting and employee relocation expenses.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $336,000, or 59%, to $909,000 for the nine months ended
December 31, 1997 from $573,000 for the nine months ended December 31, 1996
primarily as a result of additional depreciation related to the assets of TEST
that were included in the Company's results in 1997.
Interest Expense. Interest expense increased $758,000, or 53%, to $2.2
million for the nine months ended December 31, 1997 from $1.4 million for the
nine months ended December 31, 1996 primarily as a result of increased debt
incurred in connection with the acquisition of TEST.
Interest Cost on Postretirement Benefit Liability. Interest cost on
postretirement benefit liability expense increased $110,000, or 16%, to $786,000
for the nine months ended December 31, 1997 from $676,000 for the nine months
ended December 31, 1996 due to increased amortization resulting from an upward
revaluation of the postretirement benefit liability based on revised actuarial
assumptions at March 31, 1997.
Income from Continuing Operations. Income from continuing operations
increased $3.7 million, or 481%, to $4.4 million for the nine months ended
December 31, 1997 from $760,000 for the nine months ended December 31, 1996,
primarily as a result of the inclusion of results of operations of TEST for the
six months ended December 31, 1997 and increases in gross profit combined with a
lower effective tax rate.
Income from Discontinued Operations. Income from discontinued operations of
$767,000 for the nine months ended December 31, 1997 represented income from
PTH, an affiliate of the Company, the stock of which was distributed to the
Company's stockholders in June 1997.
Net Income. Net income increased by $3.9 million, or 291%, to $5.2 million
for the nine months ended December 31, 1997 from $1.3 million for the same
period in 1996 primarily as a result of the factors discussed above.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
Revenues. Revenues increased $13.9 million, or 12%, to $126.7 million for
the fiscal year ended March 31, 1997 from $112.7 million for the fiscal year
ended March 31, 1996 primarily as a result of increased revenues in both the
Company's engineered systems and traditional equipment and services business in
the United States and in its Canadian operations, partially offset by decreases
in revenues by its United Kingdom and Singapore operations that were winding
down their operations.
Gross Profit. Gross profit increased $5.2 million, or 24%, to $26.7 million
for the fiscal year ended March 31, 1997 from $21.5 million for the fiscal year
ended March 31, 1996 primarily due to the increases in revenues discussed above.
As a percentage of revenues, gross profit increased from 19.0% for fiscal 1996
to
32
<PAGE> 34
21.1% for fiscal 1997 primarily as a result of the wind-down of the Company's
unprofitable United Kingdom and Singapore operations in fiscal 1997, offset in
part by lower margins in the Company's engineered systems business in the United
States.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $297,000, or 1%, to $22.1 million for the
fiscal year ended March 31, 1997 from $21.8 million for the fiscal year ended
March 31, 1996.
Restructuring Charges. Restructuring charges decreased by $755,000, or 97%,
to $21,000 for the fiscal year ended March 31, 1997 from $776,000 for the fiscal
year ended March 31, 1996. Of the $776,000 in fiscal 1996, $500,000 related to
the closing of the Company's Singapore operations and $276,000 related to
recruiting and employee relocation expenses.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $131,000, or 18%, to $862,000 for the fiscal year ended March
31, 1997 from $731,000 for the fiscal year ended March 31, 1996 primarily due to
increased investment in manufacturing facilities.
Interest Expense. Interest expense decreased $561,000, or 23%, to $1.9
million in fiscal 1997 from $2.4 million in fiscal 1996 primarily as a result of
interest savings from the retirement of certain subordinated debt of the
Company.
Revaluation Loss on Postretirement Benefit Liability. The Company's
revaluation of postretirement benefit liability increased $1.5 million for the
fiscal year ended March 31, 1997 from the fiscal year ended March 31, 1996
primarily as a result of increases in the level of medical claims used in the
actuarial calculations.
Interest Income. Interest income decreased by $220,000, or 66%, to $116,000
for the year ended March 31, 1997 from $336,000 for the year ended March 31,
1996. The interest income in fiscal 1996 was due primarily to APH debt
obligations to the Company that were retired in fiscal 1996.
Gain on Investment. There was no gain on investment for the year ended
March 31, 1997. For the year ended March 31, 1996, the Company recognized a $6.3
million gain from the sale of its remaining 25% interest in APH, a previously
affiliated company.
Income (Loss) from Continuing Operations. Loss from continuing operations
increased $152,000 to a loss of $488,000 for the fiscal year ended March 31,
1997 from a loss of $336,000 for the fiscal year ended March 31, 1996 primarily
as a result of $6.3 million of gains in the prior year which did not recur in
the year ended March 31, 1997, partially offset by an increase in gross profit,
as discussed above.
Income from Discontinued Operations. Income from discontinued operations
increased $5.1 million, or 626%, to $5.9 million for the fiscal year ended March
31, 1997 from $811,000 for the fiscal year ended March 31, 1996 primarily due to
a gain on the sale of a division by PTH.
Net Income. Net income increased $4.9 million, or 1,037%, to $5.4 million
for the fiscal year ended March 31, 1997 from $475,000 for the fiscal year ended
March 31, 1996 primarily as a result of the factors discussed above.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
Revenues. Revenues increased $2.8 million, or 3%, to $112.7 million in
fiscal 1996 from $109.9 million in fiscal 1995 primarily as a result of
increased revenues from the sale of engineered systems and traditional equipment
and services in the United States partially offset by decreased revenues from
the Company's United Kingdom and Canadian operations.
Gross Profit. Gross profit decreased $214,000, or 1%, to $21.5 million in
fiscal 1996 from $21.7 million in fiscal 1995 primarily due to decreases in
margins of the Company's United Kingdom and Singapore operations. As a
percentage of revenues, gross profit decreased from 19.7% for fiscal 1995 to
19.0% for fiscal 1996.
33
<PAGE> 35
Restructuring Charges. Restructuring charges decreased by $208,000, or 21%,
to $776,000 for the fiscal year ended March 31, 1996 from $984,000 for the
fiscal year ended March 31, 1995. Restructuring charges for the fiscal year
ended March 31, 1996 related to the closing of the Company's Singapore
operations and recruiting and employee relocation expenses. Restructuring
charges for the fiscal year ended March 31, 1995 consisted of relocation,
severance benefits and recruiting costs related to the relocation of the
Company's administrative and international sales and engineering personnel to
corporate headquarters in Houston, Texas.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased $729,000, or 3%, to $21.8 million in fiscal
1996 from $22.5 million in fiscal 1995 primarily as a result of decreased
activity by the Company's United Kingdom and Singapore operations.
Depreciation and Amortization Expense. Depreciation and amortization
expense decreased $172,000, or 19% to $731,000 for the fiscal year ended March
31, 1996 from $903,000 for the fiscal year ended March 31, 1995, due to a
decrease in deferred loan cost and amortization.
Interest Income. Interest income decreased $1.4 million, or 82%, to
$336,000 for the year ended March 31, 1996 from $1.7 million for the year ended
March 31, 1995. The decrease primarily related to the higher balance owed to the
Company in the fiscal year ended March 31, 1995 from APH, a previously
affiliated company.
Gain on Investment. For the fiscal year ended March 31, 1996, the Company
recognized a gain of $6.3 million from the sale of its remaining 25% interest in
APH, a previously affiliated company. The Company recognized a gain of $10.1
million for the fiscal year ended March 31, 1995 as a result of the Company's
sale of 50% of its ownership in APH.
Interest Cost on Postretirement Benefit Liability. Interest cost on
postretirement benefit liability decreased by $132,000, or 12%, to $932,000 for
the fiscal year ended March 31, 1996 from $1.1 million for the fiscal year ended
March 31, 1995. This was due to a decrease in the postretirement benefit
obligation during the fiscal year ended March 31, 1995.
Revaluation Loss on Postretirement Benefit Liability. The Company's
revaluation loss of postretirement benefit liability increased $2.3 million for
the fiscal year ended March 31, 1996 from the fiscal year ended March 31, 1995
primarily as a result of decreases in the discount rate used in the actuarial
calculations.
Interest Expense. Interest expense decreased $936,000, or 28%, to $2.4
million in fiscal 1996 from $3.4 million in fiscal 1995 as a result of interest
savings from the retirement by the Company of a portion of certain subordinated
debt in 1995.
Interest Income. Interest income decreased $1.4 million, or 80%, to
$336,000 in the fiscal year ended March 31, 1996 from $1.7 million in the fiscal
year ended March 31, 1995 as a result of principal payments received on notes
receivable by APH.
Income (Loss) from Continuing Operations. Loss from continuing operations
was $336,000 for the fiscal year ended March 31, 1996 as compared to income from
continuing operations of $5.0 million for the fiscal year ended March 31, 1995
as a result of decreased gains on investment, unfavorable changes in the retiree
medical valuation and decreases in gross profit as discussed above.
Net Income. Net income decreased $4.8 million, or 91%, to $475,000 for the
fiscal year ended March 31, 1996 from $5.3 million for the fiscal year ended
March 31, 1995 primarily as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since the acquisition of National Tank Company, Tyler and API in 1989, the
Company has utilized primarily cash flow from operations, borrowings, capital
contributions by Capricorn I and Capricorn II and proceeds from the sale of APH
to fund its operations, capital expenditures, acquisitions and working capital
requirements. As of December 31, 1997, the Company had cash and working capital
of $1.4 million and $27.4 million, respectively. As of December 31, 1997, on a
pro forma basis, the Company would have had cash and working capital of $3.3
million and $34.0 million, respectively.
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The primary uses of cash by the Company are working capital, capital
expenditures and acquisitions. The Company's cash sources are cash provided by
operations, cash provided by investing activities and cash provided by financing
activities. To the extent that the Company's cash requirements for working
capital, capital expenditures and acquisitions are greater than the amount of
cash provided by operations and investing activities, the Company must finance
its cash requirements, primarily through debt and equity financing activities.
Net cash provided by (used in) operating activities for the fiscal years
ended March 31, 1995, 1996 and 1997 was $(5.2) million, $(5.4) million and
$(3.6) million, respectively, and $(3.5) million and $(4.0) million for the nine
months ended December 31, 1996 and 1997, respectively.
Net cash provided by (used in) investing activities for fiscal years ended
March 31, 1995, 1996 and 1997 was $15.5 million, $9.5 million and $(798,000),
respectively. The decreases in fiscal 1996 and fiscal 1997 were due to decreases
in proceeds from sale of investments which were $17.8 million, $10.3 million and
$0 in fiscal 1995, 1996 and 1997, respectively. Net cash provided by (used in)
investing activities for the nine months ended December 31, 1996 and 1997 was
$(468,000) and $(20.8) million, respectively. The increase in net cash used in
investing activities during the nine months ended December 31, 1997 was due to
the acquisition of TEST which required $21.1 million of cash.
Net cash provided by (used in) financing activities was $(8.5) million,
$(6.7) million and $3.6 million in fiscal 1995, 1996 and 1997, respectively. The
decreases in net cash used in financing activities during such periods were the
result of decreased repayments of long-term debt. Net cash provided by (used in)
financing activities for the nine months ended December 31, 1996 and 1997 was
$2.4 million and $25.4 million, respectively. The increase in net cash provided
by financing activities during the nine months ended December 31, 1997 was due
to the issuance of $10.6 million of Common Stock and net borrowings of $10.3
million to finance the acquisition of TEST.
The Company has three credit facilities, the U.S. Credit Facility, the
Canadian Credit Facility and the EXIM Credit Facility. The U.S. Credit Facility
provides for up to $10.0 million of borrowings under term loans and up to $18.0
million of borrowings under revolving loans, subject to borrowing base
limitations. As of December 31, 1997, the Company had $9.6 million of borrowings
outstanding under the term loans and $11.2 million of borrowings outstanding
under the revolving loans. The term loans under the U.S. Credit Facility mature
in 2002 and the revolving loans mature in 2000. The Canadian Credit Facility
provides for aggregate borrowings of Cdn. $10.0 million, subject to borrowing
base limitations, of which Cdn. $3.0 million was outstanding as of December 31,
1997. The Canadian Credit Facility is repayable upon demand. The EXIM Credit
Facility provides for aggregate borrowings of $5.0 million, subject to borrowing
base limitations, of which $17,000 was outstanding as of December 31, 1997. The
EXIM Credit Facility matures on June 30, 1998. See "Description of Bank Credit
Facilities."
All outstanding borrowings under the U.S. Credit Facility, the EXIM Credit
Facility and the Cynara Credit Facility will be paid from the net proceeds of
the Offering and, after giving effect to the Cynara Acquisition, the Offering
and the use of proceeds thereof, the Company's long-term debt at December 31,
1997 would have been approximately $4.9 million. Approximately $2.4 million of
the proceeds of the Offering will be used to pay deferred compensation to
certain TEST employees and a one-time cash bonus to the Chief Executive Officer
of the Company pursuant to his employment agreement. Such expense will be
recognized in the quarter in which the Offering is consummated. See
"Management -- Employment Agreement."
The Company estimates that its working capital requirements in fiscal 1999
will be $ million. The Company's capital expenditures generally consist of
renovations and expansions of its plants, technological improvements to its
management information systems and acquisitions of, and improvements to, other
equipment used in its business. Upon consummation of the Offering, the Company
will have approximately $18.0 million of credit available under its credit
facilities for working capital, capital expenditures and acquisitions. Moreover,
following consummation of the Offering, the Company will have no significant
scheduled debt repayment obligations in fiscal 1999. Accordingly, the Company
believes that its operating cash flow, supported by its borrowing capacity, will
be adequate to fund the Company's investing activities, excluding acquisitions,
throughout fiscal 1999. If the Company should determine to pursue one or more
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acquisition opportunities during fiscal 1999, the Company's determination as to
its ability to finance the acquisitions will be a critical element of its
analyses of the opportunities.
INFLATION AND CHANGES IN PRICES
The costs of materials (e.g., steel) for the Company's products rise and
fall with their value in the commodity markets. Generally, increases in raw
materials and labor costs are passed on to the Company's customers.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1997, the Company was required to adopt Statement of Financial
Accounting Standards No. 129, Disclosure of Information about Capital Structure
("SFAS 129"). SFAS 129 requires that all entities disclose in summary form
within the financial statements the pertinent rights and privileges of the
various securities outstanding. An entity is to disclose within the financial
statements the number of shares issued upon conversion, exercise, or
satisfaction or required conditions during at least the most recent annual
fiscal period and any subsequent interim presented. Other special provisions
apply to preferred and redeemable stock. The Company adopted SFAS 129 in the
quarter ended December 31, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with other financial
statements; the total or other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. SFAS 130 is
effective for both interim and annual periods beginning after December 15, 1997.
The Company will adopt SFAS 130 in the fiscal year ending March 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosure about products and services, geographic areas and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company will adopt SFAS 131 in the fiscal year ending March 31, 1998.
YEAR 2000 MANAGEMENT INFORMATION SYSTEMS
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has implemented a
plan to resolve the issue. The Year 2000 issue is a result of computer programs
that have been written using two digits (rather than four) to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company presently
believes that, with the upgrades to its existing software, the Year 2000 problem
will not pose significant operational problems for the Company's computer
systems as upgraded. The Company does not currently have any information
concerning the year 2000 compliance status of its customers or vendors.
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BUSINESS
GENERAL
NATCO is a leading provider of wellhead equipment, systems and services
used in the production of oil and gas. The Company's production equipment and
systems are primarily used at or near the wellhead to separate oil and gas
within a hydrocarbon stream and to remove contaminants from the oil and gas
stream. Separation and decontamination are necessary to meet the specifications
of transporters and end users. The Company's products and services are used in
onshore and offshore fields in most major oil and gas producing regions in the
world. The Company's revenues and Adjusted EBITDA, on a pro forma basis, were
approximately $185.3 million and $11.3 million, respectively, for the fiscal
year ended March 31, 1997, and approximately $174.6 million and $15.9 million,
respectively, for the nine months ended December 31, 1997. See "Unaudited
Condensed Pro Forma Financial Statements."
The Company designs and manufactures a diverse line of production
equipment, including: (i) separators, which separate a hydrocarbon stream into
oil, gas and water; (ii) dehydration and desalting units, which remove water and
salt from oil and gas; (iii) heaters, which prevent solids from forming in gas
and reduce the viscosity of oil; (iv) gas conditioning units, which remove
carbon dioxide and other contaminants from a gas stream; (v) water filtration
systems, which remove oil and contaminants from water derived from the
production process; and (vi) control systems, which monitor and control
production equipment.
The Company has designed, manufactured and marketed production and
equipment systems for over 70 years and believes it has the largest installed
base of production equipment in the industry. The Company has developed its
position as a leading provider of production equipment and services by
maintaining its technological leadership, capitalizing on its strong brand name
recognition and offering a broad range of products and services. The Company has
utilized these strengths to enter into formal and informal alliances with
certain key customers. Revenues from such alliance customers represented
approximately 35% of the Company's revenues for the nine months ended December
31, 1997, on a pro forma basis.
The Company offers its products and services either as integrated systems
or individual components. The Company generally categorizes its products and
services based on the degree of engineering, design and customization provided,
the size and scope of the project and the organization used to market such
products and services. These categories include the following:
Traditional Production Equipment and Services. The Company designs,
manufactures, refurbishes, distributes, installs and services a wide variety of
new and used traditional production equipment, such as separators, dehydration
units, heaters, gas conditioning units and water filtration systems. The Company
sells and services both its new and refurbished traditional production equipment
primarily through a network of 33 field offices in the United States and three
in Canada, the largest such network in North America. The refurbishment of used
equipment for resale enables the Company to reduce customers' delivery times and
lower their equipment costs as compared to new equipment. The Company maintains
a proprietary database of surplus production equipment in order to respond to
customer requests for refurbished equipment quickly and efficiently.
Engineered Systems. The Company provides turnkey, single source design and
manufacturing of integrated production systems. Engineered systems products are
typically designed and manufactured for large production development projects
throughout the world and include large scale oil and gas processing trains for
offshore platforms and onshore flow stations, floating production systems, oil
treating and desalting facilities and large gas processing facilities. The
Company's engineered systems typically require a significant amount of
technology, engineering, and project management. The Company markets its
engineered systems through direct sales forces based in Houston, Calgary,
London, Tokyo and Caracas, augmented by independent representatives in other
countries.
Instrumentation and Electrical Control Systems. The Company designs,
constructs, installs and services I&E control and safety systems and SCADA
systems under its TEST brand name. Control systems monitor,
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control and shutdown equipment on production platforms, compressor stations and
other production facilities. SCADA systems provide remote monitoring and control
of equipment, production facilities, pipelines and compressors via wireless
communication links. The Company markets its I&E products through a four branch
network primarily in the Gulf Coast area.
THE INDUSTRY
Demand for oil and gas production equipment and services is driven
primarily by (i) levels of production of oil and gas in response to worldwide
demand, (ii) the discovery of new oil and gas fields, (iii) the changing
production profiles of existing fields (meaning the mix of oil, gas and water in
the hydrocarbon stream and the level of contaminants therein) and (iv) the
quality of new hydrocarbon production. Generally, oil and gas exploration and
production companies tend to reduce exploration activity during periods of weak
oil prices and demand while maintaining production activity. Accordingly, the
Company believes that the production equipment and service industry tends to be
characterized by more stable revenues than those of companies that primarily
provide products and services to the oil and gas exploration industry. The
Company also believes that, at times of stronger oil prices and demand,
companies that primarily provide products and services to the oil and gas
exploration industry realize increases in revenues more quickly than the
production equipment and service industry. The extent to which the revenues of
the production equipment and service industry increase depends upon the success
of the exploration efforts and, in general, lag increased revenues in the
exploration industry. These lag times can be up to several years in offshore
operations but are generally shorter with respect to onshore operations. Over
the last three years, worldwide oil and gas exploration and production
expenditures have increased 14% annually. As a result, the Company believes that
the demand for products and services from the production equipment and service
industry attributable to new field discoveries will increase in the near future.
Changing production profiles in existing fields also increase the demand
for production equipment and services. As existing fields are reworked or
enhanced recovery methods are employed, additional and more complex equipment
may be required to produce oil and gas from such fields. This can result from a
change in the mix of oil and gas produced in the field or an increase in
contaminants such as water or carbon dioxide that may occur naturally over time
or as a result of enhanced recovery techniques, such as waterflooding or carbon
dioxide injection, that may be implemented to accelerate production or extend a
field's productive life. In addition, many new oil and gas fields contain lower
quality hydrocarbon streams that require more complex production equipment.
Examples include carbon dioxide rich formations in West Texas and Southeast Asia
and heavy crude in Western Canada and in the Orinoco Delta in Venezuela. The
Company believes that these factors will result in increased demand for surface
production equipment, systems and services.
STRATEGY
The Company has achieved a 25% compounded annual growth rate in Adjusted
EBITDA over the four fiscal years ended March 31, 1997, principally as a result
of increasing its market penetration of the production equipment and services
industry. The Company's strategy for increasing EBITDA and earnings per share in
the future is to expand its existing market position and improve productivity
through:
Focusing on Customer Alliances. Exploration and production companies have
reduced production costs and delivery times for oilfield equipment by
establishing alliances with leading oilfield equipment and service suppliers
that can provide a broad range of products and services on a cost effective and
timely basis. The Company has generated substantial revenue growth and expanded
its market position, principally as a result of alliances established with
subsidiaries of major oil companies and large independent producers such as
Amoco Production Company, BP Exploration (Alaska), Inc., Chevron Canada
Resources, Mobil Oil Canada, Sonat Exploration Company and Union Pacific
Resources Group Inc. The Company is actively engaged in discussions with other
potential alliance customers. The Company believes its breadth of products and
services, geographic scope, technological expertise and service orientation
provide it with a competitive advantage in establishing such alliances.
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Providing Turnkey Integrated Systems and Solutions. The Company believes
its turnkey, single source design and manufacturing capabilities enable it to
reduce its customers' production equipment and systems costs and shorten
delivery times. In certain applications, such as skid-mounted gas conditioning
packages for offshore applications, the Company intends to increase the degree
of standardization to reduce engineering costs and shorten delivery times.
Introducing New Technologies and Products. Since its formation, the Company
has developed and acquired leading technologies for the surface production
equipment industry to address the market demand for increasingly sophisticated
production equipment. For example, the Company developed the first high capacity
oil and gas separator and the first emulsion treating system in the industry,
and its electrostatic oil treating technology is the most advanced in the
industry. In addition, the Company developed the industry standard separation
technology on floating production vessels. Further, the Company has recently
developed the EPIC(TM) , a commercial application of electrostatic technology
that can extend production in oil streams that have increasing water content.
Pursuing Complementary Acquisitions. The Company pursues complementary
acquisitions that expand its ability to offer integrated production systems and
leading technologies. The acquisition of Cynara will provide the Company with
bulk carbon dioxide separation technology. Combined with the Company's
experience with lower concentration removal processes, Cynara's membrane
technology will allow the Company to provide removal solutions for the entire
range of carbon dioxide concentrations. The production equipment industry is
highly fragmented with smaller competitors that have narrow product lines and
geographic scope. The Company believes an industry trend is for customers to
work with vendors, such as the Company, that provide broader product and service
lines and the ability to offer integrated systems. The Company believes that its
size, scope of products and services and, following the Offering, its status as
a public company, provide it with a competitive advantage in making
consolidating acquisitions in the production equipment industry.
Expanding International Presence. The Company has been and intends to
continue expanding its international presence in targeted geographic regions in
which it either has a relationship with a customer or has technology that
provides it with a competitive advantage. Examples include Venezuela and
Kazakhstan, where the Company has existing relationships with customers that are
expanding operations in such regions, and Southeast Asia, where Cynara's
membrane separation technology has applications in carbon dioxide rich fields.
Moreover, the Company is frequently invited to bid on international production
equipment and service projects because of its international reputation and its
large installed base of production equipment. Finally, the Company intends to
continue to expand its international presence through the acquisition of
companies with complementary overseas operations.
Improving Productivity. The Company believes unrealized efficiencies remain
in its operations and intends to increase profitability through implementation
of a strategic business planning process across the Company and total quality
management ("TQM") principles in its United States operations. The Company
implemented TQM principles in its Canadian operations beginning in 1993 and
believes that it is in part responsible for improvements in results of Canadian
operations over the past four years. The Company believes that significant
opportunities for process and productivity improvements across the Company will
be identified and implemented as a result of these efforts.
RECENT ACQUISITIONS
TEST. In June 1997, the Company acquired TEST, a leading provider of I&E
control systems and services, from Weatherford Enterra, Inc. for $19.4 million
in cash. The acquisition of TEST broadened the Company's product line and
increased the Company's ability to provide fully integrated engineered systems.
For the year ended December 31, 1997, TEST had revenues and EBITDA of $45.3
million and $4.0 million, respectively.
Cynara. In March 1998, the Company entered into a definitive agreement to
acquire Cynara, a leader in the design, construction, installation, operation
and servicing of membrane separation systems that remove carbon dioxide from gas
streams. The Cynara Acquisition will expand the Company's ability to offer
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integrated systems and services and will complement its gas conditioning product
line. Aggregate consideration for the Cynara Acquisition will consist of $7.5
million in cash, 906,667 shares of Common Stock, the repayment of $8.8 million
of Cynara debt and an additional 20.1 shares of Common Stock for each $1,000 of
gross margin generated by projects in Southeast Asia that are awarded to Cynara
over the next two years, up to a maximum of 906,667 additional shares. For the
year ended December 31, 1997, Cynara's revenues and EBITDA were $18.6 million
and $4.4 million, respectively. Proceeds from the Offering will be used, in
part, to fund the cash portion of the purchase price. The closing of the Cynara
Acquisition is contingent upon the contemporaneous closing of the Offering.
PRODUCTS AND SERVICES
TRADITIONAL PRODUCTION EQUIPMENT AND SERVICES
The Company's traditional production equipment and services consist of
production equipment, replacement parts, used equipment refurbishing and the
servicing of such equipment. The Company sells its traditional production
equipment and services primarily onshore in North America and in the Gulf of
Mexico. Traditional production equipment built for the North American oil and
gas industry is typically provided "off the shelf" or in customized variations
of standardized equipment and requires limited engineering. Traditional
production equipment includes:
Separators. Separators are used for the primary separation of a hydrocarbon
stream into oil, water and gas. The Company's separator product line includes:
(i) horizontal separators, which are used in the separation of hydrocarbon
streams with large volumes of gas, liquids or foam; (ii) vertical separators,
which are used in the separation of hydrocarbon streams containing salt or wax;
(iii) filter separators, which are used in the removal of gas stream particles;
(iv) Gasunie(R) Cyclone separators, which are used in high efficiency removal
streams with high gas flow rates; and (v) Thermo Pak(TM) Units, which are used
for the combined heating and separating of production in cold climates.
Oil Dehydration Equipment. Oil dehydrators are used to remove water from
oil. The Company's oil dehydration product line includes: (i) horizontal
PERFORMAX(R) treaters, which separate emulsions using the Company's PERFORMAX(R)
technology by accelerating coalescence so that a smaller vessel is capable of
handling larger volumes; (ii) Dual Polarity(R) electrostatic treaters, which use
a patented method to combine AC and DC electrostatic fields to dehydrate oil
thus enabling higher volumes of crude oil to be processed at lower temperatures;
(iii) vertical treaters, which are primarily used in low volume, high water cut
situations and optimize recovery of condensable, salable hydrocarbons; (iv)
Vertical Flow Horizontal (VFH(TM)) processors, which combine the advantages of
horizontal and vertical vessels to remove gas and water; and (v)
heater-treaters, which use heat to accelerate the dehydration process.
Heaters. Heaters are used to reduce the viscosity of oil to improve flow
rates and to prevent solids from forming in gas. The Company manufactures
indirect fired heaters that heat fluids without direct flame contact as well as
standardized and customized direct fired heaters used in the heating of fluids
and gases for processing. In each system, heat is transferred to the hydrocarbon
stream through media such as water, water/glycol, steam, salt or flue gas. The
Company's heater product line includes: (i) water bath heaters; (ii) propane
vaporizers used to vaporize propane and other liquefied gases; (iii) salt bath
heaters; (iv) steam bath heaters and (v) Controlled Heat Flux Heaters (CHF(TM)),
which use combustion to create a heat transfer medium.
Gas Conditioning Equipment. Gas conditioning equipment removes contaminants
from gas streams. The Company's glycol dehydration equipment removes water vapor
from gas streams. The Company's amine gas treating equipment removes acidic
gases (hydrogen sulfide and carbon dioxide) from gas streams. The Company also
offers batch sweetening equipment for the extraction of hydrogen sulfide.
Gas Processing Equipment. The Company offers standard and custom processing
equipment for the extraction of liquid hydrocarbons to meet feed gas and liquid
product requirements. The Company manufactures several standard mechanical
refrigeration units for the recovery of salable hydrocarbon liquids from gas
streams. The Company's Low Temperature Extractor (LTX(R)) units are mechanical
separation
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systems designed for handling high pressure gas at the wellhead and removing
liquid hydrocarbons more efficiently and economically than other methods.
Water Treatment Equipment. The Company designs and manufactures water
treatment and conditioning equipment for the removal of contaminants from water
extracted in oil and gas production. The Company's PERFORMAX(R) Matrix Plate
Coalescer is used in primary separators of oil and water and final skimming. The
Company's flow splitter removes gases from an oil-water dispersion, separates
oil and water and discharges the oil and/or emulsion through controllable
outlets.
Equipment Refurbishment. The Company sources, refurbishes and integrates
used oil and gas production equipment. The refurbishment of used equipment for
resale enables the Company to reduce delivery times and lower equipment costs
relative to new equipment. The used equipment market is focused primarily in
North America, both onshore and offshore, although the Company has observed a
growing interest internationally.
The Company has entered into agreements with major and large independent
oil companies in both the United States and Canada to evaluate, track and
refurbish used production equipment. In providing such equipment to its
customers, the Company may act as a broker between an oil company and the
customer or may purchase, refurbish and sell used equipment to the customer. The
Company believes it has one of the largest databases in the North American oil
and gas industry of available surplus production equipment, which, when coupled
with its extensive refurbishing facilities and experience, enables the Company
to respond to customer requests for refurbished equipment quickly and
efficiently.
Parts, Service and Training. The Company provides replacement parts for its
own equipment and for equipment manufactured by others. Each branch of the
Company's marketing network also serves as a local parts and service business.
The Company has service employees stationed in certain branches of Wilson Supply
Company and National-Oilwell, Inc. In an effort to expand this area of the
Company's business, the Company has recently added services, including
specialized relief valve repair and glycol dehydrator cleaning. The Company also
offers operational and safety training to the oil and gas production industry.
The Company also uses its training programs to serve as a marketing tool for
other products and services.
The Company markets its traditional production equipment and services
primarily through 33 sales and service centers throughout the United States,
three in Canada and two in Venezuela. The Company has alliances with a number of
companies for traditional production equipment and related services. See
"-- Customers and Alliances."
ENGINEERED SYSTEMS
The Company's engineered systems typically require a significant amount of
technology, engineering and project management. Engineered systems are typically
designed and manufactured for large production development projects throughout
the world such as offshore platforms in the Gulf of Mexico and onshore and
offshore developments in Alaska, Latin America, the Middle East, Africa, and
countries in the former Soviet Union. In connection with the Company's
engineered systems, the Company can provide design, engineering, manufacturing
and start-up services. The Company's engineered systems include:
Integrated Oil and Gas Processing Trains. Integrated oil and gas processing
trains consist of multiple pieces of equipment that process oil and gas from
primary separation through contaminant removal. In providing these systems, the
Company combines the roles of an engineering company and a vessel and structural
fabricator. The Company is one of the few production equipment suppliers that
have this capability. For example, the Company designed, manufactured and
assembled a production module for a production facility for operation off the
coast of West Africa that is capable of processing 20,000 barrels of oil, 4,000
barrels of water and 24 million standard cubic feet of gas per day. Also, the
Company designed, manufactured and is slated to install process systems for BP
Exploration (Alaska), Inc.'s 35,000 barrel per day Badami development on the
North Slope of Alaska and its 65,000 barrel per day Northstar development also
located on the North Slope.
Floating Production Systems. Production equipment used on floating
production systems consists of large packaged skids for various
semi-submersible, converted tanker and other floating production vessels.
Because
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of the wave motion experienced on a floating vessel, successful floating
production requires technology and experience to overcome the detrimental
effects of wave motion. The Company pioneered and patented the first wave-motion
production vessel internal system. The Company continues to advance this
technology at its research and development facility using a wave-motion table
which simulates a variety of sea states.
Dehydration and Desalting Facilities. Dehydration and desalting involves
the removal of water and salt from an oil stream. Desalting is a specialized
form of dehydration where water is injected into the oil stream, salt dissolves
in the water, and then the saltwater is removed. Large projects often use
electrostatic technology to accomplish desalting. The Company believes that it
is the leading developer of electrostatic technologies for oil treating and
desalting. The Company's Electro-Dynamic(TM) Desalter ("EDD") combines NATCO's
Dual-Polarity technology (using both AC and DC fields) with electrostatic mixing
and countercurrent flow technologies allowing for multi-stage desalting within a
single vessel. A large portion of the market for these facilities has
historically been in the Middle East. In addition, NATCO has successfully
marketed and intends to continue to market these facilities to prospective
producers of heavy crude in Venezuela.
The Company's EDD systems also have applications in oil refineries, where
stringent desalting requirements have grown increasingly important. These
requirements have increased as crude quality has declined and catalysts have
become more sensitive and sophisticated, requiring lower levels of contaminants.
The reduced number of vessels employed by an EDD system is particularly
important in refinery applications where space is at a premium. Refinery
retrofits have even stricter space requirements than newly constructed
refineries.
Large Gas Processing Facilities. The Company provides large gas processing
facilities for the separation, heating, dehydration, and removal of gas liquids
and contaminants, such as carbon dioxide and hydrogen sulfide, to produce
pipeline or liquefaction-quality gas. The Cynara Acquisition provides the
Company with technology that complements the Company's gas processing product
line. Cynara's membrane technology for bulk carbon dioxide removal provides the
most cost-effective solution for gas streams which contain more than 20% carbon
dioxide. The primary applications of Cynara's technology occur in fields where
carbon dioxide injection is used to extract oil and gas reserves, such as West
Texas, and where high levels of carbon dioxide are naturally occurring, such as
Southeast Asia. Cynara's membrane technology is well suited to both of these
applications.
Downstream Facilities. The Company possesses several technologies that have
crossover applications in the refinery and petrochemical sectors, most of which
are centered on aspects of oil treating and water treating. In addition to the
Company's EDD applications in the refinery desalter market discussed above, the
Company's DOX(TM)technology, which is primarily used in ethylene quench water
applications, cleans both heavy and light dispersed oil from water. DOX(TM)
units are specified in many ethylene technology providers' process schemes.
The Company markets its engineered systems through direct sales forces
based in Houston, Calgary, London, Tokyo and Caracas, augmented by independent
representatives in other countries. The Company also uses its unique oil testing
capabilities at its research and development facility to market engineered
systems. This capability enables the Company to determine equipment
specifications that best suit customers' requirements. See "-- Technology and
New Products."
INSTRUMENTATION AND ELECTRICAL SYSTEMS
Control Systems. The Company designs, assembles and installs pneumatic,
hydraulic, electrical and computerized control panels and systems. These systems
monitor and change key parameters of oil and gas production systems. Such
parameters include wellhead flow control and emergency shutdown of production
and safety systems. A control system consists of a control panel and related
tubing, wiring and connections.
Engineering and Field Services. The Company provides start-up support,
testing, maintenance, repair, renovation, expansion and upgrade of control
systems including those designed or installed by competitors. The Company's
design and engineering staff also provide contract electrical engineering
services.
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SCADA Systems. SCADA systems provide remote monitoring and control of
equipment, production facilities, pipelines and compressors via radio, cellular
phone, microwave and satellite communication links. The Company's SCADA systems
reduce the number of personnel and frequency of site visits and allow for
continued production during periods of emergency evacuation thereby reducing
operating costs.
The primary market for the Company's I&E systems is in offshore
applications throughout the world. The Company markets and services its I&E
products through a four branch network primarily in the Gulf Coast area.
CUSTOMERS AND ALLIANCES
One of the Company's primary strategies for growth is the further
development of existing customer alliances and the formation of new customer
alliances. The Company currently has alliances with a number of major and
independent oil companies, including Amoco Production Company, BP Exploration
(Alaska), Inc., Chevron Canada Resources, Mobil Oil Canada, Sonat Exploration
Company and Union Pacific Resources Group Inc. The Company also works on an
alliance basis with Halliburton Energy Services and Brown & Root. The Company is
actively engaged in discussions with other potential alliance customers. The
Company's alliance business has accounted for an increasing percentage of the
Company revenues. For the nine months ended December 31, 1997, alliance
customers accounted for approximately 35% of the Company's pro forma revenues.
The Company's alliances include arrangements such as blanket purchase orders for
specified amounts of standardized equipment, project-specific integrated
alliances and ongoing informal working relationships. As is common in the oil
and gas production industry, many of these alliances are not formal contracts
but represent informal arrangements in which both parties undertake to satisfy
the objectives of the alliance. Although the alliance customers as a group are a
significant contributor to the Company's revenues, no one customer represented
more than 10% of total revenues for any of the Company's last three fiscal
years. Sales to BP Exploration (Alaska), Inc. accounted for approximately 11% of
the Company's revenues for the nine months ended December 31, 1997. However, a
customer that accounts for a significant portion of revenues in one fiscal year
may represent a smaller portion of revenues in subsequent years.
TECHNOLOGY AND NEW PRODUCTS
Since its inception, the Company has been a leader in the development of
oil and gas industry production equipment technology. The Company pioneered many
of the original separating technologies for converting unprocessed hydrocarbon
fluids into salable oil and gas. The Company has developed the first high
capacity oil and gas separator, the first emulsion treating system, Dual
Polarity(TM) electrostatic oil treaters, DOX(TM) and OSX(TM) water filtration
systems, high pressure indirect heaters, and PERFORMAX(R) oil and water treating
systems. The Company's wave-motion compensating separator has become the
industry standard for floating production applications, and its electrostatic
oil treating technology is the most advanced in the industry.
As of December 31, 1997, the Company held 56 United States patents and 111
foreign patents and had applications pending for three United States patents and
one foreign patent.
The Company operates its own research and development facility, which is
located in Tulsa, Oklahoma and includes wet and dry laboratories, a hydrocarbon
treatment unit, a wave-motion simulator, a process flow loop and other fluid
analyzers and test equipment. In recent years, the Company has invested in
refurbishing its wave motion simulator, building a new oil flow loop to test
high gas-to-oil ratio coalescers and building pilot units for field testing and
electro-pulse inductive coalescer technology described below. The Company has
also devoted substantial resources to develop improved equipment designs using
flow simulation software.
A recent focus of the Company's research and development has been the
integration of TEST control panels into its heaters. The Cynara Acquisition
provides the Company with membrane technology to complement its engineered
systems product line while allowing the Company to develop new applications of
such technology in other product offerings. Cynara has an active product
development and field testing program which works toward continually improving
the membrane product which is delivered to the customer. Several recent
production improvements include a new membrane wrapping process and the
development of larger membranes to process more gas per installed unit. Cynara
also has agreements to test and apply
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membranes made primarily by Japanese membrane manufacturers for varying process
conditions in oil and gas applications.
The Electro-Pulse Inductive Coalescer (EPIC(TM)), currently being
commercialized by the Company, is a relatively small vessel designed to coalesce
water in a flowing stream of oil. At existing flow stations that are losing
production as water increases, the installation of an EPIC(TM) can extend and
increase production. For new production, EPIC(TM) can reduce equipment size,
weight, and space requirements for primary separation equipment.
The Company recently completed and installed a large EPIC(TM) facility in
the Middle East, the first such project to increase production at a large
gathering facility. The Company is also fabricating a smaller unit to be
installed at a production facility of NAM in the Netherlands. That unit will
eliminate the need for demulsifying chemicals in its application. The Company
also has pilot units which are currently being field tested by other major oil
companies for possible EPIC(TM) applications.
MANUFACTURING
The Company's major manufacturing facilities are located in New Iberia,
Louisiana; Electra, Texas; Pittsburg, California; and Calgary, Alberta. The
Company also manufactures and assembles products in its Houston, Texas; Odessa,
Texas; Harvey, Louisiana; and Lafayette, Louisiana facilities. The Company's
34,700 square foot manufacturing facility in New Iberia fabricates packaged
production systems for delivery throughout the world and can handle large
equipment systems up to 480 tons. The Company upgraded and expanded its New
Iberia facility in 1994. The Company's manufacturing facility in Electra covers
130,000 square feet and produces all types of low and high pressure vessels as
well as skid packages. The Company fabricates the membranes for its membrane
separation equipment at its 8,000 square foot facility in Pittsburg, California.
The facility in Calgary covers 100,500 square feet and specializes in heavy wall
and cold weather packaged equipment and systems primarily for the Canadian
market.
The Company's manufacturing operations are vertically integrated, with
capability for heat treatment, fabrication, inspection, assembly and testing.
This capability provides competitive advantages because the Company is able to
control the quality of its products and the cost and schedule of its
manufacturing.
The Company's New Iberia, Electra and Calgary facilities have been
certified to ISO 9002 standards. ISO 9002 is an internationally recognized
verification system for quality management overseen by the International
Standards Organization based in Geneva, Switzerland. The certification is based
on a review of the Company's programs and procedures designed to maintain and
enhance quality production and is subject to annual review and recertification.
The Company fabricates to the standards of the American Petroleum
Institute, the American Welding Society, the American Society of Mechanical
Engineers and specific customer specifications. The Company uses welding and
fabrication procedures in accordance with the latest technology and industry
requirements. Training programs have been instituted to upgrade skilled
personnel and maintain high quality standards. Management believes that these
programs generally enhance the quality of its products and reduce their repair
rate.
COMPETITION
Production equipment companies servicing the oil and gas industry compete
intensely for available projects. Contracts for the Company's products and
services are generally awarded on a competitive basis. Customers may consider,
among other things, the availability and capabilities of equipment, the
contractor's reputation, experience and safety record. Price and ability to meet
a customer's delivery schedule are the principal factors in determining which
qualified contractor is awarded the job. Historically, the market for oilfield
services and equipment has experienced periods of overcapacity which have
resulted in increased price competition in many areas of the Company's business.
The Company competes with a large number of companies, some of which may offer
different technologies or possess greater financial and other resources than the
Company. In addition, because of subsidies, import duties and fees, taxes
imposed on foreign
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<PAGE> 46
operators and lower wage rates in foreign countries along with fluctuations in
the value of the U.S. dollar and other factors, the Company may not be able to
remain competitive with foreign contractors for projects designed for use in
international locations as well as those designed for use in the Gulf of Mexico.
The Company believes that performance, price and reliability are the prime
competitive factors in the markets in which it competes.
The Company believes that it is one of the largest oil and gas surface
production equipment providers in North America and that its size, research and
development capabilities, brand names and marketing organization provides it
with a competitive advantage over other participants in the industry.
BACKLOG
As of December 31, 1997, the Company had backlog of $46.2 million, as
compared to backlog of $37.8 million as of December 31, 1996 (exclusive in both
years of orders related to TEST and Cynara). Backlog consists of firm customer
orders for which a purchase order has been received, satisfactory credit or
financing arrangements exist and delivery is scheduled. It is expected that
approximately $16.3 million of the backlog at December 31, 1997 will not be
completed in the current fiscal year ending March 31, 1998 and will carry over
to the next fiscal year. All projects currently included in the Company's
backlog are subject to change and/or termination at the option of the customer,
either of which could substantially change the amount of backlog currently
reported. In the case of a termination, the customer is generally required to
pay the Company for work performed and materials purchased through the date of
termination, and in some cases, pay the Company termination fees; however, due
to the large dollar amounts of backlog estimated for each of a small number of
projects, amounts included in the Company's backlog could decrease substantially
if one or more of these projects were to be terminated by the Company's
customers.
PROPERTIES
The Company is headquartered in Houston, Texas and has 44 sales and
service, manufacturing and other facilities in the United States, three in
Canada, two in Venezuela, one in England, one in Japan, and one in Kazakhstan.
The Company owns 15 of such facilities, and leases the other 38. Cynara is
headquartered in Houston, Texas and has a sales office in Malaysia and a
manufacturing facility in Pittsburg, California. See "-- Manufacturing" for a
discussion of the Company's manufacturing facilities.
EMPLOYEES
As of March 1, 1998, the Company had approximately 1,515 employees,
including 258 located at the Company's manufacturing facility at Calgary who are
covered by a collective bargaining agreement. The most recent collective
bargaining agreement in Calgary was executed in July 1997 and expires in July
1999. No other employees are covered by collective bargaining agreements. The
Company believes that its relations with employees are satisfactory.
Cynara had 40 employees as of March 1, 1998. No Cynara employees are
represented by labor unions, and Cynara believes that its relations with its
employees are satisfactory.
INSURANCE
The Company's operations are subject to the risks inherent in manufacturing
products and providing services in the oil and gas production industry. These
risks include personal injury and loss of life, business interruptions, loss of
production and property and equipment damage. Damages arising from an occurrence
at a location where the Company's products are used have in the past and may in
the future result in the Company being named as a defendant in lawsuits or other
proceedings asserting potentially large claims. The Company maintains
comprehensive insurance covering its assets and operations, including product
liability and workers' compensation insurance, at levels which management
believes to be appropriate and in accordance with industry practice in each case
subject to deductibles ranging up to $300,000 per occurrence, depending on the
type of coverage. However, no assurance can be given that the Company's
insurance
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<PAGE> 47
coverage will be adequate in all circumstances or against all hazards, or that
the Company will be able to maintain adequate insurance coverage in the future
at commercially reasonable rates or on acceptable terms.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to regulations by federal, state and
local authorities in the United States and regulatory authorities with
jurisdiction over its foreign operations. Environmental laws and regulations
have changed substantially and rapidly over the last 20 years, placing more
restrictions and limitations on activities that may impact the environment, such
as emissions of pollutants, generation and disposal of wastes and use and
handling of chemical substances. Violation of such laws and regulations may
result in civil and criminal actions. Although compliance with various
governmental laws and regulations has not materially and adversely affected the
Company's financial condition or results of operations, no assurance can be
given that compliance with such laws or regulations will not have a material
adverse impact on the Company's business in the future.
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that for many years have been used for the manufacture and
storage of products and equipment containing or requiring oil and/or hazardous
substances. Although the Company has utilized operating and disposal practices
that were standard in the industry at the time, hydrocarbons or wastes may have
been disposed of or released on or under the properties owned, leased or
operated by the Company or on or under other locations where such hydrocarbons
or wastes have been taken for disposal. In addition, many of these properties
have been operated by third parties whose treatment and disposal or release of
hydrocarbons or other wastes was not under the Company's control. These
properties and the hydrocarbons or wastes disposed thereon may be subject to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
the Resource Conservation and Recovery Act and analogous state laws. Under such
laws, the Company would be required to remove or remediate previously disposed
wastes (including wastes disposed of or released by prior owners or operators),
property contamination (including groundwater contamination) or to perform
remedial operations to prevent future contamination.
CERCLA imposes liability, without regard to fault or the legality of the
original conduct, on certain classes of persons with respect to the release of a
hazardous substance into the environment. These persons include the owner and
operator of the disposal site or sites where the release occurred and companies
that disposed or arranged for the disposal of the hazardous substances found at
such site. Persons who are or were responsible for releases of hazardous
substances under CERCLA may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is 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.
The Company and approximately 37 other parties, including several large oil
and gas companies, have received notice from the DTSC that each is currently
considered a PRP in connection with the Eastside Landfill Facility, located
approximately ten miles northeast of Bakersfield, California. This site was
operated from 1971 to 1985 by the Environmental Protection Corporation and
accepted a wide variety of wastes from industries and sources. It is alleged
that the Company or its predecessors generated waste which was transported to
the Eastside Landfill Facility. On January 4, 1996, the DTSC entered into an
Enforcement Agreement with an initial group of potentially responsible parties
(the "EPC Group") to undertake a Remedial Investigation/Feasibility Study of the
site. The EPC Group has conducted its study of the site and has determined that
the contamination at the site is subject to Chapter 6.8 of the California Health
and Safety Code and is also subject to Section 107(a) of CERCLA. The DTSC has
indicated that it intends to remediate the site and has, through the Report of
Initial Phase of Remedial Investigation and Workplan for Remedial Investigation
and Feasibility Study prepared by the EPC Group, established an initial site
cleanup estimate of up to $5.0 million. The Company believes that any waste
stream disposed of at the site by the Company is substantially smaller in volume
than that of several other PRPs, including members of the EPC Group and
Management believes that there is a substantial likelihood that any final
contribution negotiated between the DTSC and the Company will reflect volumetric
differences among the various PRPs. Management further
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believes that the Company's liability, if any, to the extent not otherwise
provided for, should not have a material adverse effect on the Company's results
of operations and financial condition.
Although the Company believes that it is in substantial compliance with
existing laws and regulations, there can be no assurance that substantial costs
for compliance will not be incurred in the future. Moreover, it is possible that
other developments, such as stricter environmental laws, regulations and
enforcement policies thereunder, could result in additional, presently
unquantifiable costs or liabilities to the Company.
On January 9, 1998, the Company received a citation and notification of
penalty from the Occupational Safety and Health Administration ("OSHA"), in
which OSHA levied a fine of approximately $260,000 against the Company following
injuries sustained by two employees for safety violations. The Company is
currently appealing the fine and believes it will be reduced. The Company
believes its safety program and record are generally exemplary by industry
standards and continues to emphasize safety and health training and prevention
at all Company facilities. There can be no assurance, however, that OSHA fines
would not be levied against the Company again in the future if additional safety
violations occur.
LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings primarily
involving commercial claims, products liability claims, asbestos related
personal injury claims and workers' compensation claims. While the outcome of
these lawsuits, legal proceedings and claims cannot be predicted with certainty,
management believes that the outcome of all such proceedings, even if determined
adversely, would not have a material adverse effect on the Company's business or
financial condition.
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THE CYNARA ACQUISITION
On March 16, 1998, the Company entered into an agreement and plan of merger
with Cynara and its stockholders for the acquisition by the Company of all of
the outstanding shares of common stock of Cynara (the "Cynara Acquisition
Agreement"). Aggregate consideration payable to the stockholders of Cynara for
the Cynara Acquisition will consist of $7.5 million in cash, the repayment of
$8.8 million of Cynara debt, and the issuance of 906,667 shares of Common Stock,
subject to adjustment as more fully described below. The Company will issue an
additional 20.1 shares of Common Stock (the "Additional Shares") for each $1,000
of gross margin generated by projects in Southeast Asia that are awarded to
Cynara prior to March 31, 2000, up to a maximum of 906,667 shares of Common
Stock. At certain times on or prior to June 30, 2000, stockholders of Cynara
would receive up to 90% of the Additional Shares to be issued based on the
Company's estimate of gross margin expected to be generated by such projects
(which shares will be credited against any later obligations to issue Additional
Shares). Pursuant to the Cynara Acquisition Agreement, the stockholders of
Cynara have agreed to indemnify the Company, on a several basis, for breaches of
their representations in such agreement up to an aggregate of $2.5 million for a
period of one year from the date of the Cynara Acquisition.
The liabilities of Cynara include its obligations under the Cynara Credit
Facility which at March 1, 1998 approximated $8.8 million. Cynara's obligations
under the Cynara Credit Facility will be paid out of the net proceeds from the
sale of the Common Stock offered hereby. See "Use of Proceeds."
For information regarding a registration rights agreement between the
Company and the stockholders of Cynara, see "Certain Transactions -- Securities
Transactions."
The closing of the Cynara Acquisition will occur concurrently with, and is
conditioned upon the completion of, the Offering. As of the date of this
Prospectus, all the conditions to consummation of the Cynara Acquisition, other
than the condition relating to consummation of the sale of the Common Stock
offered hereby, have been fulfilled.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the current
directors and executive officers of the Company. The Board of Directors is
divided into three classes. See "-- Classified Board."
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Nathaniel A. Gregory(1)................... 49 Chairman of the Board and Chief
Executive Officer
Patrick M. McCarthy(1).................... 52 President and Director
William B. Wiener III..................... 46 Senior Vice President and Chief
Financial Officer
Frank Smith............................... 46 President of NATCO -- U.S.
James Crittall............................ 53 President of NATCO Canada, Ltd.
David Volz................................ 44 President of TEST
Richard D. Peters......................... 38 President of Cynara
Herbert S. Winokur, Jr.(1)(2)............. 54 Director
E. Hale Staley............................ 68 Director
Howard I. Bull(2)......................... 57 Director
Keith K. Allan(3)......................... 57 Director
George K. Hickox, Jr.(3)(4)............... 39 Director
</TABLE>
- ------------------------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) Election as director effective upon the consummation of the Offering.
Set forth below is a brief description of the business experience of the
directors and executive officers of the Company.
Nathaniel A. Gregory has served as Chairman of the Board and Chief
Executive Officer of the Company since April 1, 1993. Prior to joining the
Company, Mr. Gregory held a number of positions in both the engineering and
construction industries and in investment banking. Mr. Gregory also serves as a
director of Marine Drilling Companies, Inc., an offshore drilling contractor,
and Mrs. Fields' Original Cookies, Inc.
Patrick M. McCarthy has served as President and a Director of the Company
since December 1997 and February 1998, respectively. Mr. McCarthy served as
Executive Vice President, with marketing and operations responsibilities for the
entire Company, from November 1996 to December 1997 and as Senior Vice
President -- Marketing from June 1994 to November 1996. Prior to joining the
Company in June 1994, Mr. McCarthy was Vice President -- Worldwide Oil and Gas
at ABB Lummus Crest, an engineering and construction company, from October 1991
to May 1994.
William B. Wiener III has served as Senior Vice President and Chief
Financial Officer of the Company since September 1993. Prior to joining the
Company, Mr. Wiener spent fifteen years with First City Bancorporation, a bank
holding company, in Houston, Texas, most recently as Executive Vice President
and Senior Credit Officer.
Frank Smith has served as President of NATCO -- U.S. since January 1998.
Mr. Smith served as Senior Vice President -- Sales and Service from September
1993 to December 1997 and as the Northern Region Director of the Sales and
Service Centers from April 1992 to September 1993.
James Crittall has served as President of NATCO Canada, Ltd. since November
1996 and was Vice President of Technical Operations from December 1992 to
October 1996. Mr. Crittall joined the Company's
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predecessor in 1971 and has served in several managerial positions, including
Manager of Engineering and Sales and Manager of Engineering for NATCO Canada,
Ltd.
David Volz has served as President of TEST since its acquisition by the
Company. Mr. Volz joined TEST in 1976 as a Technical Specialist and has held a
number of positions of increasing responsibility prior to serving as President
in July 1997.
Richard D. Peters has served as President of Cynara since November 1997.
Mr. Peters served as Chief Financial Officer of Cynara from June 1996 to October
1997 and as Project Manager and Accounting Coordinator from February 1991 to May
1996.
Herbert S. Winokur, Jr. has been a director of the Company since its
formation in 1989. Mr. Winokur has been the Managing General Partner of
Capricorn I and Capricorn II since he founded such entities in 1987 and 1994,
respectively. Prior thereto, he held a number of positions at Penn Central
Corporation, including Senior Executive Vice President and Member of the Office
of the President and Director, and has held senior management positions at
Pacific Holding Corporation and The Palmieri Company. Mr. Winokur also serves as
a director of Enron Corp., DynCorp, The WMF Group, Ltd., NacRe Corp. and Mrs.
Fields' Original Cookies, Inc.
E. Hale Staley has been a director of the Company since February 1998 and a
director of the Company's principal operating subsidiary since June 1989. He has
served as a consultant to the Company since August 1995. Mr. Staley joined the
Company's predecessor in 1952 and served as President and Chief Executive
Officer from July 1985 to July 1995.
Howard I. Bull has been a director of the Company since February 1998. From
April 1994 to June 1997, Mr. Bull was President, Chief Executive Officer and a
director of Dal-Tile International, Inc., a manufacturer and distributor of
ceramic tile. From May 1992 to February 1993, Mr. Bull was President of the Air
Conditioning Group of York International Corporation, a producer of heating, air
conditioning and refrigeration systems and equipment, and was President of its
Applied Systems Division from November 1990 to May 1992. From February 1979 to
November 1990, Mr. Bull was employed by Baker Hughes, Inc. in several executive
positions. Mr. Bull is a director of Marine Drilling Companies, Inc. and
National-Oilwell, Inc.
Keith K. Allan has been a director of the Company since February 1998. Mr.
Allan was a director of NATCO (U.K.) Ltd. from October 1996 to January 1998.
From February 1993 to August 1996, Mr. Allan was Technical Director in the North
Sea for Shell U.K. Exploration and Production. Prior thereto, Mr. Allan served
in a number of positions for Royal Dutch/Shell Group, which he joined in 1965.
George K. Hickox, Jr. will become a director of the Company upon
consummation of the Cynara Acquisition. Since September 1991, Mr. Hickox has
served as a general partner of Heller Hickox Dimeling Schreiber and Park, a
partnership specializing in energy investments. Mr. Hickox has also served as a
director of Cynara prior to its acquisition by the Company. Mr. Hickox presently
serves as an officer and director of several privately held companies.
CLASSIFIED BOARD
The Board of Directors is divided into three classes of directors, with
directors serving staggered three-year terms which initially expire at the
annual meetings of stockholders following fiscal year 1999 (Class I), fiscal
year 2000 (Class II) and fiscal year 2001 (Class III). At each annual meeting of
stockholders, one class of directors will be elected for a full term of three
years to succeed that class of directors whose terms are expiring. The current
classification of directors is as follows: Class I -- Messrs. McCarthy and
Staley; Class II -- Messrs. Allan, Bull and, upon election, Mr. Hickox; and
Class III -- Messrs. Gregory and Winokur.
STOCKHOLDERS' AGREEMENT
The Company, Capricorn I and Capricorn II are parties to a Stockholders'
Agreement dated March , 1998 (the "Stockholders' Agreement"). Pursuant to the
Stockholders' Agreement, the Company has agreed that, so long as Capricorn I and
Capricorn II together own 20% or more of the outstanding Common Stock,
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the Company will nominate the individuals designated by Capricorn I and
Capricorn II as the Class III directors when such class stands for election. If
such class should be enlarged, the Company will be obligated to nominate only
two individuals so designated. If it should be reduced to one, the Company's
obligation will be to nominate one individual so designated as a Class III
director and one as a Class II director. If a vacancy should arise in the Class
III directors during the term thereof, the Company has agreed to elect an
individual designated by Capricorn I and Capricorn II to fill the vacancy.
COMMITTEES
The Company's Board of Directors recently established an audit committee
(the "Audit Committee") consisting of Messrs. Allan and Hickox, each of whom is
a non-employee director. The Audit Committee, which is chaired by Mr. Allan,
will meet separately with representatives of the Company's independent auditors
and with representatives of senior management in performing its functions. The
Audit Committee will review the general scope of audit coverages, the fees
charged by the independent auditors, matters relating to the Company's internal
control systems and other matters related to audit functions.
The Company's Board of Directors recently established a compensation
committee (the "Compensation Committee") consisting of Messrs. Bull and Winokur,
each of whom is a non-employee director. The Compensation Committee, which is
chaired by Mr. Winokur, administers the Company's stock option plans, and in
this capacity will make all option grants or awards to Company employees,
including executive officers, under the plans. In addition, the Compensation
Committee will be responsible for making recommendations to the Board of
Directors with respect to the compensation of the Company's Chief Executive
Officer and its other executive officers, and will be responsible for the
establishment of policies dealing with various compensation and employee benefit
matters for the Company.
The Company's Board of Directors recently established an executive and
nominating committee (the "Executive Committee") consisting of Messrs. Gregory,
McCarthy and Winokur. The Executive Committee, which is chaired by Mr. Gregory,
is authorized to exercise the powers of the Board of Directors during the
intervals between the meetings of the Board of Directors and may from time to
time be delegated certain authority in matters pertaining to the Company. The
Executive Committee also reviews the qualifications of potential candidates for
the Board of Directors, evaluates the performance of incumbent directors and
recommends to the Board nominees to be elected at the annual meeting of
stockholders. For information concerning the agreement of the Company to
nominate two individuals for director as designated by Capricorn I and Capricorn
II, see "-- Stockholders' Agreement."
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EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended March
31, 1998 (except as indicated) with respect to the Chief Executive Officer of
the Company and each of the four other most highly compensated executive
officers of the Company (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING STOCK ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#)(1) COMPENSATION
<S> <C> <C> <C> <C>
Nathaniel A. Gregory..................... $350,000 $152,125(2) -- $9,375(3)
Chairman and Chief Executive Officer
Patrick M. McCarthy...................... 215,004 102,540 --(4) 9,375(3)
President and Director
William B. Wiener III.................... 148,407 58,080 -- 9,375(3)
Senior Vice President and Chief
Financial Officer
Frank Smith.............................. 132,502 52,760 33,334 9,375(3)
President of NATCO -- U.S.
David Volz(5)............................ 107,385 95,959 66,667 6,286(6)
President of TEST
</TABLE>
- ------------------------------
(1) Excludes options awarded during fiscal 1997 as result of conversion of SARs
granted in previous periods or, in the case of Mr. Gregory, pursuant to
prior option grants. See "-- Individual Employee Stock Options" and
"-- Stock Option Grants." For information concerning the aggregate holdings
of stock options by the Named Executive Officers, see "-- Stock Option
Grants."
(2) See "-- Employment Agreement" for the terms of an additional bonus to be
paid in connection with the consummation of the Offering.
(3) Includes contractual and discretionary contributions by the Company to the
Named Executive Officer's 401(k) plan account.
(4) Excludes an option to purchase 16,667 shares of Common Stock at the initial
public offering price granted to Mr. McCarthy effective upon consummation of
the Offering.
(5) Compensation information relating to Mr. Volz is provided for TEST's fiscal
year ended December 31, 1997.
(6) Includes matching contributions by TEST to Mr. Volz's 401(k) plan account.
EMPLOYMENT AGREEMENT
The Company and Mr. Gregory are parties to an employment agreement dated
March 15, 1994 pursuant to which Mr. Gregory serves as Chairman and Chief
Executive Officer of the Company. As amended in July 1997 (as amended, the
"Employment Agreement"), the Employment Agreement provides for the employment of
Mr. Gregory as Chairman and Chief Executive Officer of the Company through July
1998. Thereafter, the Employment Agreement will be annually renewed for one year
unless terminated by the Company or Mr. Gregory. The Employment Agreement
provides for an annual base salary in the amount of $350,000, an annual bonus
with a target award of 60% of Mr. Gregory's base salary based on targeted
performance criteria and additional discretionary bonuses as may be determined
by the Board of Directors.
In addition to Mr. Gregory's base salary and bonuses, the Employment
Agreement entitles Mr. Gregory to an additional bonus upon the occurrence of any
sale or public offering of the Company. Such bonus will equal one and one-half
percent (1.5%) of the value of all securities owned by stockholders of the
Company prior to the sale or offering, including Common Stock valued at the
price per share received in either the sale
52
<PAGE> 54
or public offering, and any debt held by such stockholders. This Offering
constitutes a sale or public offering that triggers the bonus payment under the
Employment Agreement. Based on an assumed initial public offering price of
$ , the amount of Mr. Gregory's bonus is estimated to be $1.7 million.
For information regarding a stock option agreement between the Company and
Mr. Gregory executed at the time of original execution of the Employment
Agreement, see "-- Individual Employee Stock Options."
If the Company terminates Mr. Gregory's employment for any reason other
than just cause, Mr. Gregory is entitled to severance pay in accordance with any
severance plan or policy that the Company then has in effect. If Mr. Gregory
terminates the Employment Agreement for any reason, other than by reason of a
material breach of the Employment Agreement by the Company, Mr. Gregory will not
be entitled to receive any bonus compensation or severance pay, and the Company
shall have no further obligations or responsibilities other than base salary
amounts earned but not yet paid.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive a retainer or
fees for service on the Board of Directors or any committees thereof. The
Company recently began compensating non-employee members of the Board of
Directors for their service as directors of the Company. Directors who are not
employees of the Company receive a quarterly fee of $6,500 and a fee of $500 for
attendance at each meeting of the Board of Directors. In addition, pursuant to
the 1998 Director Stock Option Plan, following completion of the Offering, each
non-employee director who is reelected as a director after completing at least
one year of service as a director will receive, on the date of reelection, a
Plan Stock Option to purchase 2,667 shares of the Company's Common Stock at the
current market price on the date of grant. See "-- Stock Option Plans." Certain
non-employee directors have also been awarded initial stock options, which vest
over a period of two and one-half years, to purchase 6,667 shares of the
Company's Common Stock at a price of $8.81 per share. Directors of the Company
are reimbursed for reasonable out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof and for other expenses
reasonably incurred in their capacity as directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Company did not have a compensation committee of
its Board of Directors. As a result, each of the Company's directors, including
Mr. Gregory, Chairman of the Board and Chief Executive Officer of the Company,
participated in deliberations of the Company's Board of Directors with respect
to the compensation of executive officers. The Board of Directors recently
established a Compensation Committee consisting of Messrs. Bull and Winokur. See
"-- Committees."
INDIVIDUAL EMPLOYEE STOCK OPTIONS
Beginning in June 1989, the Company issued stock appreciation rights to
certain of its employees pursuant to a stock appreciation rights plan, which was
amended in 1994. In June 1997, the Company terminated such plan and converted
all outstanding stock appreciation rights into Individual Employee Stock Options
to purchase Common Stock on terms consistent with those of the previously
outstanding stock appreciation rights. The Company entered into stock option
agreements ("Stock Option Agreements") with the executive officers and key
employees who were granted Individual Employee Stock Options in June 1997 and
whose stock appreciation rights have been converted into Individual Employee
Stock Options.
The Stock Option Agreements provide for vesting of Individual Employee
Stock Options ratably over three or four years, except as provided below with
respect to Individual Employee Stock Options granted to Mr. Gregory. Individual
Employee Stock Options become fully vested in certain circumstances upon a sale
of the Company and upon the death or disability of the recipient while employed
by the Company. Individual Employee Stock Options terminate upon the earliest to
occur of (i) the termination of employment with the Company for cause; (ii)
thirty days after termination of employment with the Company for any reason
other than cause; (iii) thirty days after an alteration of employment; or (iv)
the expiration of the option period provided in each Stock Option Agreement
(either December 21, 2001, April 15, 2003 or January 1, 2005).
53
<PAGE> 55
The Company is obligated to purchase vested options under certain circumstances
and according to procedures set forth in the Stock Option Agreements. Individual
Employee Stock Options are not transferable and may be exercised only by the
recipient or his estate. The shares of Common Stock subject to the Stock Option
Agreements and the exercise prices therefor are subject to adjustment in certain
events. See "Certain Transactions."
The Stock Option Agreement between the Company and Mr. Gregory supersedes
options granted to him in March 1994 and July 1996. Mr. Gregory's Stock Option
Agreement provides that all options granted to him, including his Individual
Employee Stock Options, are fully vested and exercisable at the time of grant.
Mr. Gregory's Individual Employee Stock Options terminate upon the earliest to
occur of (i) the termination of his employment with the Company for cause, (ii)
one year after the termination of his employment due to death or disability,
(iii) in certain circumstances, the sale of all of the outstanding Common Stock
and (iv) the expiration of the various seven year option periods provided in his
Stock Option Agreement. Mr. Gregory's Individual Employee Stock Options are
subject to adjustments for stock dividends, stock splits, stock combinations or
other recapitalizations.
As of March 1, 1998, Individual Employee Stock Options have been granted
under the Stock Option Agreements with respect to a total of 1,541,781 shares of
Common Stock, of which 895,559 are exercisable at $1.47 per share, 50,001 are
exercisable at $2.22 per share, 185,186 are exercisable at $3.58 per share and
411,035 are exercisable at $5.03 per share.
STOCK OPTION PLANS
1998 Director Plan. The Company adopted the Directors Compensation Plan
(the "1998 Director Plan") in February 1998. The 1998 Director Plan provides for
both the award of stock options to and compensation of non-employee directors of
the Company. See "-- Compensation of Directors." The 1998 Director Plan provides
for both discretionary option and formula option grants and is administered by
the Board of Directors of the Company, which may delegate all of its power of
administration, with the exception of the power to authorize issuance of
options. No director may vote or decide upon any matter relating solely to such
director under the 1998 Director Plan, nor may any director vote in any case in
which the director's individual right to claim any benefit under the 1998
Director Plan is particularly involved.
The maximum number of shares which may be issuable under the 1998 Director
Plan is 60,000. Options granted under the 1998 Director Plan will have a term of
10 years and will be subject to earlier termination if the optionee's membership
on the Board of Directors terminates for cause. If the optionee's membership on
the Board of Directors is terminated for any reason other than cause, options
may be exercised for up to three years from the date of such termination, but
only as to the number of shares such optionee could have purchased on the date
of termination from the Board of Directors. Discretionary option grants will be
exercisable as determined by the Board of Directors, and formula option grants
will be fully exercisable on the first anniversary of the date of grant. The
exercise price of an option shall be the price determined by the Board of
Directors in the case of discretionary option grants, and the fair market value
in the case of formula option grants.
The 1998 Director Plan contains provisions whereby the Board of Directors
may make adjustments in the number of shares to be acquired upon exercise of
options in the event of a stock split, combination or stock dividend.
The 1998 Director Plan may be amended or terminated at any time by the
Board of Directors. Such amendment or termination will not impair the rights of
a non-employee director with respect to options previously granted to such
non-employee director or affect options previously granted and outstanding under
the 1998 Director Stock Option Plan.
As of March 1, 1998, options have been granted under the 1998 Director Plan
with respect to a total of 13,334 shares of Common Stock, all of which are
exercisable at $8.81 per share. All of the currently outstanding options vest
quarterly over a period of 2 1/2 years. No stock appreciation rights have been
granted under the 1998 Director Plan.
54
<PAGE> 56
1998 Employee Plan. The Company adopted the Employee Stock Incentive Plan
(the "1998 Employee Plan") in February 1998. The purpose of the 1998 Employee
Plan is to attract qualified consultants, advisors and employees and to give
certain individuals and key employees of the Company who are responsible for its
administration and management a proprietary interest in the Company, thereby
strengthening their concern for its welfare and providing them with additional
incentive and reward opportunities. The maximum number of shares that may be
issuable under the 1998 Employee Plan is 700,000, subject to adjustment in
certain events. The maximum number of shares and options to purchase shares
issuable to an individual in a single year under the 1998 Employee Plan is
100,000.
The 1998 Employee Plan provides for the award of "incentive stock options"
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options (options that do not qualify
under section 422 of the Code), restricted stock awards and stock appreciation
rights, or any combination of the foregoing. Awards may be granted only to
employees, advisors and consultants of the Company or any parent or subsidiary
corporation. The 1998 Employee Plan is administered by the Compensation
Committee of the Board of Directors of the Company. The Compensation Committee
has the authority, in its discretion, to determine which employees, consultants
or advisors shall receive an option, stock appreciation right or restricted
stock award (collectively, "Awards"), the time or times when such Awards shall
be made, what type of Award shall be granted, the number of shares subject to
each such Award and the vesting conditions of each such Award.
To the extent that the fair market value of Common Stock underlying
incentive stock options exceeds $100,000, such incentive stock options shall be
treated as non-qualified stock options. No incentive stock option shall be
granted to an individual if, at the time of grant, the individual owns stock
possessing more than 10% of the total combined voting power of all classes of
the Company's capital stock, subject to certain exceptions. The exercise price
per share of Common Stock under each option is determined by the Compensation
Committee; provided, however, that such exercise price shall not be less than
the fair market value of a share of Common Stock on the date the option is
granted.
Stock appreciation rights may be granted either in conjunction with an
option grant or independently of any option grant. The terms of each stock
appreciation right are determined by the Compensation Committee, provided that
the exercise price shall not be less than the fair market value of a share of
Common Stock on the date the stock appreciation right is granted.
The 1998 Employee Stock Option Plan provides that, in the event of a
corporate change (as defined in the 1998 Employee Stock Option Plan, generally
to include certain mergers, dispositions of all or substantially all of the
Company's assets, liquidation and dissolution, the acquisition by a person or
group of more than 20% of the voting power of the outstanding capital stock of
the Company or a change in the majority of directors of the Company as a result
of a contested election of directors), the Compensation Committee may, in its
discretion, accelerate the vesting of outstanding options, require the surrender
of outstanding options in exchange for a cash payment based on a formula
specified in the 1998 Employee Stock Option Plan, make adjustments to
outstanding options to reflect such corporate change or provide that such
outstanding options will cover securities or property which the optionee would
have received in a corporate change if the optionee were then the holder of the
Common Stock covered by the option. The Compensation Committee may also fully
vest any or all Common Stock awarded to the holder pursuant to a restricted
stock award.
The Board of Directors may terminate or amend the 1998 Employee Plan at any
time, provided that no change in any Award previously granted may be made that
would materially impair the rights of a holder of such Award. Further, the Board
of Directors may not, without stockholder approval, amend the 1998 Employee Plan
to increase the maximum aggregate number of shares that may be issued under the
1998 Employee Plan or change the class of individuals eligible to receive Awards
under the 1998 Employee Plan.
CHANGE OF CONTROL AND SEVERANCE PLAN
The executive officers of the Company have entered into change of control
agreements with the Company that provide for the payment of 150% of base salary
(200% in the case of Mr. McCarthy) plus accrued bonuses upon a change of control
of the Company. A change of control means the acquisition by any party
55
<PAGE> 57
unrelated to Capricorn I or Capricorn II of 80% or more of the outstanding
Common Stock of the Company or securities which may be converted to Common Stock
or assets of the Company. A change of control is deemed not to have occurred if
any surviving corporation in the case of a merger, or any purchasing corporation
in the case of a sale of all the assets of the Company, agrees to employ the
executive officers of the Company on terms substantially similar to the terms of
each executive officer's employment with the Company prior to such change of
control.
Senior executive officers participate in an executive severance policy (the
"Executive Severance Plan") adopted by the Company in September 1990. The
purpose of the plan is to provide severance pay in the event of an executive's
involuntary termination from the Company. The Executive Severance Plan covers
all senior executives of the Company and does not apply to voluntary
separations, such as resignation or retirement, or separations for cause, sale
of the Company or the death of the employee. Under the Executive Severance Plan,
upon involuntary termination of employment, senior executives receive severance
pay in an amount equal to one month's pay for each $10,000 of base salary, up to
a maximum of twelve months' pay. Senior executives also receive earned vacation
pay at the time of involuntarily termination.
DEFERRED COMPENSATION PLAN
TEST adopted a deferred compensation plan (the "TEST Plan") effective July
1, 1995 to provide incentives and rewards to certain individuals. Awards are
payable in five equal annual installments plus any earnings that have been
allocated to a participant's account. The Company has elected not to make any
additional awards for the plan year beginning January 1, 1998. The Company
intends to terminate the TEST Plan upon consummation of the Offering and to pay
out all accrued amounts to each participant. As of March 1, 1998, the total
amount owed under the TEST Plan was $694,221. This balance presently accrues
earnings at the prime rate plus 1%.
STOCK OPTION GRANTS
The following table contains certain information concerning stock options
granted to the Named Executive Officers under individual Stock Option Agreements
and under the Company's Stock Option Plans as of March 31, 1998. No stock
options have been exercised as of March 1, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ------------------------------------------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE
OPTIONS TO PRICE PER
NAME GRANTED(#) EMPLOYEES SHARE EXPIRATION DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Nathaniel A. Gregory....... 555,555 36.0% $1.47 July 31, 2003 $474,202 $1,181,799
185,186 12.0% $3.58 July 31, 2003 269,894 628,967
164,363 10.7% $5.03 July 31, 2004 341,396 797,720
Patrick M. McCarthy(1)..... 133,334 8.6% $1.47 December 21, 2001 86,687 205,047
William B. Wiener III...... 66,667 4.3% $1.47 December 21, 2001 43,343 102,324
Frank Smith................ 33,334 2.2% $1.47 December 21, 2001 21,672 51,263
33,334 2.2% $5.03 January 1, 2005 74,157 175,408
David Volz................. 66,667 4.3% $5.03 January 1, 2005 148,311 350,812
</TABLE>
- ------------------------------
(1) Excludes an option to purchase 16,667 shares of Common Stock at the initial
offering price granted to Mr. McCarthy effective upon consummation of the
Offering.
56
<PAGE> 58
CERTAIN TRANSACTIONS
SECURITIES TRANSACTIONS
In 1988, the Company was incorporated by Capricorn I for the purpose of
acquiring in June 1989 National Tank Company, now the Company's principal
subsidiary, from Combustion Engineering, Inc. Capricorn I led a group of
investors that acquired all the capital stock of the Company at the time. In
December 1991, Capricorn I loaned the Company approximately $5.0 million and
received in exchange $5.0 million of 11% subordinated notes. During the period
prior to June 1997, the maturity dates of these notes were extended to 2000 and
$4.6 million thereof was assumed, with the consent of Capricorn I, by PTH in
connection with the distribution by the Company of the capital stock of PTH to
Capricorn I. In conjunction with the 1997 Financing, the remaining notes plus
accrued but unpaid interest held by Capricorn I were exchanged for $5.1 million
in principal amount of the Company's 13% Subordinated Promissory Note due 2000
(the "Cap I Note").
During the period from June 1989 through January 1997, the Common Stock
owned by each investor other than Capricorn I was acquired by either Capricorn I
or the Company with the result that at the end of January 1997 Capricorn I was
the Company's sole stockholder.
In June 1997, the Company engaged in the 1997 Financing, in part to finance
the acquisition of TEST. At that time, Capricorn II invested an aggregate of
$13.0 million in the Company and received in exchange 2,113,334 shares of Common
Stock and $2.4 million in principal amount of the Company's 13% Subordinated
Promissory Note due 2000 (the "Cap II Note"), the terms of which are, except for
the principal amount, identical to the Cap I Note.
After the 1997 Financing, Capricorn I owned an aggregate of 4,553,334
shares of Common Stock representing 68.3% of the outstanding Common Stock, and
Capricorn II owned an aggregate of 2,113,334 shares of Common Stock representing
31.7% of the outstanding Common Stock.
Capricorn I and Capricorn II are both limited partnerships organized under
the laws of Delaware and both constitute private investment funds. Capricorn I
is managed by its general partner, Capricorn Holdings, G.P., which in turn is
managed by Winokur Holdings, Inc. Herbert S. Winokur, Jr., a director of the
Company, is President of Winokur Holdings, Inc.
Capricorn II is managed by Capricorn Holdings, LLC, a Delaware limited
liability company, two of the members of which are Mr. Winokur and Mr. Gregory,
the Chairman of the Board and Chief Executive Officer of the Company. Mr.
Winokur is the managing member of Capricorn Holdings, LLC.
In March 1998, the Company entered into a Securities Exchange Agreement
with Capricorn I and Capricorn II pursuant to which Capricorn I and Capricorn II
agreed to deliver to the Company the Cap I Note and the Cap II Note (together,
the "Notes") in exchange for the issuance of Common Stock by the Company to
Capricorn I and Capricorn II. The terms of such exchange were set to be
equivalent to the price per share agreed at the time of Capricorn II's
investment in June 1997, which was $5.03 of principal amount per share of Common
Stock. In exchange for the Cap I Note and the Cap II Note, Capricorn I and
Capricorn II will receive 1,010,333 shares and 468,925 shares of Common Stock,
respectively. These transactions are to be effected immediately prior to the
Offering. The Company has agreed in the Cynara Merger Agreement that it will not
modify or amend the terms of the Securities Exchange Agreement without the prior
written consent of Cynara. Immediately following the consummation of such
transactions and prior to consummation of the Offering and the Cynara
Acquisition, Capricorn I and Capricorn II will own 5,563,667 shares and
2,582,259 shares, respectively of Common Stock.
In connection with the Cynara Acquisition, the Company, Capricorn I and
Capricorn II have entered into a registration rights agreement, and the
stockholders of Cynara have entered into a separate registration rights
agreement with the Company, dated as of , 1998. Pursuant to these
agreements, Capricorn I, Capricorn II and the stockholders of Cynara will be
entitled to certain demand and "piggy-back" registration rights under the
Securities Act with respect to the shares of Common Stock held by them
(including the right to register the distribution by Capricorn I or Capricorn II
of Common Stock to their respective limited
57
<PAGE> 59
partners). These rights may not be exercised for a period of 180 days following
the date of this Prospectus without the consent of Donaldson, Lufkin & Jenrette
Securities Corporation. The exercise of these rights is subject to customary
limitations and conditions.
CAPRICORN MANAGEMENT, G.P.
Capricorn Management, G.P., ("Capricorn Management") an entity controlled
by Mr. Winokur, provides management services to Capricorn I and Capricorn II.
The Company contracted in 1989 to pay $350,000 per year plus certain
out-of-pocket expenses to Capricorn Management to reimburse it for costs and
expenses incurred by it to perform certain management and other responsibilities
(including services to PTH, whose capital stock was distributed to Capricorn I
on June 30, 1997 and to another affiliate which has been sold). Effective July
1, 1997, the cost reimbursement was reduced to $75,000 a year and is payable
quarterly in advance. The Company reimbursed Capricorn Management $350,000,
$350,000 and $144,000 for fiscal 1995, 1996 and 1997, respectively, under this
agreement.
In June 1989, the Company entered into an agreement with Capricorn
Management (later assigned by Capricorn Management to Winokur Holdings, Inc.),
whereby a fee would be paid to Winokur Holdings, Inc., contingent upon the
occurrence of certain events as defined in the agreement. During 1997, the fee
of $374,000 was paid. No further amounts are payable by the Company under this
agreement.
Employees of Capricorn Management participate in various NATCO benefit
plans for which Capricorn Management reimburses the Company. In addition, the
Company from time to time is billed by its vendors for Capricorn Management
expenses. Accrued costs were $47,800, $25,800 and $115,700 for these services
for fiscal 1995, 1996, and 1997, respectively. As of December 31, 1997,
Capricorn Management owed the Company $196,000. The outstanding balance was
satisfied on March , 1998.
PTH
The Company currently provides tax consulting and analysis services to PTH
for $7,000 a month. PTH paid the Company $585,000, $225,000 and $218,000 during
1995, 1996 and 1997, respectively, of which approximately $218,000 annually
represents the reimbursement of costs and expenses paid by the Company to
Capricorn Management and payments for tax consulting services, as described
above. The balance in 1995 and 1996 represented payment of certain inter-company
charges. The Company has filed a consolidated federal income tax return, which
includes PTH through June 30, 1997.
MISCELLANEOUS
On November 7, 1997, Mr. Winokur issued a promissory note (the "Original
Note") to the Company in the amount of $1.5 million which provided, among other
things, for interest to be payable at a rate equal to, at the Company's
election, either (i) 10% per annum or (ii) if elected prior to March 10, 1998, a
rate per annum calculated by dividing (a) the difference between the average
closing price of the Common Stock of the Company for the five business days
prior to the due date of the Original Note after such election and $11.75 by (b)
$11.75 (the "Participating Rate"). In the event that the Company elected to
receive interest at the Participating Rate with respect to all or any portion of
the Original Note, Mr. Winokur had the option to pay such portion by delivery of
(i) cash or (ii) shares of the Common Stock of the Company. The Company did not
exercise the election with respect to the Participating Rate and, therefore, the
Original Note was due in accordance with its terms on March 31, 1998. As of
March , 1998, the Company and Mr. Winokur executed a new promissory note (the
"New Note") with respect to the Original Note. The outstanding principal and
accrued interest on March , 1998 under the Original Note was $1.6 million. The
New Note in principal amount of $1.6 million, bearing interest at 11% per annum
and due on the later to occur of (i) January 2, 1999 and (ii) the date on which
the 173,050 shares of Common Stock described below are publicly traded and have
been distributed by Capricorn I to its limited partners, was exchanged for the
Original Note, which was then cancelled. In addition, as of March , 1998, the
Company and Mr. Winokur executed an option agreement (the "Option Agreement").
Under the Option Agreement, the Company purchased an option to acquire 173,050
shares of Common Stock (at the later to occur of (i) January 2, 1999 and (ii)
the date on which
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<PAGE> 60
such stock is publicly traded and has been distributed by Capricorn I to its
limited partners) at a price of $8.81 per share. The cost of such option was
$200,000.
Cynara pays a monthly management fee of $25,000 to Heller Hickox Dimeling
Schreiber and Park pursuant to a management agreement. Cynara paid $75,000 and
$300,000 in management fees plus reimbursement of expenses during 1996 and 1997,
respectively, under such management agreement. Mr. Hickox, who will become a
director of the Company upon consummation of the Cynara Acquisition and the
Offering, is a general partner of Heller Hickox Dimeling Schreiber and Park.
Such management agreement will be terminated effective upon the consummation of
the Cynara Acquisition.
Management believes that the foregoing transactions were no less favorable
to the Company than those that would otherwise be obtainable in arms' length
transactions with unaffiliated third parties.
59
<PAGE> 61
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 1, 1998, and as adjusted to
reflect the sale of the Common Stock offered hereby, by (i) each director, (ii)
each Named Executive Officer, (iii) each person who is known by the Company to
own beneficially 5% or more of the Common Stock, (iv) all directors and
executive officers as a group and (v) Capricorn I, as the Selling Stockholder.
Unless otherwise indicated, the Company believes, based on information provided
by each such person, that each of the stockholders listed below has sole voting
and dispositive power over the shares indicated as owned by such person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING SHARES TO OFFERING
--------------------- BE SOLD --------------------
NAME OF BENEFICIAL OWNER(1)(2) NUMBER PERCENT IN THE OFFERING NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Capricorn I(3)....................... 5,563,667 68.3% __________ __________
-------%
Capricorn II(4)...................... 2,582,259 31.7% 2,582,259
-------%
Herbert S. Winokur, Jr.(5)........... 8,145,926 100.0% __________
-------%
Nathaniel A. Gregory(6)(7)........... 3,487,363 38.5% 3,487,363
-------%
E. Hale Staley(7).................... 33,334 * 33,334 *
Patrick M. McCarthy(7)............... 133,334 * 133,334
-------%
William B. Wiener III(7)............. 66,667 * 66,667 *
Frank Smith(7)....................... 41,668 * 41,668 *
David Volz(7)........................ 16,667 * 16,667 *
Howard I. Bull....................... 1,334 * 1,334 *
Keith K. Allan....................... 1,334 * 1,334 *
George K. Hickox, Jr. ............... -- * 151,789
-------%
All directors and executive officers
as a group (12 persons)(5)(6)(7)... 9,360,702 100%
-------%
</TABLE>
- ------------------------------
* Less than 1%.
(1) Except as otherwise noted, each stockholder has sole voting and investment
power with respect to the shares beneficially owned.
(2) The address of Capricorn I, Capricorn II and Mr. Winokur is 30 East Elm
Street, Greenwich, Connecticut 06830.
(3) A Delaware limited partnership of which Capricorn Holdings L.P. is the
general partner. Mr. Winokur, a director of the Company, controls the
general partner of Capricorn Holdings L.P.
(4) A Delaware limited partnership of which Capricorn Holdings LLC is the
general partner. Messrs. Winokur and Gregory, directors of the Company, are
Managing Member and Member of Capricorn Holdings LLC, respectively.
(5) The 8,145,926 shares indicated as beneficially owned by Mr. Winokur are
owned directly by Capricorn I and Capricorn II and are included due to Mr.
Winokur's affiliation with Capricorn I and Capricorn II.
(6) Of the 3,487,363 shares indicated as beneficially owned by Mr. Gregory,
2,582,259 are owned directly by Capricorn II and are included because of
Mr. Gregory's affiliation with Capricorn II.
(7) Of the shares indicated as beneficially owned by Messrs. Gregory, Staley,
McCarthy, Wiener, Smith and Volz, 905,104; 33,334; 133,334; 66,667; 41,668
and 16,667 shares, respectively, may be acquired by such persons within 60
days through the exercise of stock options. The shares owned by the
executive officers and directors as a group include 1,214,776 shares that
may be acquired by such persons within 60 days through the exercise of
stock options.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per
share, (the "Preferred Stock"). As of December 31, 1997, 6,666,668 shares of
Common Stock were outstanding and held of record by Capricorn I and Capricorn
II, and no shares of Preferred Stock were outstanding. Prior to this Offering,
there has been no public market for the Common Stock. Although the Company
intends to make application to list the Common Stock on the NYSE, there can be
no assurance that a market for the Common Stock will develop or, if developed,
will be sustained. See "Risk Factors -- No Prior Public Market and Determination
of Public Offering Price" and "Dilution."
The following descriptions of certain of the provisions of the Certificate
of Incorporation of the Company, as amended and restated (the "Company
Charter"), and of the Rights Agreement (as defined below) are necessarily
general and do not purport to be complete and are qualified in their entirety by
reference to such documents, which are included as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share of
Common Stock held of record on all matters submitted to a vote of stockholders.
The holders of Common Stock do not have cumulative voting rights in the election
of directors. Subject to any preferences accorded to the holders of the
Preferred Stock, if and when issued pursuant to authorization of the Board of
Directors, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors of the Company
out of legally available funds. The Company has never paid cash dividends on its
Common Stock and does not intend to pay dividends for the foreseeable future. In
addition, the Company's Bank Credit Facilities contain provisions that restrict
the Company from paying dividends on the Common Stock. Upon liquidation,
dissolution or winding up of the Company, after payment of debts, expenses and
the liquidation preference plus any accrued dividends on any outstanding shares
of Preferred Stock, the holders of Common Stock will be entitled to share
ratably in all remaining assets of the Company. The holders of Common Stock have
no preemptive, subscription, redemptive or conversion rights. The outstanding
shares of Common Stock are, and the shares of Common Stock being sold in the
Offering will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
General. The Board of Directors of the Company has authority, without
stockholder approval to issue shares of Preferred Stock in one or more series
and to fix the number of shares and rights, preferences and limitations thereof
of each such series. Among the specific matters that may be determined by the
Board of Directors are the designation, dividend rights, conversion rights,
voting powers, redemption rights and liquidation preferences of each such
series. The issuance of Preferred Stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of Common Stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation.
The Company has no present plans to issue any Preferred Stock.
One of the effects of the existence of authorized but unissued Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to make
more difficult or to discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise, and thereby to
protect the continuity of the Company's management. If, in the exercise of its
fiduciary obligations, the Board of Directors were to determine that a takeover
proposal was not in the Company's best interest, such shares could be issued
pursuant to authorization by the Board of Directors without stockholder approval
in one or more transactions that might prevent or make more difficult or costly
the completion of the takeover transaction by diluting the voting or other
rights of the proposed acquiror or insurgent stockholder group, by creating a
substantial voting block in institutional or other hands that might undertake to
support the position of the incumbent Board of Directors, by effecting an
acquisition that might complicate or preclude the takeover or
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otherwise. In this regard, the Company Charter grants the Board of Directors
broad power to establish the rights and preferences of the authorized and
unissued Preferred Stock, one or more series of which could be issued entitling
holders (i) to vote separately as a class on any proposed merger or
consolidation, (ii) to cast a proportionately larger vote together with the
Common Stock on any such transaction or for all purposes, (iii) to elect
directors having terms of office or voting rights greater than those of other
directors, (iv) to convert Preferred Stock into a greater number of shares of
Common Stock or other securities, (v) to demand redemption at a specified price
under prescribed circumstances related to a change of control of the Company or
(vi) to exercise other rights designed to impede a takeover. The issuance of
shares of Preferred Stock pursuant to the authority of the Board of Directors
described above may adversely affect the rights of holders of Common Stock.
Series A Preferred Stock. The Board of Directors of the Company has, in
conjunction with its adoption of the Rights Agreement described below,
designated 500,000 shares of Preferred Stock as the Series A Junior
Participating Preferred Stock (the "Series A Preferred Stock"). The terms of the
Series A Preferred Stock are designed so that the value of each one-hundredth of
a share purchasable upon exercise of a Right will approximate the value of one
share of Common Stock. The Series A Preferred Stock is nonredeemable and will
rank junior to all other series of Preferred Stock. Each whole share of Series A
Preferred Stock is entitled to receive a cumulative quarterly preferential
dividend in an amount per share equal to the greater of (i) $1.00 in cash or
(ii), in the aggregate, 100 times the dividend declared on the Common Stock. In
the event of liquidation, the holders of the Series A Preferred Stock are
entitled to receive a preferential liquidation payment equal to the greater of
(i) $100.00 per share or (ii), in the aggregate, 100 times the payment made on
the Common Stock, plus, in either case, the accrued and unpaid dividends and
distributions thereon. In the event of any merger, consolidation or other
transaction in which the Common Stock is exchanged for or changed into other
stock or securities, cash or property, each whole share of Series A Preferred
Stock is entitled to receive 100 times the amount received per share of Common
Stock. Each whole share of Series A Preferred Stock is entitled to 100 votes on
all matters submitted to a vote of the stockholders of the Company, and holders
of Series A Preferred Stock will generally vote together as one class with the
holders of Common Stock and any other capital stock on all matters submitted to
a vote of stockholders of the Company.
CERTAIN CHARTER AND BYLAW PROVISIONS
Stockholder Action by Unanimous Consent. Under Delaware law, unless a
corporation's certificate of incorporation specifies otherwise, any action that
could be taken by its stockholders at an annual or special meeting may be taken,
instead, without a meeting and without notice to or a vote of other
stockholders, if a consent in writing is signed by holders of outstanding stock
having voting power that would be sufficient to take such action at a meeting at
which all outstanding shares were present and voted. The Company Charter
provides that stockholder action may be taken only at an annual or special
meeting of stockholders or by unanimous written consent. As a result,
stockholders may not act upon any matter except at a duly called meeting or by
unanimous written consent.
Amendment of the Bylaws. Under Delaware law, the power to adopt, amend or
repeal bylaws is conferred upon the stockholders. A corporation may, however, in
its certificate of incorporation also confer upon the board of directors the
power to adopt, amend or repeal its bylaws. The Company Charter and Company
Bylaws grant the Board of Directors the power to adopt, amend and repeal the
Company Bylaws at any regular or special meeting of the Board of Directors upon
the affirmative vote of a majority of the directors then in office. The
Company's stockholders may adopt, amend or repeal the Company Bylaws but only at
any regular or special meeting of stockholders by an affirmative vote of a
majority of the Common Stock present at such meeting in person or by proxy or by
unanimous written consent.
RIGHTS TO PURCHASE PREFERRED STOCK
On , 1998, the Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of Common
Stock held of record on , 1998, and approved the further issuance of
Rights with respect to all shares of Common Stock that are subsequently issued.
The Rights were issued subject to a Rights Agreement dated as of February 17,
1998 between the Company and
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Chase Mellon Shareholder Services, L.L.C., as Rights Agent (the "Rights
Agreement"). Each Right now entitles the registered holder to purchase from the
Company one-hundredth of a share of Series A Preferred Stock at a price of
$ in cash (the "Purchase Price"), subject to adjustment. See
"-- Preferred Stock -- Series A Preferred Stock." Until the occurrence of
certain events described below, the Rights are not exercisable, will be
evidenced by the certificates for Common Stock and will not be transferable
apart from the Common Stock.
Detachment of Rights; Exercise. The Rights are currently attached to all
certificates representing outstanding shares of Common Stock and no separate
Right certificates have been distributed. The Rights will separate from the
Common Stock and a distribution date ("Distribution Date") will occur upon the
earlier of (i) ten business days following the public announcement that a person
or group of affiliated or associated persons (an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding Voting Shares
(as defined in the Rights Agreement) of the Company or (ii) ten business days
following the commencement or announcement of an intention to commence a tender
offer or exchange offer, the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of such outstanding
Voting Shares.
The Rights are not exercisable until the Distribution Date. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights will be mailed to holders of record of Common Stock as of the close
of business on the Distribution Date and such separate certificates alone will
thereafter evidence the Rights.
If a person or group were to acquire 15% or more of the Voting Shares of
the Company, each Right then outstanding (other than Rights beneficially owned
by the Acquiring Person which would become null and void) would become a right
to buy that number of shares of Common Stock (or, under certain circumstances,
the equivalent number of one-hundredths of a share of Series A Preferred Stock)
that at the time of such acquisition would have a market value of two times the
Purchase Price of the Right.
If following the occurrence of a Distribution Date the Company were
acquired in a merger or other business combination transaction or more than 50%
of its consolidated assets or earning power were sold, proper provision must be
made so that each holder of a Right would thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price of the Right, that
number of shares of common stock of the acquiring company that at the time of
such transaction would have a market value of two times the Purchase Price of
the Right.
Antidilution and Other Adjustments. The number of shares (or fractions
thereof) of Series A Preferred Stock or other securities or property issuable
upon exercise of the Rights, and the Purchase Price payable, are subject to
customary adjustments from time to time to prevent dilution. The number of
outstanding Rights and the number of shares (or fractions thereof) of Series A
Preferred Stock issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock dividend
on the Common Stock payable in Common Stock or any subdivision, consolidation or
combination of the Common Stock occurring, in any such case, prior to the
Distribution Date.
Exchange Option. At any time after the acquisition by a person or group or
affiliated or associated persons of beneficial ownership of 15% or more of the
outstanding Voting Shares of the Company and before the acquisition by a person
or group of 50% or more of the outstanding Voting Shares of the Company, the
Board of Directors may, at its option, issue Common Stock in mandatory
redemption of, and in exchange for, all or part of the then outstanding and
exercisable Rights (other than Rights owned by such person or group which would
become null and void) at an exchange ratio of one share of Common Stock (or
one-hundredth of a share of Series A Preferred Stock) for each two shares of
Common Stock for which each Right is then exercisable, subject to adjustment.
Redemption of Rights. At any time prior to the first public announcement
that a person or group has become the beneficial owner of 15% or more of the
outstanding Voting Shares, the Board of Directors of the Company may redeem all
but not less than all the then outstanding Rights at a price of $.01 per Right
(the "Redemption Price"). The redemption of the Rights may be made effective at
such time, on such basis and
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with such conditions as the Board of Directors of the Company in its sole
discretion may establish. Immediately upon the action of the Board of Directors
of the Company ordering redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Expiration; Amendment of Rights. The Rights will expire on ,
2008, unless earlier extended, redeemed or exchanged. The terms of the Rights
may be amended by the Board of Directors of the Company without the consent of
the holders of the Rights, including an amendment to extend the expiration date
of the Rights, and, provided a Distribution Date has not occurred, to extend the
period during which the Rights may be redeemed, except that after the first
public announcement that a person or group has become the beneficial owner of
15% or more of the outstanding Voting Shares, no such amendment may materially
and adversely affect the interests of holders of the Rights.
DELAWARE ANTITAKEOVER LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law, which prohibits Delaware corporations from engaging in a wide range of
specified transactions with any interested stockholder. The latter term is
defined to include any person, other than such corporation and any of its
majority-owned subsidiaries, who owns 15% or more of any class or series of
stock entitled to vote generally in the election of directors, unless, among
other exceptions, the transaction is approved by (i) the Board of Directors
prior to the date the interested stockholder obtained such status or (ii) the
holders of two-thirds of the outstanding shares of each class or series of stock
entitled to vote generally in the election of directors, not including those
shares owned by the interested stockholder.
CERTAIN EFFECTS OF RIGHTS AND ANTITAKEOVER LAW
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without the approval of the Board of Directors of the Company. Moreover, the
Rights and the above described provisions of the Delaware General Corporation
Law may tend to deter any potential unfriendly offers or other efforts to obtain
control of the Company that are not approved by the Board of Directors and
thereby deprive the stockholders of opportunities to sell shares of Common Stock
at prices higher than the prevailing market price. On the other hand, the Rights
and these provisions will tend to assure continuity of management and corporate
policies and to induce any person seeking control of the Company or a business
combination with the Company to negotiate on terms acceptable to the then
elected Board of Directors.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares
of Common Stock outstanding ( shares if the Underwriters'
over-allotment option is exercised in full). Of these outstanding shares of
Common Stock, shares to be sold in this Offering will be freely
tradeable without restriction or further registration under the Act, unless
purchased by "Affiliates" of the Company, as that term is defined in Rule 144
("Rule 144") under the Act described below. The remaining shares of
Common Stock outstanding after the Offering will be "restricted securities"
within the meaning of Rule 144 under the Act and may not be sold in a public
distribution except in compliance with the registration requirements of the Act
or an applicable exemption under the Act, including an exemption pursuant to
Rule 144 thereunder. Restricted securities are eligible for sale in the public
market pursuant to Rule 144 no sooner than one year from the date of
acquisition. In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year (including
the holding period of any prior owner except an affiliate) is entitled to sell
in "broker's transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of: (i) one percent of the number of shares of
Common Stock then outstanding (approximately 123,000 shares immediately after
the Offering); or (ii) generally, the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the required filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain "manner of sale" provisions and notice requirements and to 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 shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an affiliate), is entitled to sell such shares without having
to comply with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
The Company has granted certain stockholders registration rights. See
"Certain Transactions -- Securities Transactions."
As of March 1, 1998, the Company has reserved an aggregate of 1,755,115
shares of Common Stock for issuance upon exercise of options of which 1,279,778
are exercisable immediately upon consummation of the Offering. See
"Management -- Executive Compensation -- Stock Option Plans."
DESCRIPTION OF BANK CREDIT FACILITIES
The following is a description of the principal terms of certain of the
Company's indebtedness, including indebtedness to be repaid with a portion of
the proceeds of the Offering. Copies of the definitive agreements setting forth
the terms of this indebtedness have been filed as exhibits to the Registration
Statement on Form S-1 (the "Registration Statement") of which this Prospectus is
a part. The following summaries of certain provisions of the agreements do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the agreements. See the notes to the
Company's consolidated financial statements.
U.S. CREDIT FACILITY
On June 30 1997, National Tank Company, the Company's wholly-owned
subsidiary, entered into a credit facility (the "U.S. Credit Facility") with
Chase Bank of Texas, N.A., as agent (the "Agent"), and other lending
institutions party thereto (the "Lenders"). The U.S. Credit Facility provides
for an aggregate principal amount of term loans equal to $10 million and an
aggregate principal amount of revolving loans of up to $18 million subject to
borrowing base limitations. As of March 1, 1998, $9.3 million of term borrowings
and $14.0 million of revolving borrowings were outstanding under the U.S. Credit
Facility. The term borrowings mature on June 30, 2002, and the revolving
borrowings mature on June 30, 2000. Indebtedness under the U.S. Credit Facility
bears interest at a floating rate based (at the Company's option) upon (i) the
Base Rate with respect to Base Rate Loans, plus the Margin Percentage or (ii)
the London Interbank Offered Rate for one, two, three or six months, plus the
Margin Percentage. The Base Rate is the greater of (i) the Prime Rate or
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(ii) the Federal Funds Rate plus 1/2 of 1%. The Margin Percentage for Base Rate
Loans varies from 1.00% to 0.00% depending on the Company's debt to
capitalization ratio; and the Margin Percentage for Eurodollar Loans varies from
2.75% to 1.00% depending on the Company's debt to capitalization ratio.
EXIM CREDIT FACILITY
The Company's subsidiary National Tank Company has entered into the EXIM
Credit Facility with Chase Bank of Texas, N.A., as lender (the "EXIM Lender").
The EXIM Credit Facility provides for an aggregate principal amount of revolving
loans and letters of credit of up to $5 million subject to borrowing base
limitations. Indebtedness under the EXIM Credit Facility bears interest at a
floating rate based (at the Company's option) upon (i) the Base Rate with
respect to Base Rate Loans or (ii) the London Interbank Offered Rate for one,
two, three or six months, plus 2.25% per annum. The Base Rate is the greater of
(i) the Prime Rate or (ii) the Federal Funds Rate. As of March 1, 1998, an
aggregate of $17,000 of borrowings were outstanding under the EXIM Credit
Facility. The EXIM Credit Facility matures on June 30, 1998.
CANADIAN CREDIT FACILITY
NATCO Canada, Ltd., a wholly owned subsidiary of the Company ("NATCO
Canada") has entered into a credit facility (the "Canadian Credit Facility")
with The Bank of Nova Scotia, as lender (the "Canadian Lender"). The Canadian
Credit Facility provides for an aggregate principal amount of revolving loans
and bankers' acceptances of up to Cdn.$10.0 million subject to borrowing base
limitations. As of February 28, 1998, an aggregate of $4.2 million was
outstanding under the Canadian Credit Facility. The Canadian Credit Facility is
repayable on demand. Indebtedness under the Canadian Credit Facility bears
interest at a floating rate based (at NATCO Canada's option) upon the Canadian
Prime Rate plus 1/2 of 1% per annum. NATCO Canada may also issue bankers'
acceptances at the Canadian Lender's commercial bankers' acceptance fee plus
1/2 of 1% for bankers' acceptances having a 30 to 180 day tenor, as applicable.
CYNARA CREDIT FACILITY
Cynara entered into a credit facility (the "Cynara Credit Facility") with
Bank One Texas, N.A., as lender. The Cynara Credit Facility consists of (i) a
term loan in the amount of $7.0 million which matures on December 31, 2002 and
bears interest at the lender's prime rate plus 1% and (ii) a revolving credit
facility with aggregate borrowing capacity of $6.0 million, of which $1.8
million was outstanding as of March 1, 1998, which matures on October 31, 1999
and bears interest at the lender's prime rate.
RESTRICTIVE COVENANTS
The Bank Credit Facilities and the Cynara Credit Facility also contain
covenants that, among other things, limit the incurrence of additional
indebtedness, the nature of the business of the Company and its subsidiaries,
investments, leases of assets, creation and ownership of subsidiaries,
dividends, transactions with affiliates, mergers, consolidations and
acquisitions and dispositions of assets, liens and encumbrances and other
matters customarily restricted in similar credit agreements.
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UNDERWRITING
Subject to the terms and subject to the conditions of an Underwriting
Agreement, dated , 1998 (the "Underwriting Agreement"), the
Underwriters named below, who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Smith Barney Inc. and Simmons & Company
International (the "Representatives"), have severally agreed to purchase from
the Company and the Selling Stockholder the respective numbers of shares of
Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Smith Barney Inc. ..........................................
Simmons & Company International.............................
--------
Total.............................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the Common Stock, the public offering price and other
selling terms may be changed by the Representatives at any time without notice.
The Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to additional shares of Common Stock at the
initial public offering price less underwriting discounts and commissions. The
Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the Offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based on
such Underwriter's percentage underwriting commitment as indicated in the
preceding table.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company (including the Selling Stockholder) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or
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(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless or whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, such other securities, cash or
otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of DLJ. In addition, during such period, the Company
has also agreed not to file any registration statement with respect to, and each
of its executive officers, directors and certain stockholders of the Company
(including the Selling Stockholder) has agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock without DLJ's prior written consent.
Of the Common Stock offered hereby, up to 5% of the shares offered hereby
will be directed to, and may be purchased by, employees of the Company and
others, subject to certain restrictions of the National Association of
Securities Dealers, Inc.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial offering price for the shares of Common Stock offered
hereby will be determined by negotiation among the Company, representatives of
the Selling Stockholder and the Representatives. The factors to be considered in
determining the initial public offering price include the history of and the
prospects for the industry in which the Company competes, the past and present
operations of the Company, the historical results of operations of the Company,
the prospects for future earnings of the Company, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of the Offering.
Application will be made to list the Common Stock on the NYSE under the
symbol NTG, subject to official notice of issuance. In order to meet the
requirements for listing the Common Stock on the NYSE, the Underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
owners.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholder or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
laws, rules and regulations of such jurisdiction. Persons into whose possession
this Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such offer or solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members if DLJ
repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilizing transactions or otherwise or if DLJ receives a
report that indicates that the clients of such syndicate members have "flipped"
the Common Stock. These activities may stabilize or maintain the market price of
the Common Stock at above independent market levels. The Underwriters are not
required to engage in these activities and may end any of these activities at
any time.
Affiliates of DLJ own limited partnership interests in Capricorn I and
Capricorn II. Affiliates of Smith Barney Inc. own limited partnership interests
in Capricorn II.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Vinson & Elkins L.L.P., Houston, Texas. Certain legal
matters in connection with the shares of Common Stock offered hereby will be
passed upon for the Underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
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EXPERTS
The consolidated financial statements of NATCO Group Inc. and its
subsidiaries as of March 31, 1997 and 1996, and for each of the fiscal years in
the three-year period ended March 31, 1997, and of Total Engineering Services
Team, Inc. as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996, have been included herein and in the
Registration Statement of which this Prospectus is a part in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of The Cynara Company at December 31, 1997 and
1996, and for the year ended December 31, 1997 and for the period from March 5,
1996 (date of inception) to December 31, 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Commission a Registration Statement under the Securities Act, with respect
to the offer and sale of Common Stock pursuant to this Prospectus. This
Prospectus, filed as a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement or the exhibits and
schedules thereto in accordance with the rules and regulations of the Commission
and reference is hereby made to such omitted information. Statements made in
this Prospectus concerning the contents of any contract, agreement or other
document filed as an exhibit to the Registration Statement are summaries of the
terms of such contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more complete description
of the matters involved and such statements shall be deemed qualified in their
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto filed with the Commission may be inspected, without charge,
and copies may be obtained at prescribed rates, at the public reference facility
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621-2511. Such materials also may be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov. For further information pertaining to the Common Stock
offered by this Prospectus and the Company, reference is made to the
Registration Statement.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NATCO GROUP INC. AND SUBSIDIARIES
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997
and December 31, 1997 (unaudited)......................... F-3
Consolidated Statements of Operations for the years ended
March 31, 1995, 1996 and 1997 and for the nine months
ended December 31, 1996 and 1997 (unaudited).............. F-4
Consolidated Statements of Stockholders' Equity (Deficit) as
of March 31, 1994, 1995, 1996 and 1997 and as of December
31, 1997 (unaudited)...................................... F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1996 and 1997 and for the nine months
ended December 31, 1996 and 1997 (unaudited).............. F-6
Notes to Consolidated Financial Statements.................. F-7
TOTAL ENGINEERING SERVICES TEAM, INC.
Independent Auditors' Report................................ F-27
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-28
Statements of Income for the years ended December 31, 1994,
1995 and 1996 and for the six months ended June 30, 1997
(unaudited)............................................... F-29
Statements of Stockholders' Equity as of December 31, 1994,
1995 and 1996 and as of June 30, 1997 (unaudited)......... F-30
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the six months
ended June 30, 1997 (unaudited)........................... F-31
Notes to Financial Statements............................... F-32
THE CYNARA COMPANY
Report of Independent Auditors.............................. F-36
Balance Sheets as of December 31, 1996 and 1997............. F-37
Statements of Operations for the period from March 5, 1996
(date of inception) to December 31, 1996 and for the year
ended December 31, 1997................................... F-38
Statements of Stockholders' Equity as of December 31, 1996
and 1997.................................................. F-39
Statements of Cash Flows for the period from March 5, 1996
(date of inception) to December 31, 1996 and for the year
ended December 31, 1997................................... F-40
Notes to Financial Statements............................... F-41
</TABLE>
F-1
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NATCO Group Inc.:
We have audited the accompanying consolidated balance sheets of NATCO Group
Inc., (formerly Cummings Point Industries, Inc.) and subsidiaries as of March
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity deficit and cash flows for each of the years in the
three-year period ended March 31, 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 financial position of NATCO Group
Inc. and subsidiaries at March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
June 27, 1997, except
for footnote 3, which
is as of March 6, 1998
F-2
<PAGE> 73
NATCO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------- DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 2,189 $ 1,216 $ 1,447
Restricted cash........................................ 453 408 551
Trade accounts receivable, less allowance for doubtful
accounts of $572, $508, and $907 at March 31, 1996
and 1997, and December 31, 1997, respectively....... 18,799 28,096 47,363
Inventories............................................ 12,777 16,695 19,507
Deferred income tax assets............................. 1,180 1,255 3,181
Prepaid expenses and other current assets.............. 1,040 1,053 2,730
Net assets of discontinued operations.................. 8,946 9,483 --
-------- -------- --------
Total current assets........................... 45,384 58,206 74,779
Property, plant and equipment, net....................... 6,660 6,833 9,133
Cost in excess of fair value of net assets acquired...... 232 219 6,036
Deferred income tax assets............................... 5,697 5,520 5,874
Other assets, net........................................ 547 501 921
-------- -------- --------
Total assets................................... $ 58,520 $ 71,279 $ 96,743
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt................. $ 8,628 $ 3,953 $ 1,680
Revolving credit bank loan............................. 2,296 5,860 5,914
Accounts payable....................................... 19,682 21,950 20,444
Accrued expenses and other............................. 9,684 9,438 16,119
Customer advances...................................... 1,038 1,240 1,174
Income taxes payable................................... 121 2,278 2,010
-------- -------- --------
Total current liabilities...................... 41,449 44,719 47,341
Long-term debt, excluding current installments........... 12,321 17,753 28,920
Postretirement benefit liability......................... 12,695 14,608 15,012
Deferred income tax liabilities.......................... 88 -- --
-------- -------- --------
Total liabilities.............................. 66,553 77,080 91,273
Stockholders' equity (deficit):
Preferred stock $.01 par value. 5,000,000 shares
authorized; no shares outstanding................... -- -- --
Common stock, $.01 par value. Authorized 26,666,667
shares; issued and outstanding 6,666,668 shares..... 1 1 50
Additional paid-in capital............................. 11,142 8,382 18,962
Accumulated deficit.................................... (13,838) (8,649) (8,024)
Treasury stock, 470,188 shares at cost................. (4,350) (4,350) (4,350)
Cumulative translation adjustments..................... (563) (764) (1,168)
Notes receivable from stockholders..................... (425) (421) --
-------- -------- --------
Total stockholders' equity (deficit)........... (8,033) (5,801) 5,470
Commitments and contingencies
-------- -------- --------
Total liabilities and stockholders' equity
(deficit).................................... $ 58,520 $ 71,279 $ 96,743
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 74
NATCO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------------ ------------------
1995 1996 1997 1996 1997
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................. $109,909 $112,724 $126,657 $91,375 $146,653
Cost of goods sold....................... 88,229 91,258 99,984 71,070 116,153
-------- -------- -------- ------- --------
Gross profit................... 21,680 21,466 26,673 20,305 30,500
Selling, general and administrative
expense................................ 22,483 21,754 22,051 16,230 21,302
Restructuring charge..................... 984 776 21 182 282
Depreciation and amortization expense.... 903 731 862 573 909
Interest expense......................... 3,358 2,422 1,861 1,422 2,180
Interest cost on postretirement benefit
liability.............................. 1,064 932 957 676 786
Revaluation (gain) loss on postretirement
benefit liability...................... (4,781) 2,273 1,466 -- --
Interest income.......................... (1,692) (336) (116) (89) (96)
Gain on sale of investment............... (10,124) (6,320) -- -- --
-------- -------- -------- ------- --------
Income (loss) from continuing
operations before income
taxes........................ 9,485 (766) (429) 1,311 5,137
Income tax provision (benefit)........... 4,495 (430) 59 551 718
-------- -------- -------- ------- --------
Income (loss) from continuing
operations................... 4,990 (336) (488) 760 4,419
Income from discontinued operations (net
of applicable income taxes of $(833),
$831, $1,032, $1,408 and $395
respectively).......................... 331 811 1,100 565 767
Gain on disposal of PTH division (net of
applicable income taxes of $3,807)..... -- -- 4,788 -- --
-------- -------- -------- ------- --------
Net income..................... $ 5,321 $ 475 $ 5,400 $ 1,325 $ 5,186
======== ======== ======== ======= ========
Basic earnings per share................. $ 0.82 $ 0.08 $ 0.90 $ 0.22 $ 0.70
Diluted earnings per share............... 0.82 0.08 0.85 0.21 0.66
Basic weighted average number of shares
of common stock........................ 6,502 6,056 6,032 6,032 7,451
Diluted weighted average number of shares
of common stock........................ 6,502 6,243 6,371 6,371 7,895
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 75
NATCO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL CUMULATIVE RECEIVABLE
COMMON PAID-IN ACCUMULATED TREASURY TRANSLATION FROM
SHARES STOCK CAPITAL DEFICIT STOCK ADJUSTMENTS STOCKHOLDERS
--------- ------ ---------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1994............ 5,023,008 $ 1 $10,070 $(18,446) $ -- $ (450) $(424)
Change in warrant value............... -- -- 594 (594) -- -- --
Net income............................ -- -- -- 5,321 -- -- --
Change in equity of minority
interest............................ -- -- (102) -- -- -- --
Foreign currency translation
adjustment.......................... -- -- -- -- -- (29) --
Interest on notes receivable.......... -- -- -- -- -- -- (14)
--------- --- ------- -------- ------- ------- -----
Balances at March 31, 1995............ 5,023,008 1 10,562 (13,719) -- (479) (438)
Change in warrant value............... -- -- 594 (594) -- -- --
Net income............................ -- -- -- 475 -- -- --
Change in equity of minority
interest............................ -- -- (14) -- -- -- --
Purchase of treasury stock............ (469,674) -- -- -- (4,350) -- --
Foreign currency translation
adjustment.......................... -- -- -- -- -- (84) --
Stockholder note repayments........... -- -- -- -- -- -- 13
--------- --- ------- -------- ------- ------- -----
Balances at March 31, 1996............ 4,553,334 1 11,142 (13,838) (4,350) (563) (425)
Purchase of warrant................... -- -- (2,889) (211) -- -- --
Net income............................ -- -- -- 5,400 -- -- --
Change in equity of minority
interest............................ -- -- 129 -- -- -- --
Foreign currency translation
adjustment.......................... -- -- -- -- -- (201) --
Stockholder note repayments........... -- -- -- -- -- -- 4
--------- --- ------- -------- ------- ------- -----
Balances at March 31, 1997............ 4,553,334 1 8,382 (8,649) (4,350) (764) (421)
--------- --- ------- -------- ------- ------- -----
Issue Common stock -- unaudited....... 2,113,334 16 10,613 -- -- -- --
Dividends paid -- unaudited........... -- -- -- (4,561) -- -- --
Net income -- unaudited............... -- -- -- 5,186 -- -- --
Foreign currency translation
adjustment -- unaudited............. -- -- -- -- -- (404) --
Note repayment -- unaudited........... -- -- -- -- -- -- 421
--------- --- ------- -------- ------- ------- -----
Balances at December 31, 1997 --
unaudited........................... 6,666,668 $50 $18,962 $ (8,024) $(4,350) $(1,168) $ --
========= === ======= ======== ======= ======= =====
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
Balances at March 31, 1994............ $(9,249)
Change in warrant value............... --
Net income............................ 5,321
Change in equity of minority
interest............................ (102)
Foreign currency translation
adjustment.......................... (29)
Interest on notes receivable.......... (14)
-------
Balances at March 31, 1995............ (4,073)
Change in warrant value............... --
Net income............................ 475
Change in equity of minority
interest............................ (14)
Purchase of treasury stock............ (4,350)
Foreign currency translation
adjustment.......................... (84)
Stockholder note repayments........... 13
-------
Balances at March 31, 1996............ (8,033)
Purchase of warrant................... (3,100)
Net income............................ 5,400
Change in equity of minority
interest............................ 129
Foreign currency translation
adjustment.......................... (201)
Stockholder note repayments........... 4
-------
Balances at March 31, 1997............ (5,801)
-------
Issue Common stock -- unaudited....... 10,629
Dividends paid -- unaudited........... (4,561)
Net income -- unaudited............... 5,186
Foreign currency translation
adjustment -- unaudited............. (404)
Note repayment -- unaudited........... 421
-------
Balances at December 31, 1997 --
unaudited........................... $ 5,470
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 76
NATCO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
MARCH 31, DECEMBER 31,
---------------------------- -----------------
1995 1996 1997 1996 1997
-------- ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 5,321 $ 475 $5,400 $1,325 $ 5,186
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Change in equity of minority interest................... (102) (14) 129 -- --
Deferred income tax provision........................... 4,826 40 14 (837) (1,674)
Depreciation and amortization expense................... 903 731 862 573 909
Noncash interest expense................................ 2,449 1,077 925 747 880
Interest cost on postretirement benefit liability....... 1,064 932 957 676 786
Gain on sale of property, plant and equipment........... (76) (73) (285) (163) (412)
Gain on sale of investment.............................. (10,124) (6,320) -- -- --
Loss (gain) on revaluation of postretirement benefit
liability............................................. (4,781) 2,273 1,466 -- --
Other, net.............................................. -- -- 107 49 --
Change in assets and liabilities:
(Increase) decrease in restricted cash................ (42) 23 45 (102) (143)
(Increase) decrease in trade accounts receivable...... (3,838) 4,991 (9,297) (5,792) (4,226)
(Increase) decrease in inventories.................... (2,637) (313) (3,918) (2,081) 617
(Increase) decrease in due from affiliates, net....... 104 (39) -- -- --
(Increase) decrease in prepaid expense and other
current assets...................................... (46) 719 (13) (78) (1,604)
(Increase) decrease in net assets of discontinued
operations.......................................... (1,506) (2,207) (537) 4,158 346
Increase (decrease) in current installment of
long-term debt...................................... (2,843) (995) (4,675) (4,678) (2,273)
Increase (decrease) in other current liabilities,
net................................................. 867 (835) 2,157 1,030 (268)
Increase (decrease) in accounts payable............... 10,808 (2,340) 3,091 (38) (5,093)
Increase (decrease) in accrued expenses............... (5,166) (1,142) (246) 914 3,014
Increase (decrease) in customer advances and other.... (341) (2,394) 202 777 (66)
-------- ------ ------ ------ -------
Net cash used in operating activities............... (5,160) (5,411) (3,616) (3,520) (4,021)
-------- ------ ------ ------ -------
Cash flows from investing activities:
Proceeds from sale of investment.......................... 17,793 10,343 -- -- --
Capital expenditures for property, plant and equipment.... (3,898) (1,108) (1,159) (658) (825)
Proceeds from sales of property, plant and equipment...... 111 309 361 190 1,121
Acquisition, net of working capital acquired.............. -- -- -- -- (21,088)
Other..................................................... 1,451 -- -- -- --
-------- ------ ------ ------ -------
Net cash provided by (used in) investing
activities........................................ 15,457 9,544 (798) (468) (20,792)
-------- ------ ------ ------ -------
Cash flows from financing activities:
Net advances under revolving credit agreements............ 1,188 2,804 6,843 1,389 6,229
Change in bank overdrafts................................. (151) 725 (823) 41 239
Proceeds from notes receivable............................ 3,000 -- -- -- 421
Proceeds from long-term debt.............................. 1,900 -- 2,500 2,500 17,052
Repayments of long-term debt.............................. (13,984) (8,830) (1,272) (1,106) (8,364)
Purchase of treasury stock................................ -- (810) -- --
Purchase of warrants...................................... -- -- (3,100) -- --
Issuance of common stock.................................. -- -- -- -- 10,629
Payments on postretirement benefit liability.............. (486) (484) (510) (375) (382)
Other, net................................................ (14) (81) 4 (14) (376)
-------- ------ ------ ------ -------
Net cash provided by (used in) financing
activities........................................ (8,547) (6,676) 3,642 2,435 25,448
-------- ------ ------ ------ -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (29) (84) (201) (181) (404)
-------- ------ ------ ------ -------
Increase (decrease) in cash and cash equivalents............ 1,721 (2,627) (973) (1,734) 231
Cash and cash equivalents at beginning of year.............. 3,095 4,816 2,189 2,189 1,216
-------- ------ ------ ------ -------
Cash and cash equivalents at end of year.................... $ 4,816 $2,189 $1,216 $ 455 $ 1,447
======== ====== ====== ====== =======
Cash payments for:
Interest.................................................. $ 1,819 $2,589 $2,973 $1,220 $ 1,017
======== ====== ====== ====== =======
Income taxes.............................................. $ -- $1,064 $ 260 $ 666 $ 1,270
======== ====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 77
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION
NATCO Group Inc. (the Company), formerly Cummings Point Industries, Inc.,
was formed in June 1988 by Capricorn Investors, L.P. (Capricorn). Capricorn led
a group of investors who invested sufficient funds in the Company to enable the
Company to acquire three businesses from Combustion Engineering, Inc. (C-E). On
June 21, 1989, the Company acquired from C-E all of the outstanding common stock
of W. S. Tyler, Incorporated (Tyler), American Premier, Inc. (API) (formerly
Premier Refractories and Chemicals, Inc.), National Tank Company (NATCO), and
the net assets of certain foreign affiliates of the Company. The accompanying
consolidated financial statements and all related disclosures include the
results of operations of the Company and its majority-owned subsidiaries for the
years ended March 31, 1995, 1996 and 1997.
During 1992, the Company contributed its common stock investment in API to
American Premier Holdings, Inc. (APH) in exchange for all of the issued and
outstanding common stock of APH. Subsequently, API completed a merger
transaction and, as a result, the Company's ownership in APH was reduced to 50%.
In November 1993 and August 1994, the Company sold 50% of its remaining
investment in APH. An additional 25% was sold in March 1995 reducing the
Company's ownership in APH to 12.5%. The remaining investment was sold in August
1995.
During 1992, the Company contributed its common stock investment in Tyler
and $5,500 in cash to Process Technology Holdings, Inc. (PTH) in exchange for
all of the issued and outstanding common stock of PTH. In 1992 and 1993, PTH and
the Company sold certain shares of PTH common stock to third parties reducing
the Company's ownership to 95%.
During 1996, the Company formed NATCO Holdings, Inc. (NHI) and contributed
its investment in NATCO to NHI. Prior to the creation of NHI, NATCO Singapore
and NATCO--U.K. were subsidiaries of NATCO. Subsequent to the formation of NHI,
these entities are no longer subsidiaries of NATCO but are consolidated at the
NHI level. NHI remains wholly-owned by the Company.
On June 30, 1997, NATCO acquired Total Engineering Services Team, Inc.
(TEST).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation.
Business
The Company's consolidated subsidiaries operate as:
-NATCO -- manufacturer of equipment, and provider of services for
separating gases, liquids and suspended solids with operations in the
United States, Canada, United Kingdom, Singapore, Japan, and Venezuela;
-TEST -- designs, manufactures and installs instrumentation and electrical
control systems for the petroleum industry with operations in the United
States, Republic of Kazakastan and Nigeria.
F-7
<PAGE> 78
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
Concentration of Credit Risk
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base and
their dispersion across many different geographies. As of March 31, 1997, the
Company had no significant concentrations of credit risk.
Cash Equivalents
The Company considers all highly liquid investment instruments with
original maturities of three months or less to be cash equivalents.
Restricted Cash
At March 31, 1996 and 1997 and December 31, 1997, $453, $408 and $551,
respectively, of cash was pledged as collateral on outstanding letters of credit
related to performance and warranty guarantees, and was classified as restricted
cash on the balance sheet.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last in, first out (LIFO) method for NATCO domestic inventories,
average cost for TEST inventories and the first in, first out (FIFO) method for
all other inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less an allowance for
depreciation. Depreciation on plant and equipment is calculated using the
straight-line method over the estimated useful lives. Maintenance and repair
costs are expensed as incurred; renewals and betterments are capitalized. Upon
the sale or retirement of properties, the accounts are relieved of the cost and
the related accumulated depreciation, with any resulting profit or loss included
in income.
Effective April 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Accordingly, if facts and circumstances indicate that property, plant and
equipment may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated future cash flows associated with
the asset is compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow was necessary. Adoption of
this standard did not have a material effect on the financial positions or
results of operations of the Company.
Cost in Excess of Fair Value of Net Assets Acquired
The cost in excess of fair value of net assets acquired is being amortized
on a straight-line basis over 40 years. The Company assesses the recoverability
of this intangible asset by determining whether the amortization over its
remaining life can be recovered through undiscounted future operating cash
flows. Based on its most recent analysis, the Company believes that no material
impairment of goodwill exists at December 31, 1997. Amortization expense for the
years ended March 31, 1995, 1996, and 1997 was $13. Accumulated amortization at
March 31, 1996 and 1997 was $86 and $99.
F-8
<PAGE> 79
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
Other Assets, Net
Other assets consist of prepaid pension assets, deposits of a long-term
nature, and deferred financing costs.
Deferred acquisition financing costs relating to the Company's various loan
agreements have been capitalized and are being amortized over the term of the
related debt agreements. Amortization expense for the year ended March 31, 1997
was $38, and there was no amortization expense in 1995 and 1996.
Environmental Remediation Costs
The Company accrues environmental remediation costs based on estimates of
known environmental remediation exposure. Such accruals are recorded when the
cost of remediation is probable and estimatable even if significant
uncertainties exist over the ultimate cost of the remediation. Ongoing
environmental compliance costs, including maintenance and monitoring costs, are
expensed as incurred.
Revenue Recognition
Revenues from significant contracts (NATCO contracts greater than $250 and
longer than four months in duration and all TEST contracts and orders) 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 agreed upon claim and change order revenue,
if any. Losses expected to be incurred on jobs in progress, after consideration
of estimated minimum recoveries from claims and change orders, are charged to
income as soon as such losses are known. Progress billings in accounts
receivable are currently due and exclude retentions until such amounts are due
in accordance with contract terms. Other revenues and related costs are
recognized when products are shipped or services are rendered to the customer.
Stock-Based Compensation
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provision of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Research and Development
Research and development costs are charged to operations in the year
incurred. The cost of equipment used in research and development activities
which has alternative uses is capitalized as equipment and not treated as an
expense of the period. Such equipment is depreciated over estimated lives of 5
to 10 years.
F-9
<PAGE> 80
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the future generation of taxable income during the periods in
which those temporary differences become deductible. Management has considered
the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment.
Translation of Foreign Currencies
Financial statement amounts related to foreign operations are translated
into their United States dollar equivalents at exchange rates as follows: (1)
balance sheet accounts at year-end exchange rates and (2) statement of
operations accounts at the weighted average exchange rates for the period. The
gains or losses resulting from such translations are deferred as a separate
component of stockholders' equity.
Gains or losses from foreign currency transactions are reflected in the
consolidated statements of operations.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities and the amounts of revenues and expenses
recognized during the period to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
Reclassifications
Certain reclassifications have been made to the 1995 and 1996 consolidated
financial statements to conform to the 1997 presentation.
Earnings per Common Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings per Share, which replaced primary and fully diluted
earnings per share with basic and diluted earnings per share. The Company
adopted the provisions of SFAS No. 128 in the fourth quarter of 1997 and all
previously reported earnings per share data have been restated. Under SFAS No.
128, the basic earnings per share calculation excludes the dilutive effect of
common stock equivalents in determining basic earnings per share. The diluted
earnings per common and common equivalent share are computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding. For the purposes of this calculation, outstanding employee stock
options are considered common stock equivalents. In conformity with Securities
and Exchange Commission requirements, common stock, options and warrants, or
other potentially dilutive instruments which have been issued for nominal
consideration during the periods covered by income
F-10
<PAGE> 81
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
statements presented are reflected in earnings per share calculations for all
periods presented. The following table presents pro forma earnings per common
share amounts computed using SFAS 128:
<TABLE>
<CAPTION>
PER SHARE
FISCAL YEAR ENDED MARCH 31, NET INCOME SHARES AMOUNTS
--------------------------- ---------- ------ ---------
<S> <C> <C> <C>
1995
Basic EPS................................................... $5,321 6,502 $0.82
=====
Effect of dilutive securities:
Options..................................................... --
------ ----- -----
Diluted EPS................................................. $5,321 6,502 $0.82
====== ===== =====
1996
Basic EPS................................................... $ 475 6,056 $0.08
=====
Effect of dilutive securities:
Options..................................................... 187
------ ----- -----
Diluted EPS................................................. $ 475 6,243 $0.08
====== ===== =====
1997
Basic EPS................................................... $5,400 6,032 $0.90
=====
Options..................................................... 339
------ ----- -----
Diluted EPS................................................. $5,400 6,371 $0.85
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
PER SHARE
NINE MONTHS ENDED DECEMBER 31, NET INCOME SHARES AMOUNTS
------------------------------ ---------- ------ ---------
<S> <C> <C> <C>
1996
Basic EPS................................................... $1,325 6,032 $0.22
=====
Effect of dilutive securities:
Options..................................................... 339
------ ----- -----
Diluted EPS................................................. $1,325 6,371 $0.21
====== ===== =====
1997
Basic EPS................................................... $5,186 7,451 $0.70
=====
Effect of dilutive securities:
Options..................................................... 444
------ ----- -----
Diluted EPS................................................. $5,186 7,895 $0.66
====== ===== =====
</TABLE>
(3) CAPITAL STOCK
Common Stock
On June 25, 1997, the Board of Directors of the Company approved an
increase in the number of authorized common shares from 3,000 to 20,000,000. On
that date, the directors declared a 7,503 for one common stock split to be
effected by the distribution of 7,502 additional shares for each share of common
stock held by stockholders of record as of that date. The shares of common stock
outstanding prior to the split were as a result converted to 4,553,334 shares.
The balances of common stock and additional paid-in capital as of December 31,
1997 have been restated to reflect this split. Par value remained unchanged at
$0.01.
On March 6, 1998, the Board of Directors of the Company approved an
increase in the number of authorized common shares from 20,000,000 to
50,000,000. On that date, the directors declared a 4 for 3
F-11
<PAGE> 82
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
common stock split to be effected by the exchange of four shares for every three
shares of common stock held by stockholders of record as of that date. All share
data has been restated to reflect the effects of this transaction.
(4) ACQUISITION
On June 30, 1997, NATCO completed the acquisition of Total Engineering
Services Team, Inc. (TEST) from Weatherford Enterra, Inc. for $22,475 in cash.
The funds used for the acquisition of TEST were provided by a $13,000
contribution from Capricorn Investors II, L.P. (Capricorn II) and proceeds from
a new senior credit facility provided by a major international bank.
The acquisition has been accounted for as a purchase and the results of
TEST have been included in the consolidated financial statements since the date
of the acquisition. The purchase agreement allowed for purchase price
adjustments and included a guarantee of collectibility for TEST accounts
receivable acquired at the purchase price date. The Company subsequently
received cash of $1,387, and $1,690 related to purchase price adjustments and
the reimbursement of uncollected accounts receivable of TEST, respectively, at
the end of the purchase price adjustment period. Cost in excess of fair value of
net assets acquired amounted to approximately $5,800 and is being amortized over
a forty (40) year period.
The unaudited pro forma results of TEST for the fiscal years ended March
31, 1996 and 1997 below assume the acquisition occurred on April 1, 1995.
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Revenues.................................................... $161,713 $178,701
Income from operations...................................... 2,170 2,229
Net income.................................................. 1,809 835
Net income per share:
Basic..................................................... $ 0.30 $ 0.14
Diluted................................................... $ 0.28 $ 0.13
</TABLE>
Pro forma data does not purport to be indicative of the actual results if
these events actually occurred at the beginning of the periods presented and is
not intended to be a projection of future results. The pro forma results include
the amortization of cost in excess of fair value of net assets acquired ($145
annually). It also assumes that non specific corporate overhead charged to TEST
in the amount of $352 and $943 for the years ended 1996 and 1997, respectively,
would be duplicative to NATCO's corporate overhead, and has not been included.
F-12
<PAGE> 83
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(5) INVENTORIES
Inventories consisted of the following amounts:
<TABLE>
<CAPTION>
MARCH 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Finished goods....................................... $ 3,119 $ 3,525 $ 4,421
Work-in-process...................................... 5,698 8,037 7,314
Raw materials and supplies........................... 4,225 5,399 8,038
------- ------- -------
Inventories at FIFO........................ 13,042 16,961 19,773
Excess of FIFO over LIFO cost........................ (265) (266) (266)
------- ------- -------
$12,777 $16,695 $19,507
======= ======= =======
</TABLE>
At March 31, 1996 and 1997, and December 31, 1997 inventories valued using
the LIFO method amounted to $8,309, $11,213 and $13,326, respectively. During
1996 and 1997 there were no reductions in the LIFO layers.
(6) COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Cost incurred on uncompleted contracts............... $19,259 $22,340 $38,476
Estimated earnings................................... 2,224 2,605 8,641
------- ------- -------
21,483 24,945 47,117
Less billings to date................................ 18,823 18,729 42,754
------- ------- -------
$ 2,660 $ 6,216 $ 4,363
======= ======= =======
Included in accompanying balance sheets under the
following captions:
Trade accounts receivable....................... $ 3,211 $ 6,216 $ 4,791
Customer advances............................... (551) -- (428)
------- ------- -------
$ 2,660 $ 6,216 $ 4,363
======= ======= =======
</TABLE>
(7) PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment, were as follows:
<TABLE>
<CAPTION>
MARCH 31,
ESTIMATED USEFUL ------------------ DECEMBER 31,
LIVES (YEARS) 1996 1997 1997
----------------- ------- ------- ------------
<S> <C> <C> <C> <C>
Land and improvements................. -- $ 1,113 $ 1,097 $ 1,230
Buildings and improvements............ 20 to 40 5,490 5,785 6,981
Machinery and equipment............... 3 to 12 6,458 6,554 6,809
Office furniture and equipment........ 3 to 12 1,700 2,048 2,909
Less accumulated depreciation......... (8,101) (8,651) (8,796)
------- ------- -------
$ 6,660 $ 6,833 $ 9,133
======= ======= =======
</TABLE>
F-13
<PAGE> 84
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
Depreciation expense was $768, $718, and $811, and $819 for the years ended
March 31, 1995, 1996 and 1997 and for the nine months ended December 31, 1997,
respectively.
NATCO leases certain pieces of machinery and equipment to its customers,
generally for periods of one month to one year. The cost of leased machinery and
equipment is $2,769 and $2,450 and the related accumulated depreciation is
$2,080 and $1,814 at March 31, 1996 and 1997, respectively. Lease and rental
income of $878, $938 and $688 for the years ended March 31, 1995, 1996 and 1997,
respectively, are included in net sales.
(8) OTHER ASSETS, NET
Other assets consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------- DECEMBER 31,
1996 1997 1997
---- ---- ------------
<S> <C> <C> <C>
Deferred financing costs............................... $ -- $ 95 $471
Prepaid pension asset.................................. 318 308 308
Other assets........................................... 229 98 142
---- ---- ----
$547 $501 $921
==== ==== ====
</TABLE>
(9) ACCRUED LIABILITIES
<TABLE>
<CAPTION>
MARCH 31,
------------------ DECEMBER 31,
1996 1997 1997
------ ------ ------------
<S> <C> <C> <C>
Accrued Liabilities:
Accrued compensation and benefits................ $2,724 $3,597 $ 8,906
Liability reserves............................... 3,242 2,951 2,221
Warranty and product reserves.................... 1,329 1,219 1,969
Taxes............................................ 534 910 952
Other............................................ 1,855 761 2,071
------ ------ -------
Totals................................... $9,684 $9,438 $16,119
====== ====== =======
</TABLE>
(10) SHORT-TERM DEBT
At March 31, 1997 and March 31, 1996, NATCO-Canada had $3,796 and $1,178,
respectively, outstanding under a revolving credit agreement that is due on
demand and bears interest at prime plus 1/2% per annum (5.25% and 7.5% at March
31, 1997 and March 31, 1996, respectively). As of March 31, 1997 and March 31,
1996, the maximum availability under the agreement was $5,068 ($7,000 Canadian)
and $3,679 ($5,000 Canadian), respectively. Availability is based on the
collateral value of accounts receivable and inventory, as defined in the
agreement. As of March 31, 1997 and March 31, 1996, the Company had $1,272 and
$1,688, respectively, in additional credit available under this agreement. The
loan is secured by collateral mortgages on the subsidiary's property and plant,
a general security agreement over all equipment, and a general assignment of
accounts receivable. The loan contains various restrictive covenants which
include, among others, restrictions on capital asset additions, incurrences of
additional debt, the requirement to maintain certain financial ratios and
restrictions on the aggregate of capital expenditures and dividends paid in any
one fiscal year not to exceed 50% of net cash flow, which is defined as the sum
of after-tax net profit plus depreciation and amortization and taxes less
payments made on long-term debt. As of March 31, 1997, NATCO was in compliance
with all of the restrictive covenants.
F-14
<PAGE> 85
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
At March 31, 1997, NATCO had an EXIM bank working capital facility for
$3,000. The loan bears interest at prime, which was 8.5% at March 31, 1997.
Borrowings are based on the value of inventory and accounts receivable. The bank
facility is secured by specific project inventory and receivables, a 90%
guarantee from EXIM bank, and a second lien on the assets pledged to the NATCO
revolving credit bank loan. At March 31, 1997, $2,064 had been drawn against
these facilities.
At March 31, 1996, NATCO had two short-term EXIM bank working capital
facilities for $1,000 and $900, respectively. These loans bore interest at
prime, which was 6.75% at March 31, 1996. Borrowings were based on the value of
inventory and accounts receivable. These bank facilities were secured by
specific project inventory and receivables, a 90% guarantee from EXIM bank, and
a second lien on the assets pledged to the NATCO revolving credit bank loan. At
March 31, 1996, $1,117 had been drawn against these facilities. Subsequent to
March 31, 1996 both loans were repaid.
(11) LONG-TERM DEBT
The consolidated borrowings of the Company are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1996 1997 1997
-------- ------- ------------
<S> <C> <C> <C>
Related parties
13% subordinated notes, with interest and
principal payable at maturity, due June 30,
2000.......................................... $ -- $ -- $ 7,932
11% subordinated note, with interest and
principal payable at maturity, due June 30,
2000.......................................... 8,486 9,411 --
18% subordinated notes due April 21, 1997....... 1,581 301 --
18% subordinated notes due November 15, 1996 and
July 31, 1997................................. 4,998 2,682 --
18% subordinated notes due July 31, 1997........ 205 211 --
Bank & Other
9% subordinated notes due July 31, 1996......... 1,477 -- --
Revolving credit bank loan with variable
interest rate (10% at March 31, 1997), due
June 30, 1999................................. 1,696 4,975 --
Term loan with interest at prime plus 1.75%
(11.75% at March 31, 1997) monthly payments of
principal and interest through June 30,
1999.......................................... -- 2,007 --
Term loan with variable interest rate (8.53% at
December 31, 1997) quarterly payments of
principal and interest, due June 30, 2002..... -- -- 9,643
Revolving credit bank loan with variable
interest rate (8.67% at December 31, 1997)
quarterly payment of interest due June 30,
2000.......................................... -- -- 11,150
Industrial revenue bond, $50 due annually with
balance due September 1, 2005................. 865 815 765
Mortgage, with interest at prime plus 1%, (5.75%
at March 31, 1997) quarterly payments of
principal and interest through May 2000....... 1,248 1,093 959
</TABLE>
F-15
<PAGE> 86
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1996 1997 1997
-------- ------- ------------
<S> <C> <C> <C>
Term loan with interest at prime plus 1% (5.75%
at March 31, 1997) monthly payments on
principal and interest through February
2000.......................................... 288 211 151
Other debt...................................... 105 -- --
-------- ------- -------
Total................................. 20,949 21,706 30,600
Less current installments............. (8,628) (3,953) (1,680)
-------- ------- -------
Long-term debt........................ $ 12,321 $17,753 $28,920
======== ======= =======
</TABLE>
The aggregate annual future maturities of long-term debt are as follows as
of March 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $3,953
1999........................................................ 6,740
2000........................................................ 937
2001........................................................ 9,461
2002........................................................ 50
Thereafter.................................................. 565
</TABLE>
Parent Company
On December 11, 1991, Capricorn loaned $5,000 to the Company in the form of
an 11% subordinated note (the 11% Note). Interest is being deferred and added to
the principal amount, both of which are due on June 30, 2000. The 11% Note is
subordinated to all senior debt of the Company.
The 18% subordinated notes require quarterly interest payments at a rate of
13.5%, and the additional interest cost of 4.5% is added to the principal of the
loan quarterly. Interest expense of $749, $776 and $925 has been recognized and
added to the balance of the loan during the years ended March 31, 1995, 1996 and
1997, respectively.
For a discussion of the 13% subordinated notes, see note 21.
NATCO
As of March 31, 1996 and March 31, 1997, NATCO, NHI and the Company
participated in a revolving credit agreement which was collateralized by all of
the assets of the Company, NHI and NATCO, and was guaranteed by the Company. As
of March 31, 1996, the agreement provided for maximum borrowings of $7,000 based
on the collateral value of accounts receivable and inventory. As of March 31,
1997, the agreement provided for maximum borrowings of $9,500 and an additional
term loan of $2,500. The maximum borrowing amount was based on the collateral
value of accounts receivable and inventory and increased in proportion to
principal payments on the term loan. At March 31, 1997, the interest rate on the
revolving credit facility was 10% (prime plus 1 1/2%). The interest rate on the
term loan was 10 1/4% (prime plus 1.75%), and interest was payable monthly along
with monthly principal payments of $42. The revolving credit agreement contained
various restrictive covenants which included, among others, restrictions on
capital asset additions, incurrence of additional debt and the requirements to
maintain certain financial ratios. The maturity date of both loans was June 30,
1999. As of March 31, 1997, the Company was in compliance with all restrictive
covenants. NATCO had letters of credit outstanding under the revolving credit
facility totaling $3,077 and $3,182 at March 31, 1996 and 1997, respectively.
These letters of credit constitute contract performance and warranty collateral
and expired at various dates through June 1998.
F-16
<PAGE> 87
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
As of July 1, 1997, a new credit facility was put into place. The new
credit facility provides for an $18,000 revolving credit line to finance
eligible accounts receivable and inventories, and a $10,000 term loan. This
agreement contains restrictive covenants, including restrictions on NATCO
redeeming, retiring, or otherwise acquiring, directly or indirectly, any equity
interest in the Company or any subsidiary, or making any distributions of any
property or cash to the Company in excess of an agreed sum ($1,900 in fiscal
year 1998) without prior lender approval, and requires commitment fees in
accordance with standard banking practices and has been guaranteed by the
Company. Also related to the TEST acquisition financing, the Company forgave
$2,000 of subordinated debt owed to the Company by NHI.
The industrial revenue bond is secured by plant, real property, and
equipment of NATCO and is also guaranteed by NATCO. Interest ranges from 7.3% to
8.5%, payable semiannually.
NATCO-Canada borrowed $1,283 and $61 under a bankers acceptance and
mortgage, respectively, to finance the purchase of land and buildings from
Tyler. This was done to simplify the corporate structure, reduce borrowing costs
and foreign exchange risk, and enhance the overall corporate tax position. The
bankers acceptance matured on May 18, 1995, and was paid with the proceeds of an
additional borrowing on the mortgage of the land and buildings in the amount of
$1,283. The bankers acceptance, mortgage and term loan are secured by collateral
mortgages on a NATCO subsidiary's property and plant, a general security
agreement over all equipment, and a general assignment of accounts receivable.
The bank loan, mortgage and term loan contain various restrictive covenants
which include, among others, restrictions on capital asset additions and
incurrence of additional debt, and the requirements to maintain certain
financial ratios. As of March 31, 1997, the Company was in compliance with all
restrictive covenants.
(12) INCOME TAXES
Income tax expense (benefit) consisted of the following components:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $ (703) $ (538) $ (711)
State.................................................. 73 -- --
Foreign................................................ 299 68 756
------ ------ ------
(331) (470) 45
------ ------ ------
Deferred:
Federal................................................ 4,742 490 99
State.................................................. 84 (450) (85)
Foreign................................................ -- -- --
------ ------ ------
4,826 40 14
------ ------ ------
$4,495 $ (430) $ 59
====== ====== ======
</TABLE>
F-17
<PAGE> 88
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
Temporary differences related to the following items that give rise to
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Postretirement benefit liability.......................... $4,824 $5,551
Accrued liabilities....................................... 1,861 1,857
Net operating loss carryforwards.......................... 597 --
Contract reserves......................................... 277 296
Accounts receivable....................................... 191 161
Property, plant and equipment............................. -- 203
Other..................................................... 270 52
------ ------
Total deferred tax assets......................... $8,020 $8,120
====== ======
Deferred tax liabilities:
Inventory................................................. $ 973 $1,063
Property, plant and equipment............................. 131 161
Pension assets............................................ 127 121
------ ------
Total deferred tax liabilities.................... 1,231 1,345
------ ------
Net deferred tax assets........................... $6,789 $6,775
====== ======
</TABLE>
At March 31, 1996 and 1997, the Company did not record a valuation
allowance related to its deferred tax assets because it is the opinion of
management that future operations will more likely than not generate taxable
income to realize the deferred tax assets.
Income tax expense differs from the amount computed by applying the U.S.
federal income tax rate of 34% to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Income tax expense (benefit) computed at statutory rate... $3,225 $(260) $(146)
State income tax expense net of federal income tax
effect.................................................. 157 (450) (85)
Foreign income tax expense net of federal income tax
effect.................................................. -- 68 46
Foreign losses for which no tax benefit is currently
available............................................... 838 563 495
Other..................................................... 275 (351) (251)
------ ----- -----
$4,495 $(430) $ 59
====== ===== =====
</TABLE>
A provision has not been made for U.S. income taxes that would be payable
if undistributed earnings of foreign subsidiaries were distributed to the
Company in the form of dividends, since it is management's intention to reinvest
such earnings permanently in the related foreign operations. At March 31, 1997,
such amounts were not significant.
Federal income tax returns for fiscal years beginning with 1994 are open
for review by the Internal Revenue Service.
F-18
<PAGE> 89
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(13) STOCK OPTION PLAN
Stock Appreciation Rights and Options
During 1994, NATCO approved a new National Tank Company Stock Appreciation
Rights Plan (the NATCO Plan). The NATCO Plan provides that officers and other
key employees may be granted rights to the appreciation in the market value of a
stated number of shares of common stock of NATCO. Market value is determined by
a committee of the Board of Directors. The maximum number of rights that may be
granted under the NATCO Plan is 75,000, with 5,000 rights entitling the holder
to the appreciation in one share of the common stock of NATCO. The rights will
become 100% vested to the holder over a three-year period from the date of
grant. Upon exercise, the holder will receive cash for an increase in the market
value of the stock. At March 31, 1997, there were 43,512 rights vested and
31,000 rights outstanding. No compensation expense has been recorded in
connection with the plan for the years ended March 31, 1995, 1996 and 1997,
since all options were granted at fair market value and there was no
appreciation in the value of the stock appreciation rights.
On July 1, 1997, the Board of Directors approved the conversion of the
outstanding stock appreciation rights issued under the National Tank Company
Stock Appreciation Rights Plan to individual stock options resulting in a charge
to compensation expense of $1,211 and $107, respectively, on the grant date. As
of December 31, 1997 a total of $1,329 was charged to compensation expense for
the above options.
Stock options outstanding at December 31, 1997 are summarized below:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OUTSTANDING PER SHARE
----------- ------------
<S> <C> <C> <C>
895,559 ................................................ $1.47
50,001 ................................................ 2.22
185,186 ................................................ 3.58
411,035 ................................................ 5.03
--------- -----
1,541,781 ................................................ $2.70
========= =====
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the minimum value method of this statement.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net earnings and earnings per share for the years ending March 31 were
as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Net earnings -- as reported................................. $ 475 $ 5,400
Net earnings -- pro forma................................... (151) 4,433
Earnings per share -- as reported........................... $ 0.08 $ 0.83
Earnings per share -- pro forma............................. (0.03) 0.68
</TABLE>
Because the statement provides for pro forma amounts for options granted
beginning in 1995, the pro forma expense will likely increase in future years as
the new option grants become subject to the pricing model.
F-19
<PAGE> 90
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(14) EMPLOYEE BENEFITS
Defined Benefit Plans
A subsidiary of NATCO sponsors a defined benefit pension plan covering
certain union employees. The benefits are based primarily on years of service or
a combination of years of service and employees' pay near retirement. Plan
assets consist principally of marketable equity securities and fixed income
investments.
Net periodic pension expense of the defined benefit plans for the years
ended March 31, 1995, 1996 and 1997, is as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period.............. $ 28 $ 38 $ 23
Interest cost on projected benefit obligation............... 21 25 29
Actual return on plan assets................................ 2 (78) (99)
Net amortization, deferrals and settlements................. (43) 41 56
---- ---- ----
Net periodic pension expense...................... $ 8 $ 26 $ 9
==== ==== ====
</TABLE>
The funded status of the plan at December 31, 1996 (the most recent
valuation date) was as follows:
<TABLE>
<S> <C>
Actuarial present value of:
Accumulated benefit obligation (all of which is vested)..... $(385)
=====
Projected benefit obligation................................ $(385)
Plan assets at fair market value............................ 613
-----
Excess of plan assets over projected benefit obligation... 228
Unrecognized net loss....................................... 80
-----
Prepaid pension asset at December 31, 1996.................. $ 308
=====
</TABLE>
The projected benefit obligation was calculated using an assumed weighted
average discount rate of 9.0% for 1995, and 1996. The assumed long-term rate of
return on assets was 9.0%.
Deferred Compensation Plan
TEST adopted a deferred compensation plan (the TEST Plan) effective July 1,
1995 to provide incentives and rewards to certain individuals. Awards are
payable in five equal annual installments plus any earnings which have been
allocated to a participant's account. The Company has elected not to make any
additional awards for the plan year beginning January 1, 1998. As of December
31, 1997, the total amount owed under the TEST Plan was $786. This balance
presently accrues earnings at the prime rate plus 1%.
Defined Contribution Plans
The Company and its subsidiaries each have defined contribution pension
plans covering substantially all nonunion hourly and salaried employees who have
completed six months of service. Employee contributions of up to 3% of each
covered employee's compensation are matched 100% by the Company.
In addition, the Company may contribute up to an additional 3% of such
compensation as a profit sharing contribution. Company contributions totaled
$493, $658 and $604 for the years ended March 31, 1995, 1996 and 1997,
respectively.
F-20
<PAGE> 91
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
Postretirement Benefits
The Company provides certain health care and life insurance benefits for
employees retired at June 21, 1989, for which an estimated discounted liability
was recorded at the date of acquisition. The plan is funded on a current basis.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation as of March 31, 1996 and 1997 were 7.25% and
7.5%, respectively. As a result of a change in experience factors during 1996
and 1997 and a decrease in the discount rate during 1996, the obligation was
increased by $2,273 and $1,466 during 1996 and 1997, respectively. The Company
has elected to recognize actuarial gains and losses immediately; accordingly,
the increases are reported separately in the statement of operations as (gain)
loss on revaluation of postretirement benefit liability.
For measurement purposes, annual rates of increase of 4.5% to 8.5% in the
per capita cost of covered health care benefits were assumed. The health care
cost trend rate assumption has a significant effect on the amount of the
obligation and periodic cost reported. An increase in the assumed health care
cost trend rate by 1% each year would increase the accumulated postretirement
benefit obligation as of March 31, 1997 by $1,351.
As a condition of the acquisition agreement with C-E, C-E will reimburse
the Company for annual costs in excess of $755 (adjusted for inflation) for ten
years following the acquisition date ending June 21, 1999. For the year ended
March 31, 1996 and 1997, the aggregate benefits paid for these retired employees
was $1,632 and $1,659, respectively, of which $1,148 and $1,149, respectively,
was reimbursed by C-E.
Net periodic postretirement benefit cost represents interest cost on the
accumulated postretirement benefit obligation. Since all participants are
retired, there is no service cost. The postretirement benefit cost charged to
the statement of operations for the years ended March 31, 1995, 1996 and 1997
was $1,064, $932 and $957, respectively, representing interest costs associated
with accreting the liability.
(15) OPERATING LEASES
The Company and its subsidiaries lease various facilities and equipment
under noncancellable operating lease agreements. These leases expire on various
dates through 2003.
Future minimum lease payments required under operating leases that have
remaining noncancellable lease terms in excess of one year at March 31, 1997,
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING
MARCH 31, LEASES
- ------------------------------------------------------------ ---------
<S> <C>
1998................................................... $1,927
1999................................................... 1,841
2000................................................... 1,531
2001................................................... 1,250
2002................................................... 561
Thereafter............................................. 33
------
Total minimum lease payments...................... $7,143
======
</TABLE>
Total rent expense for the years ended March 31, 1995, 1996 and 1997 was
$2,113, $1,920 and $2,241, respectively.
F-21
<PAGE> 92
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
Lease and rental income of $878, $938 and $688 are included in net sales
for the years ending March 31, 1995, 1996 and 1996, respectively.
(16) RELATED PARTIES
In June 1989, the Company entered into an agreement with Capricorn
Management, G.P. (Capricorn Management) whereby a contingent fee would be paid
to Capricorn Management upon the occurrence of certain events as defined in the
agreement. During 1997, the fee of $374 was paid. No further fee is payable
thereunder, and accordingly, no additional liability was recorded at March 31,
1997.
The Company has contracted to pay $350 per year plus certain out-of-pocket
expenses to Capricorn Management to reimburse it for costs and expenses incurred
by it to perform certain management and other responsibilities. The fee is
payable quarterly, in advance. Subsequent to March 31, 1997, the fee was reduced
to $75 per year beginning July, 1997.
Employees of Capricorn Management participate in various NATCO benefit
plans for which Capricorn Management reimburses the Company. In addition, the
Company from time to time is billed by its vendors for Capricorn Management
expenses. As of December 31, 1997, Capricorn Management owed the Company $200
for these services. For fiscal years ended March 31, 1995, 1996, and 1997, PTH
paid $585, $225, and $218 to the Company for tax consulting and analysis
services. The Company currently provides tax consulting and analysis services to
PTH for $7 per month.
On November 1, 1989, two officers purchased 420,168 shares of common stock
from the Company for $285 in cash and personal notes of $419. The interest rates
on the notes were based on the 3-month commercial paper rate until the officers
left the Company and entered into option agreements (see below), at which time
the interest rate became 18%. Interest is payable annually in arrears and the
notes were due November 15, 1996. Accrued interest receivable of $2 and $7 is
included with the notes receivable balance at March 31, 1997 and 1996,
respectively. During the year and subsequent to March 31, 1997, both notes were
paid in full.
Effective March 31, 1994, Capricorn entered into an option agreement with a
former officer and 7.5% shareholder of the Company (see above), as a
renegotiation of a previous employment agreement. The shareholder had the option
to exchange the Company's common stock for an equivalent value of certain
Capricorn investments as of December 31, 1993 and a note from the Company. On
May 10, 1995, the stockholder exercised the option to exchange a portion of the
Company's common stock for an 18% subordinated note for $1,400 (see note 10).
During fiscal year 1997, Capricorn purchased the above note from the holder.
Effective December 31, 1994, Capricorn entered into a second option
agreement with a former officer and 2.5% stockholder of the Company (see above).
The option, which enabled the stockholder to exchange common stock for a
specified interest in a note from the Company, was exercised on May 10, 1995 for
an 18% subordinated note for $1,330 (see note 10). Also, during fiscal year
1997, Capricorn purchased $1,079 of the note from the note holder. Subsequent to
year end, Capricorn purchased the remaining portion of the note.
In April 1995, the Company purchased 150 shares of PTH stock from a former
officer of PTH for $248. In August 1995, PTH purchased the shares for an equal
amount from the Company.
In May 1995, the Company repurchased 4% of its common stock from a
stockholder for cash of $810 and a 9% promissory note in the amount of $810. The
Company also paid accrued interest on an 18% investor note the stockholder had
in exchange for a reduction in the interest rate to 9%.
F-22
<PAGE> 93
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
During 1997, the Company loaned a director of the Company $1,525. The note
bears interest until maturity at 10%, payable annually, and the principal is due
March 31, 1998. At the Company's option, the note may be repaid with shares of
the common stock of the Company.
(17) DISCONTINUED OPERATIONS -- PTH
PTH manufactures vibrating screens, rock crushing equipment, conveyor
components and screening media with operations in the United States, Canada, and
Scotland. On June 30, 1997 the Company completed the tax-free spin-off of PTH by
distributing the 14,250 shares of PTH stock that it owned to Capricorn I as the
holder of its common stock.
The spin-off distribution reduced stockholders' equity by $4,904 which
represents the net assets of PTH at the date of spin-off including the
assumption of $4,576 of debt owed by the Company to Capricorn and the
forgiveness of $2,236 of intercompany balances.
The historical results for discontinued operations include an allocation of
the Company's nonspecific interest expense based on the ratio of net assets for
PTH divided by the sum of net assets of the Company, plus all the Company's
debt. Debt and interest expense directly incurred by NATCO was excluded from the
ratio. Interest expense for the Company attributable to the PTH operations and
included in the profit and loss from discontinued operations for the years
ending 1995, 1996 , and 1997 was $787, $919, and $676, respectively. For the
period ending December 31, 1997, up to and including the disposal date of June
30, 1997, this amount was $285.
The Company and PTH have entered into a tax sharing agreement with
provisions for determining responsibility for tax liabilities of PTH for the
years that PTH was included in the Company's consolidated tax returns. Income
taxes have been allocated to PTH based on its pretax income and calculated on a
separate company basis pursuant to the requirements of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Income taxes
allocated to PTH for the years ending 1995, 1996, and 1997, were ($833), $831,
and $4,839, respectively.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
DISCONTINUED OPERATIONS 1995 1996 1997
----------------------- ------- ------- -------
<S> <C> <C> <C>
Revenues.............................................. $79,407 $87,936 $86,664
Income before income taxes and minority interest...... 1,339 1,676 314
Income tax provision (benefit)........................ 994 831 (825)
Minority interest..................................... 14 34 39
------- ------- -------
Income from operations................................ 331 811 1,100
Gain on disposal of division of discontinued
operations.......................................... -- -- 4,788
------- ------- -------
Total discontinued operations............... $ 331 $ 811 $ 5,888
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------
NET ASSETS OF DISCONTINUED OPERATIONS 1996 1997
------------------------------------- -------- --------
<S> <C> <C>
Current assets.............................................. $ 29,656 $ 21,504
Property, plant and equipment, net.......................... 13,063 8,978
Other assets................................................ 8,078 6,507
Current liabilities......................................... (18,223) (12,054)
Other liabilities........................................... (23,628) (15,452)
-------- --------
Net assets of discontinued operations............. $ 8,946 $ 9,483
======== ========
</TABLE>
F-23
<PAGE> 94
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
The 1995, 1996 and 1997 financial statements and related notes have been
reclassified to present financial information for these businesses as
discontinued operations. The results of operations for both businesses have been
classified as discontinued operations in the consolidated statements of income
and are shown net of related income tax expense. The remaining assets and
liabilities of discontinued operations have been classified in the consolidated
balance sheet as a current asset "Net assets of discontinued operations" as of
March 31, 1996 and 1997.
(18) COMMITMENTS AND CONTINGENCIES
In June 1997, the Company, in connection with a financing effected to
provide funds for the acquisition of TEST and other corporate purposes,
distributed all of the outstanding stock of PTH then owned by the Company to its
then sole stockholder, Capricorn. In connection with the distribution, the
Company received an opinion of counsel to the effect that the distribution would
be tax-free to both the Company and Capricorn. Tax-free treatment of the
distribution depends, in part, upon the underlying facts and circumstances at
the time of the distribution. There can be no assurance that the Internal
Revenue Service will agree with the Company's and its counsel's interpretation
of such facts and circumstances. If the Internal Revenue Service were to
challenge the tax-free treatment of the distribution and such challenge were
ultimately to prevail, the Company would be treated as recognizing gain with
respect to the distribution in an amount equal to the excess of the fair market
value of the PTH stock at the time of the distribution over its tax basis to the
Company. Such treatment could have a material adverse effect on the Company's
results of operations and financial condition.
(19) LITIGATION
In the ordinary course of business, the Company and its subsidiaries are
parties to litigation, some of which relate to litigation that was outstanding
at June 21, 1989, and that involve substantial amounts. In connection with
contractual provisions of the acquisition agreement between the Company and C-E,
the Company is indemnified against certain losses related to litigation or
incidences that existed at June 21, 1989.
At March 31, 1997, and December 31, 1997 in the opinion of management, and
based on consultation with legal counsel, there are no matters pending or
threatened which will have a material adverse effect on the Company's
consolidated financial position or results of operations.
(20) OFFICE CLOSURE
During 1996, NHI closed its Singapore office and operations ceased on March
1, 1996. During the year ended March 31, 1996, NHI accrued expenses associated
with the closing of the office.
During 1997, NHI began winding down the operations of its UK subsidiary.
These activities include, transferring the net assets and employees at the
Company's parts and service business to a new U.S. subsidiary, and resolving
pending warranty, vendor and leasehold issues. Included in the December 31, 1997
statement of operations is a charge of $282 recognized as the estimated cost to
exit these activities.
F-24
<PAGE> 95
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(21) GEOGRAPHIC INFORMATION
The Company operates in one industry segment, wellhead equipment, systems
and services used in the production of oil and gas. The Company's geographic
data for continuing operations for the fiscal years ended March 31, 1995, 1996
and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
A2MARCH 31,
<S> <C> <C> <C>
Revenues:
United States:
Unaffiliated.................................. $ 42,906 $ 46,554 $ 64,143
To foreign affiliates......................... 4,461 881 1,385
Foreign:
Unaffiliated.................................. 67,141 67,302 62,530
To United States affiliates................... 385 576 4,443
Total revenues between geographic areas.......... (4,984) (2,589) (5,844)
-------- -------- --------
Consolidated revenues............................ $109,909 $112,724 $126,657
======== ======== ========
Operating Income (Loss):
United States.................................... $ 6,887 $ 3,256 $ (409)
Foreign.......................................... (1,897) (3,592) (79)
-------- -------- --------
Income(loss) from continuing operations....... $ 4,990 $ (336) $ (488)
======== ======== ========
Identifiable Assets:
United States.................................... $ 43,278 $ 42,840 $ 52,309
Foreign.......................................... 24,783 15,680 18,970
-------- -------- --------
Identifiable assets........................... $ 68,061 $ 58,520 $ 71,279
======== ======== ========
</TABLE>
(22) SUBSEQUENT EVENTS (UNAUDITED)
In June 1997, the directors of the Company approved an increase in the
authorized common shares of the Company from 3,000 shares to 20,000,000 shares.
The par value of the shares remained unchanged. Shares currently issued
converted to 4,553,334 shares. Capricorn Investors, II L.P., then contributed
$13,000 in exchange for 2,113,334 shares of common stock and a 13% subordinated
note for $2,360. In addition, Capricorn agreed to exchange and extend notes
totaling $9,411 (plus accrued interest from March 31, 1997) for two 13%
subordinated notes of $5,085 and $4,576 from NATCO and PTH, respectively.
The proceeds of the $13,000 were used as follows:
- $10,000 was contributed to NHI/NATCO to be used for its acquisition of
TEST.
- $2,911 was used to pay off subordinated debt and accrued interest.
- $89 was used to pay expenses associated with the transactions.
On March 6, 1998, the Board of Directors of the Company approved an
increase in the number of authorized common shares from 20,000,000 to
50,000,000. On that date, the directors declared a 4 for 3 common stock split to
be effected by the exchange of four shares for every three shares of common
stock held by shareholders of record as of that date.
F-25
<PAGE> 96
NATCO GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
In March 1998, the Company entered into an agreement with Capricorn and
Capricorn II pursuant to which Capricorn and Capricorn II agreed to deliver to
the Company subordinated notes in exchange for the issuance of common stock by
the Company. The terms of such exchange were set to be equivalent to the price
per share agreed at the time of Capricorn II's investment in June 1997, which
was $5.03 of principal amount per share of Common Stock. In exchange for the
subordinated notes, Capricorn and Capricorn II will receive 1,010,333 shares and
468,925 shares of common stock, respectively.
On November 7, 1997, the Company received a promissory note in the amount
of $1,525 from a director of the Company which provided, among other things, for
repayment of the note by such director either (a) in cash, on or before March
31, 1998, or (b) upon election by the Company, at the director's option in cash
or by delivery of shares of common stock, in each case at a date determined
under such promissory note.
F-26
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Total Engineering Services Team, Inc.:
We have audited the accompanying balance sheets of Total Engineering
Services Team, Inc. (the Company) as of December 31, 1996 and 1995 and the
related statements of income, stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 Total Engineering Services
Team, Inc. as of December 31, 1996 and December 31, 1995 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
January 29, 1998
F-27
<PAGE> 98
TOTAL ENGINEERING SERVICES TEAM, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Accounts receivable....................................... $13,387 $10,420 $16,921
Inventories............................................... 4,816 8,085 1,661
Prepaid expenses and other................................ 166 148 255
Deferred tax assets....................................... 521 566 --
------- ------- -------
Total current assets.............................. 18,890 19,219 18,837
------- ------- -------
Property, plant and equipment:
Land...................................................... 107 329 329
Machinery and equipment................................... 1,226 1,576 1,686
Buildings and improvements................................ 1,080 2,002 2,036
------- ------- -------
2,413 3,907 4,051
------- ------- -------
Less accumulated depreciation............................. 311 692 896
------- ------- -------
2,102 3,215 3,155
------- ------- -------
Goodwill, net............................................... 579 562 555
Noncompete agreements, net.................................. 157 -- --
Deposits.................................................... 248 54 48
------- ------- -------
Total assets...................................... $21,976 $23,050 $22,595
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,261 $ 1,525 $ 1,908
Cash overdraft............................................ 768 644 1,185
Accrued liabilities....................................... 2,573 5,005 2,682
Income taxes payable...................................... 1,206 2,039 363
Payable to Parent Company................................. 3,974 1,439 3,541
------- ------- -------
Total current liabilities......................... 10,782 10,652 10,229
Deferred tax liability...................................... -- 4 --
Stockholders' equity:
Common stock, $10 par value, 2,000 shares authorized, 100
shares issued and outstanding.......................... 1 1 1
Additional paid-in capital................................ 7,833 7,833 7,833
Retained earnings......................................... 3,360 4,560 5,082
------- ------- -------
Total stockholders' equity........................ 11,194 12,394 12,916
Commitments and contingencies
------- ------- -------
Total liabilities and stockholders' equity........ $21,976 $23,050 $22,595
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 99
TOTAL ENGINEERING SERVICES TEAM, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
----------------------------- JUNE 30,
1994 1995 1996 1997
------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.......................................... $33,645 $42,434 $54,743 $23,307
Direct costs...................................... 25,767 33,652 45,317 18,412
------- ------- ------- -------
Gross profit.................................... 7,878 8,782 9,426 4,895
Operating expenses................................ 4,489 6,274 6,992 3,868
------- ------- ------- -------
Operating income................................ 3,389 2,508 2,434 1,027
Other income and expenses:
Interest expense................................ (153) (9) (224) (4)
Other........................................... 179 188 2 7
------- ------- ------- -------
Income before income taxes.............. 3,415 2,687 2,212 1,030
Income tax expense................................ 1,085 623 1,012 508
------- ------- ------- -------
Net income.............................. $ 2,330 $ 2,064 $ 1,200 $ 522
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 100
TOTAL ENGINEERING SERVICES TEAM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1993.................... $ 1 $5,235 $2,786 $ 8,022
Purchase adjustment.............................. -- 2,598 (3,820) (1,222)
Net income....................................... -- -- 2,330 2,330
--- ------ ------ -------
Balances at December 31, 1994.................... 1 7,833 1,296 9,130
Net income....................................... -- -- 2,064 2,064
--- ------ ------ -------
Balances at December 31, 1995.................... 1 7,833 3,360 11,194
Net income....................................... -- -- 1,200 1,200
--- ------ ------ -------
Balances at December 31, 1996.................... 1 7,833 4,560 12,394
Net income (unaudited)........................... -- -- 522 522
--- ------ ------ -------
Balances at June 30, 1997 (unaudited)............ $ 1 $7,833 $5,082 $12,916
=== ====== ====== =======
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 101
TOTAL ENGINEERING SERVICES TEAM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED
--------------------------------- JUNE 30,
1994 1995 1996 1997
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 2,330 $ 2,064 $ 1,200 $ 522
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 67 249 381 204
Deferred income taxes............................. 116 (435) 4 --
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts
receivable................................... (1,816) (656) 2,967 (4,219)
(Increase) decrease in inventories.............. (639) (675) (3,269) 4,142
(Increase) decrease in prepaid expenses and
other assets................................. 46 (70) 18 (107)
Increase (decrease) in accounts payable......... 212 (1,057) (736) 383
Increase (decrease) in accrued liabilities...... 581 (1,871) 2,387 (1,793)
Increase (decrease) in income taxes payable..... (361) 1,058 833 (930)
------- ------- ------- -------
Net cash provided by (used in) operating
activities................................. 536 (1,393) 3,785 (1,798)
------- ------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment........... -- (962) (1,494) (144)
Business acquisition................................. -- (3,300) -- --
Goodwill............................................. -- -- 17 7
Other noncurrent assets.............................. 293 101 351 (524)
------- ------- ------- -------
Net cash provided by (used in) investing
activities................................. 293 (4,161) (1,126) (661)
Cash flows from financing activities:
Increase (decrease) in payable to parent company..... (1,438) 5,130 (2,535) 2,098
Increase (decrease) in overdraft..................... 344 424 (124) 541
------- ------- ------- -------
Net cash (used in) provided by financing
activities................................. (1,094) 5,554 (2,659) 2,639
------- ------- ------- -------
Net decrease in cash and cash equivalents.............. (265) -- -- --
Cash and cash equivalents at beginning of year......... 265 -- -- --
------- ------- ------- -------
Cash and cash equivalents at end of year............... -- -- -- --
======= ======= ======= =======
Cash payments for:
Interest............................................. -- -- -- --
======= ======= ======= =======
Income taxes......................................... -- -- -- --
======= ======= ======= =======
Noncash transactions -- issuance of note payable to
affiliate to purchase land and buildings............. -- $ 3,300 -- --
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 102
TOTAL ENGINEERING SERVICES TEAM, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND REPORTING
(a) Nature of Business
Total Engineering Services Team, Inc. (the Company) was incorporated on May
15, 1970 in Louisiana and designs, manufactures and installs instrumentation and
electrical control systems for the petroleum industry.
On August 15, 1994, the Company's parent Total Energy Services, Inc.
(Total), was acquired by Enterra Corporation (Enterra). As a result of the
purchase and the subsequent merger of Enterra with Weatherford, the Company
became a wholly-owned subsidiary of Weatherford Enterra, Inc.
On June 30, 1997, the Company was acquired by National Tank Company
(NATCO). As a result of the purchase, the Company is a wholly-owned subsidiary
of NATCO.
(b) Business Acquisitions
On August 1, 1995, the Company acquired for approximately $3.3 million
substantially all the assets and assumed substantially all of the liabilities of
Production Management Controls System (PMCS) in a transaction accounted for as a
purchase. The excess of the aggregate purchase price of PMCS over the fair value
of the net assets acquired was recognized as goodwill. PMCS provided
instrumentation and electrical design, fabrication, installation, start-up and
commissioning of control systems for oil and gas production facilities located
offshore in the Gulf of Mexico.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventory
Inventory, which consist of materials, are valued at average cost which
does not exceed market.
(b) Property, Plant and Equipment
Property, plant and equipment are depreciated using the straight-line
method over their respective useful lives which range from 3 to 31 years. The
costs of ordinary maintenance and repairs are expensed, while renewals and
betterments are capitalized.
Effective April 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of.
Accordingly, in the event that facts and circumstances indicate that property,
plant and equipment may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future cash flows
associated with the asset is compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow was necessary.
Adoption of this standard did not have a material effect on the financial
positions or results of operations of the Company.
(c) Income Taxes
Income taxes are determined by the Company in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 and are included in the
consolidated income tax return of the parent company. For financial reporting
purposes, the Company records income tax expense or benefit as if a separate
return was filed.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
F-32
<PAGE> 103
TOTAL ENGINEERING SERVICES TEAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
income in the period that includes the enactment date.
(d) Goodwill
Goodwill represents the excess of the aggregate purchase price paid by the
Company in an acquisition accounted for as a purchase over the fair life of the
net assets acquired. Goodwill is amortized on a straight-line basis over a
period of 40 years.
(e) Cash Equivalents
Test considers all highly liquid investment instruments with original
maturities of three months or less to be cash equivalents.
(f) Revenue Recognition
Revenues from significant long-term contracts 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. Revenues and profits on
all other sales are recorded as shipments are made. If estimated total costs on
any contracts or work-in-process indicate a loss, the entire estimated loss is
recognized immediately.
Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenues recognized in excess of amounts billed and are included in
trade accounts receivable. Billings in excess of costs and estimated earnings on
uncompleted contracts represent billings in excess of revenues recognized and
are included in customer advances.
(g) 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. Actual results could differ from those estimates.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------ ------ -----------
<S> <C> <C> <C>
Work-in-process........................................ $3,620 $6,735 $2,282
Raw materials and supplies............................. 1,196 1,350 1,661
------ ------ ------
Total........................................ $4,816 $8,085 $3,943
====== ====== ======
</TABLE>
F-33
<PAGE> 104
TOTAL ENGINEERING SERVICES TEAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(4) PROPERTY, PLANT AND EQUIPMENT
The cost of ordinary maintenance and repairs are expensed, while renewals
and betterments are capitalized. Depreciation on property and equipment is
computed for financial reporting purposes using the straight-line method over
the estimated useful lives of the assets.
<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C>
Land........................................................ --
Buildings and improvements.................................. 20 years
Machinery and equipment..................................... 5 years
</TABLE>
(5) DUE TO PARENT
Following the acquisition of the Company from Enterra in 1994, the Company
has maintained its cash management with the parent company. The parent company
has provided funding for working capital and expenditure requirements. During
1996, the company paid $1,064 of corporate services to the parent company
corresponding to: tax, legal, human resources and audit consultation, financial
planning and cash management, among others. These payments were based on a fixed
monthly fee determined by the parent company. In addition, on August 1995, the
Company borrowed approximately $3.3 million for the purchase of Production
Management Control System. No specific maturity date was established.
(6) INCOME TAXES
Income tax expense (benefit) consisted of the following components:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended December 31, 1994:
U.S. federal........................................... $ 681 $ 251 $ 932
State and local........................................ 116 37 153
------ ----- ------
$ 797 $ 288 $1,085
====== ===== ======
Year ended December 31, 1995:
U.S. federal........................................... $ 910 $(379) $ 531
State and local........................................ 148 (56) 92
------ ----- ------
$1,058 $(435) $ 623
====== ===== ======
Year ended December 31, 1996:
U.S. federal........................................... $ 910 $ (39) $ 871
State and local........................................ 147 (6) 141
------ ----- ------
$1,057 $ (45) $1,012
====== ===== ======
</TABLE>
A reconciliation of the provision for income taxes follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Provision for federal income taxes at 34%................ $ 954 $ 914 $ 752
State and foreign income taxes........................... 116 148 147
Permanent differences.................................... (510) -- --
Other.................................................... 525 (439) 113
------ ------ ------
$1,085 $ 623 $1,012
====== ====== ======
</TABLE>
F-34
<PAGE> 105
TOTAL ENGINEERING SERVICES TEAM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accrued liabilities....................................... $502 $560
Other..................................................... 19 6
---- ----
Total gross deferred tax assets........................... 521 566
Deferred tax liabilities:
Other..................................................... -- 4
---- ----
$521 $562
==== ====
</TABLE>
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not that the Company will realize the benefits of these
deductible differences for the year ended December 31, 1996.
(7) COMMITMENTS AND CONTINGENCIES
(a) The Company is obligated under various operating leases. Rent expense under
these operating leases for the years ended December 31, 1994, 1995 and 1996
and six months ended June 30, 1997 was approximately $427, 402, $290 and
$104, respectively.
Minimum future rental payments are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 69
1999........................................................ 58
2000........................................................ 43
----
$170
====
</TABLE>
(b) The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operation, or liquidity.
(8) SUBSEQUENT EVENTS
Effective June 30, 1997, the Company was acquired by NATCO Group Inc. for
approximately $20 million.
F-35
<PAGE> 106
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Cynara Company
We have audited the accompanying balance sheets of The Cynara Company (the
"Company") as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
1997 and the period from March 5, 1996 (date of inception) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 The Cynara Company at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year ended December 31, 1997 and the period from March 5, 1996 (date of
inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 27, 1998
F-36
<PAGE> 107
THE CYNARA COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 2,556,540 $ 646,714
Restricted cash........................................... 262,000 --
Accounts receivable....................................... 347,270 1,089,524
Stockholder advances...................................... -- 101,579
Inventories............................................... 2,631,753 1,545,493
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 620,579 191,788
Prepaids and other current assets......................... 210,955 200,395
----------- ----------
Total current assets.............................. 6,629,097 3,775,493
Property, plant, and equipment, net......................... 8,798,151 4,055,091
Loan origination fees....................................... 92,625 161,662
Other assets................................................ 52,500 67,500
----------- ----------
Total assets...................................... $15,572,373 $8,059,746
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,836,602 $ 883,845
Accrued compensation and benefits......................... 442,794 308,707
Shareholder distributions payable......................... 263,189 --
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 235,878 --
Other accrued liabilities................................. 943,759 425,022
Common stock warrants liability........................... 493,480 60,903
Current maturities of long-term debt...................... 1,300,000 969,599
----------- ----------
Total current liabilities......................... 5,515,702 2,648,076
Long-term debt.............................................. 7,138,000 3,784,798
Stockholders' equity:
Class A common stock, voting, $.001 par value:
Authorized shares -- 90,000
Issued and outstanding shares -- 50,000................ 50 50
Class B common stock, nonvoting, $.001 par value:
Authorized shares -- 10,000
Issued and outstanding shares -- None.................. -- --
Additional paid-in capital................................ 1,659,377 1,659,377
Retained earnings (accumulated deficit)................... 1,259,244 (32,555)
----------- ----------
Total stockholders' equity........................ 2,918,671 1,626,872
----------- ----------
Total liabilities and stockholders' equity........ $15,572,373 $8,059,746
=========== ==========
</TABLE>
See accompanying notes.
F-37
<PAGE> 108
THE CYNARA COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996
(DATE OF INCEPTION)
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------------
<S> <C> <C>
Revenues:
Construction projects and module revenues................. $13,814,684 $ 996,125
Processing services and other revenues.................... 4,811,948 3,041,497
----------- ----------
18,626,632 4,037,622
Cost of revenues:
Construction projects and module revenues................. 8,339,673 701,552
Processing services and other revenues.................... 3,276,574 1,566,211
----------- ----------
11,616,247 2,267,763
----------- ----------
Gross profit...................................... 7,010,385 1,769,859
Operating expenses:
Research and development.................................. 309,237 116,656
Management fees to related party.......................... 327,940 86,624
Selling, general and administrative....................... 3,150,287 1,183,625
----------- ----------
Total operating expenses.................................... 3,787,464 1,386,905
----------- ----------
Operating income............................................ 3,222,921 382,954
Interest expense............................................ (1,233,989) (341,712)
Other income, net........................................... 43,637 3,352
Equity loss in Partnership.................................. -- (9,082)
----------- ----------
Net income........................................ $ 2,032,569 $ 35,512
=========== ==========
</TABLE>
See accompanying notes.
F-38
<PAGE> 109
THE CYNARA COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A RETAINED
COMMON CLASS A ADDITIONAL EARNINGS TOTAL
STOCK COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES STOCK CAPITAL DEFICIT) EQUITY
------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Common stock issued at March 5, 1996
(date of inception).................. 16,320 $16 $ 59,411 $ -- $ 59,427
Issuance of common stock............. 33,680 34 1,599,966 -- 1,600,000
Distributions to stockholders........ -- -- -- (68,067) (68,067)
Net income........................... -- -- -- 35,512 35,512
------ --- ---------- ---------- ----------
Balance at December 31, 1996........... 50,000 50 1,659,377 (32,555) 1,626,872
Distributions to stockholders........ -- -- -- (740,770) (740,770)
Net income........................... -- -- -- 2,032,569 2,032,569
------ --- ---------- ---------- ----------
Balance at December 31, 1997........... 50,000 $50 $1,659,377 $1,259,244 $2,918,671
====== === ========== ========== ==========
</TABLE>
See accompanying notes.
F-39
<PAGE> 110
THE CYNARA COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 5, 1996
(DATE OF INCEPTION)
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -------------------
<S> <C> <C>
Operating activities:
Net income................................................ $ 2,032,569 $ 35,512
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,175,780 429,600
Amortization of loan origination fees and debt
discount............................................. 212,140 69,188
Loss on disposal of fixed assets....................... 52,365 --
Common stock warrants revaluation...................... 432,577 --
Equity loss in Partnership............................. -- 9,082
Change in assets and liabilities:
Restricted cash...................................... (262,000) --
Accounts receivable.................................. 742,254 482,608
Inventory............................................ (1,086,260) 67,774
Costs and estimated earnings in excess of billings on
uncompleted contracts............................. (428,791) (191,788)
Prepaids and other current assets.................... (10,560) (184,738)
Accounts payable..................................... 952,757 453,534
Billings in excess of costs and estimated earnings on
uncompleted contracts............................. 235,878 --
Other accrued liabilities............................ 652,824 411,183
----------- -----------
Net cash provided by operating activities......... 4,701,533 1,581,955
Investing activities:
Capital expenditures...................................... (3,601,205) (360,848)
Acquisition, net of cash acquired......................... (2,355,000) (6,589,297)
----------- -----------
Net cash used in investing activities............. (5,956,205) (6,950,145)
Financing activities:
Proceeds from revolving loans and term loans.............. 13,288,000 6,700,000
Payments on revolving loans and long term loans........... (9,650,000) (1,900,000)
Loan origination fees..................................... (97,500) (215,550)
Issuance of common stock.................................. -- 1,600,000
Issuance of common stock warrants......................... -- 100
Distributions to stockholders............................. (376,002) (169,646)
----------- -----------
Net cash provided by financing activities......... 3,164,498 6,014,904
----------- -----------
Increase in cash.......................................... 1,909,826 646,714
Cash at beginning of period............................... 646,714 --
----------- -----------
Cash at end of period..................................... $ 2,556,540 $ 646,714
=========== ===========
</TABLE>
See accompanying notes.
F-40
<PAGE> 111
THE CYNARA COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
The Cynara Company, formerly RHRK Holdings, Inc., was incorporated on March
5, 1996 as an S Corporation by Robert J. Hamaker ("Hamaker") and Ralph M. Kelly
("Kelly"). Hamaker and Kelly each contributed their 5% limited partnership
interest in a partnership known as The Cynara Company (the "Partnership") in
exchange for 8,160 shares each of Class A common stock of the Company. Effective
July 1, 1996, concurrent with the acquisition described in Note 3, the company
changed its name to The Cynara Company (the "Company").
The Company uses hollow fiber membranes to separate carbon dioxide from
streams of fluids produced from oil and gas reservoirs. The Company designs,
constructs, sells, leases, or owns and operates commercial carbon dioxide
separation plants using this process in the Gulf Coast region of the U.S.,
Southeast Asia, and South America. The Company either sells equipment to or
contracts with operators of such reservoirs to perform such separations on a fee
basis.
Effective July 1, 1996, concurrent with the acquisition described in Note
3, a group of individual investors (collectively, "HHDS&P" or the "Majority
Stockholders") individually purchased a total of 33,680 shares of the Company's
Class A common stock for $1.6 million. Concurrently, Hamaker and Kelly each
individually sold certain of their Class A common stock to an individual HHDS&P
investor, resulting in the Majority Stockholders controlling 80% of the
outstanding shares of Class A common stock, with Hamaker and Kelly each
controlling 10%.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company accounts for earnings from long-term construction contracts on
the percentage-of-completion method of accounting. Under the
percentage-of-completion method, earnings on contracts in process are recognized
based on the percentage of estimated total earnings that costs incurred bear to
currently estimated total costs on each contract, commencing when sufficient
progress has been made to estimate final results with reasonable accuracy.
Provisions are made for the full amounts of anticipated losses in the period in
which they are first determinable. Costs and estimated earnings on contracts in
process in excess of amounts billed are reported as a current asset. Amounts
billed on contracts in process in excess of related costs and estimated earnings
are reported as a current liability.
Revenues from carbon dioxide separation services are based on volumes
processed, and revenues from membrane module sales are recognized when the
modules are shipped.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity date of three months or less to be cash equivalents.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of the assets.
Expenditures for major improvements which extend the lives of property and
equipment are capitalized, while minor replacements, maintenance, and repairs
are charged to operations as incurred.
F-41
<PAGE> 112
THE CYNARA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
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 to operations as incurred.
Inventories
Inventories are stated at the lower of cost or market value, using average
cost for raw materials and standard cost for work in progress and finished
membrane modules, which approximates actual cost.
Use of Estimates
Management is required to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist principally of trade receivables. The Company's policy is to
evaluate each customer's financial condition and determine the amount of credit
to be extended. The Company sells to a limited number of customers, primarily in
the oil and gas industry. Collateral is generally not required on these
receivables. At December 31, 1997 and 1996, there was no allowance for doubtful
accounts.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
3. ACQUISITION
Effective July 1, 1996, the Company purchased Dow's 90% interest in the
Partnership and certain other assets (primarily inventory and certain Pittsburg,
California membrane manufacturing plant assets) from Dow. The acquisition was
accounted for under the purchase method of accounting, whereby all of the assets
and liabilities acquired were adjusted to their fair values at the acquisition
date, which approximated the purchase price. The tentative purchase price at
July 1, 1996 was $7.1 million and consisted of $6.3 million in cash, assumption
of certain liabilities of $454,000, and acquisition costs of $300,000. Effective
immediately prior to the acquisition on July 1, 1996, the Partnership
distributed certain net liabilities of approximately $174,000 to the Company.
The final purchase price was contingent upon the resolution of an operating
agreement with Pennzoil for carbon dioxide separation services at the SACROC
Unit, as more fully described in Note 4. In August 1997, the Company negotiated
a new operating agreement with Pennzoil and was required to pay additional cash
consideration of $2,355,000, resulting in a total purchase price of $9,455,000.
The additional purchase price was allocated to the SACROC Unit. The financial
statements reflect all operations of the acquired entity from July 1, 1996
through December 31, 1997.
4. CARBON DIOXIDE SEPARATION SERVICES
The Partnership had an operating agreement with Pennzoil (assumed from
Chevron U.S.A., Inc., in 1994) to provide carbon dioxide separation services at
a facility in Snyder, Texas (the "SACROC Unit"). Separation services began at
the SACROC Unit in December 1983 and the agreement expired in August 1993, with
automatic annual renewals. In May 1996, Pennzoil notified the Partnership of its
intent to terminate the agreement effective September 1, 1996. The Company, as
successor to the Partnership,
F-42
<PAGE> 113
THE CYNARA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
continued to provide carbon dioxide separation services at the SACROC Unit on a
month-to-month basis until August 1997. In August 1997, the Company entered into
a new agreement with Pennzoil to provide such services. The agreement expires
February 2008, with automatic annual renewals unless either party provides
written notice of termination at least 90 days prior to the renewal date.
In August 1996, the Company began operations under an agreement with Texaco
to provide carbon dioxide separation services at a facility in Paradis,
Louisiana (the "Paradis Unit"). The agreement expires July 31, 2001, with
automatic annual renewals unless either party provides written notice of
termination at least 90 days prior to the renewal date.
Approximately $3.3 million and $1.3 million of total revenues resulted from
separation services at the SACROC Unit and Paradis Unit, respectively, for the
year ended December 31, 1997. Approximately $2.3 million and $500,000 of total
revenues resulted from separation services at the SACROC Unit and Paradis Unit,
respectively, for the period from March 5, 1996 (date of inception) to December
31, 1996.
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
In January 1997, the Company entered into a long-term construction contract
valued at approximately $18.2 million with Unocal Thailand, Ltd. ("Unocal"). The
contract is estimated to be completed in the second quarter of 1998. At December
31, 1997, the Company has issued a $1.5 million letter of credit for the benefit
of Unocal, which reduces the available borrowing base under the revolving loan
described in Note 8.
In July 1997, the Company entered into a long-term construction contract
valued at approximately $2.6 million with Total Exploration and Production
Thailand ("Total"). The contract is estimated to be completed in the second
quarter of 1998. At December 31, 1997, the Company has restricted cash of
$262,000 to secure its performance on this contract.
For the year ended December 31, 1997, approximately $12.5 million and
$538,000 of the Company's revenues resulted from the contracts with Unocal and
Total, respectively.
6. INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials............................................... $ 335,895 $ 171,375
Work in progress............................................ 420,458 183,155
Finished goods.............................................. 1,875,400 1,190,963
---------- ----------
$2,631,753 $1,545,493
========== ==========
</TABLE>
F-43
<PAGE> 114
THE CYNARA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
7. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1997 1996
------------- ----------- ----------
<S> <C> <C> <C>
Leasehold improvements..................... Up to 5 years $ 188,446 $ 184,269
Machinery and equipment.................... 5 years 8,854,407 4,054,932
Furniture and fixtures..................... 7 years 112,311 58,134
Computers and office equipment............. 5 years 296,156 158,566
Construction in progress................... 907,269 21,290
----------- ----------
10,358,589 4,477,191
Less accumulated depreciation.............. 1,560,438 422,100
----------- ----------
Property, plant, and equipment, net........ $ 8,798,151 $4,055,091
=========== ==========
</TABLE>
Depreciation expense for the year ended December 31, 1997 and for the
period from March 5, 1996 (date of inception) to December 31, 1996 was
$1,161,000 and $436,000, respectively. During 1997, the Company disposed of
certain fixed assets which were primarily used in older manufacturing process.
The loss on disposal of such assets was approximately $52,000 and is netted with
other income in the statement of operations.
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Term loan with Bank One, Texas, N.A.; interest payable
quarterly at a rate of 9.5%, principal payable in
quarterly installments of $325,000 commencing March 31,
1998, due December 31, 2002, secured by all assets of the
Company................................................... $7,000,000 $ --
Revolving loan with Bank One, Texas, N.A.; interest payable
monthly at a rate of 8.5%, due October 8, 1999, secured by
all assets of the Company................................. 1,438,000 --
Term loan with Banc One Capital Partners II, LTD. ("BOCP");
interest payable quarterly at a rate of 12%, principal
payable in quarterly installments of $250,000 commencing
March 31, 1997, due July 1, 2001, secured by all assets of
the Company............................................... -- 4,500,000
Revolving loan with BOCP; interest payable monthly at a rate
of prime plus 1 1/2%, due the earlier of July 1, 1998 or
the date the term loan is paid in full, secured by all
assets of the Company..................................... -- 300,000
Less debt discount.......................................... -- 45,603
---------- ----------
8,438,000 4,754,397
Less current maturities, including related debt discount.... 1,300,000 969,599
---------- ----------
Long-term debt due after one year........................... $7,138,000 $3,784,798
========== ==========
</TABLE>
Upon resolution of the SACROC operating agreement, as more fully described
in Note 4, the Company refinanced all of its outstanding borrowings with Bank
One. The debt agreement provides for a term loan of $7.0 million and a revolving
loan not to exceed $6.0 million. The Company has issued a $1.5 million letter of
credit which reduces the available borrowing base under the revolving loan. A
commitment fee of 0.5% is charged on the unused portion of the revolving loan.
In 1997, the Company paid loan origination fees of
F-44
<PAGE> 115
THE CYNARA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
approximately $98,000, which are being amortized to interest expense over five
years. The revolving loan is subject to certain borrowing base requirements
based primarily on current asset balances. The existing debt agreement provides,
among other things, for the maintenance of certain minimums, as defined, for
working capital, net worth, liquidity, and cash flow coverage of debt service.
Scheduled maturities of the Company's long-term debt are as follows for the
years ending December 31:
<TABLE>
<S> <C>
1998...................................................... $1,300,000
1999...................................................... 2,738,000
2000...................................................... 1,300,000
2001...................................................... 1,300,000
2002 and thereafter....................................... 1,800,000
</TABLE>
The Company paid interest of $464,000 and $259,000 during the year ended
December 31, 1997 and the period from March 5, 1996 (date of inception) to
December 31, 1996, respectively. The carrying value of the Company's long-term
debt approximates its fair value, as the interest rates on outstanding
borrowings approximate the market rate.
9. INCOME TAXES
The stockholders have elected to treat the Company as an S Corporation, as
defined by the Internal Revenue Code. In general, the corporate income or loss
of an S Corporation is allocated to the stockholders for inclusion in their
personal federal income tax returns. As a result, federal income taxes are not
reflected in these financial statements.
10. COMMITMENTS
The Company leases certain equipment and facilities under operating leases
that expire at various dates through 2002. Minimum rental commitments under all
noncancelable leases with an initial term in excess of one year are payable as
follows:
<TABLE>
<S> <C>
1998...................................................... $ 493,035
1999...................................................... 244,255
2000...................................................... 152,530
2001...................................................... 152,530
2002...................................................... 152,530
</TABLE>
Total rental expense charged to operations during the year ended December
31, 1997 and the period from March 5, 1996 (date of inception) to December 31,
1996 was $523,775 and $233,174, respectively.
From time to time, the Company is subject to claims arising in the ordinary
course of business. In the opinion of management, the ultimate outcome of these
claims is not expected to have a material adverse effect on the financial
statements.
11. RELATED-PARTY TRANSACTIONS
The Company entered into a management services agreement with HHDS&P
whereby the Company pays monthly management fees to HHDS&P for certain
management services provided. Unpaid management fees and expenses were
approximately $188,000 and $38,000 at December 31, 1997 and 1996, respectively.
F-45
<PAGE> 116
THE CYNARA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
12. STOCKHOLDERS AGREEMENT
The Company entered into a Stockholders Agreement (the "Agreement") on July
1, 1996 with the holders of its outstanding shares of common stock and BOCP. The
Agreement provides the stockholders and BOCP the right of first refusal to
purchase the selling stockholder's shares. The Agreement also provides the
stockholders and BOCP the right of co-sale when a selling stockholder elects a
third-party offer when such selling shares are not purchased under the right of
first refusal. The Agreement further states that the Majority Stockholders may
require, with 30 days' written notice, the other stockholders and BOCP to sell
their shares to a purchaser on the same terms and for the same price that the
Majority Stockholders have agreed to sell their shares.
The Agreement provides Hamaker and Kelly the right, if terminated for any
reason other than for cause, to require the Company to purchase all of their
outstanding shares. Conversely, the Agreement also provides the Company the
option, if Hamaker or Kelly is terminated for cause, to purchase all of the
outstanding shares held by the terminated employee. The put or call option price
per share shall be the fair market value per share of the Company on a fully
diluted basis, as mutually determined by the parties or a financial institution.
The Agreement allows quarterly distributions to be made to the
stockholders, to the extent permitted under the Company's debt agreement, to
satisfy the stockholder's aggregate federal and state income tax liability
incurred in respect to the income of the Company. The Company may require
stockholders to refund distributions in excess of the stockholders' aggregate
tax liability, or the Company may reduce the first distribution of the following
year. During the year ended December 31, 1997, the Company distributed cash of
$376,000, and an additional $263,000 is recorded as shareholder distributions
payable in the balance sheet. During the period from March 5, 1996 (date of
inception) to December 31, 1996, the Company distributed cash of $170,000 to
stockholders, of which $102,000 is recorded as stockholder advances in the
balance sheet.
The Agreement allows stockholders to exchange their shares of Class A
voting common stock for Class B nonvoting common stock and vice versa upon
written request.
The Agreement shall terminate upon the earlier of the following: (1) the
sale, transfer, or disposition by Hamaker, Kelly, and BOCP of all their shares;
(2) an initial public offering of the Company's common stock; (3) the sale or
transfer of all of the outstanding common stock to a third-party offeror; or (4)
June 30, 2006.
13. COMMON STOCK WARRANTS AND OPTIONS
Concurrent with the execution of its debt agreement with BOCP, the Company
issued 1,282 common stock warrants to BOCP in exchange for $100. The proceeds of
the debt and detachable warrants were allocated between the debt and warrants
resulting in a debt discount. The common stock warrants entitle BOCP the right
to purchase 1,282 shares of Class B common stock at $.01 per share. The warrants
also have put rights, which entitle the holder to require the Company to
purchase all of the outstanding warrants or warrant shares at the put price. The
put price is determined based on the fair value, as mutually agreed by the
parties or based on defined formulas. The warrants are recorded at their
estimated put price at December 31, 1997, determined based on the consideration
expected to be received in conjunction with the proposed merger (as more fully
described in Note 15), and are included in liabilities in the balance sheet. The
warrants expire on October 8, 2002.
BOCP also has common stock options to purchase 3,846.15 shares of Class B
common stock from the Majority Stockholders at an exercise price of $52.26 per
share.
F-46
<PAGE> 117
THE CYNARA COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
14. BENEFIT PLAN
The Company has a 401(k) defined contribution retirement plan covering all
eligible employees. This plan allows for employees to defer up to 16% of their
compensation, with the Company matching 50% of the first 10% of the
participant's contribution. In addition, the Company may make a discretionary
contribution at the end of the plan year. Participants are immediately and fully
vested in employer contributions. The Company's matching contribution charged to
operations for the year ended December 31, 1997 and the period from March 5,
1996 (date of inception) to December 31, 1996 was $83,000 and $32,000,
respectively.
15. SUBSEQUENT EVENT
In March 1998 management announced an agreement in principle to merge the
business of the Company with NATCO Group Inc. ("NATCO"). The transaction is
expected to be completed in May 1998 and is contingent on NATCO's successful
initial public offering anticipated to occur in May 1998. Upon completion, NATCO
will own 100% of the Company's capital stock. The Company has obtained approval
of the proposed transaction with the holder of outstanding borrowings.
F-47
<PAGE> 118
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES UNDER ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY 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.......................... 10
Use of Proceeds....................... 17
Dividend Policy....................... 17
Dilution.............................. 18
Capitalization........................ 19
Selected Consolidated Financial
Data................................ 20
Unaudited Condensed Pro Forma
Financial Statements................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 37
The Cynara Acquisition................ 48
Management............................ 49
Certain Transactions.................. 57
Principal and Selling Stockholders.... 60
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 65
Description of Bank Credit
Facilities.......................... 65
Underwriting.......................... 67
Legal Matters......................... 68
Experts............................... 69
Available Information................. 69
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, 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]
NATCO GROUP INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY
SIMMONS & COMPANY
INTERNATIONAL
, 1998
================================================================================
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offering are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $24,249
NASD filing fee............................................. 8,720
NYSE listing fee............................................ 84,600
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... 10,000
Printing expenses........................................... 85,000
Transfer Agent fees......................................... 15,000
Miscellaneous............................................... *
-------
TOTAL............................................. $ *
=======
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, a Delaware
corporation has the power, under specified circumstances, to indemnify its
directors, officers, employees and agents in connection with threatened, pending
or completed actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in right of the
corporation), brought against them by reason of the fact that they were or are
such directors, officers, employees or agents, against expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred in any
such action, suit or proceeding. Article Eleventh of the Restated Certificate of
Incorporation of the Registrant provides that the Registrant may indemnify any
director, officer, employee or agent of the Registrant to the fullest extent
permitted by the Delaware General Corporation Law as the same exists or may be
hereafter amended. Article VI of the Registrant's Bylaws provides that the
Registrant shall indemnify each person who is or was made a party to any actual
or threatened civil, criminal, administrative or investigative action, suit or
proceeding because such person is or was an officer or director of the
Registrant or is a person who is or was serving at the request of the Registrant
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
relating to employee benefit plans, to the fullest extent permitted by the
Delaware General Corporation Law as it existed at the time the indemnification
provisions of the Registrant's Bylaws were adopted or as may be thereafter
amended.
Article VI of the Registrant's Bylaws also provide that the Registrant may
maintain insurance, at its own expense, to protect itself and any director,
officer, employee or agent of the Registrant or of another entity against any
expense, liability, or loss, regardless of whether the Registrant would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
certificate of incorporation may contain a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for its 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 (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) or (iv) for any
transaction from which the director derived an improper personal benefit.
Article Tenth of the Registrant's Certificate of Incorporation contains such a
provision.
II-1
<PAGE> 120
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 30, 1997, the Registrant issued $2,359,864 in principal amount of
its 13% Subordinated Promissory Notes due 2000 and 1,585,000 shares of Common
Stock to Capricorn Investors II, L.P. in consideration of the payment to the
Registrant of $13,000,000. In so doing, the Registrant relied on the provisions
of Section 4(2) of the Securities Act in claiming exemption for the offering,
sale and delivery of such securities from the registration provisions of the
Securities Act.
On , 1998, Capricorn Investors, Ltd. and Capricorn Investors II,
L.P. delivered to the Registrant $5,084,501 and $2,359,864, respectively, in
principal amount of the Registrant's 13% Subordinated Notes due 2000 in exchange
for the issuance by the Registrant to such limited partnerships out of
authorized but unissued Common Stock 1,010,333 shares and 468,925 shares,
respectively. In so doing, the Registrant relied on the provisions of Section
3(a)(9) of the Securities Act in claiming exemption from the registration
provisions of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan of Merger dated as of March 26, 1998
among the Company and the stockholders of The Cynara
Company.
2.2 -- Stock Purchase Agreement dated as of May 7, 1997 among
Enterra Petroleum Equipment Group, Inc., National Tank
Company and Weatherford Enterra, Inc.
3.1 -- Certificate of Incorporation of the Company, as amended
and restated.
3.2 -- Certificate of Designations of Series A Junior
Participating Preferred Stock.
3.3 -- Bylaws of the Company, as amended and restated.
4.1* -- Specimen Common Stock certificate.
4.2* -- Rights Agreement dated as of February 17, 1998 by and
among the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
4.3* -- Registration Rights Agreement dated as of March , 1998
among the Company and the stockholders of The Cynara
Company.
4.4* -- Registration Rights Agreement dated as of March , 1998
among the Company, Capricorn Investors, L.P. and
Capricorn Investors II, L.P.
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1 -- 1998 Director Plan.
10.2 -- Form of Nonemployee Director's Stock Option Agreement.
10.3 -- 1998 Employee Plan.
10.4 -- International Revolving Loan Agreement dated as of June
30, 1997 among the Company and Chase Bank of Texas, N.A.
10.5 -- Collateral Land Mortgage dated January 30, 1995 granted
by NATCO Canada, Ltd. in favor of The Bank of Nova
Scotia.
10.6 -- Collateral Land Mortgage dated January 30, 1995 granted
by NATCO Canada, Ltd. in favor of The Bank of Nova
Scotia.
10.7 -- Term Loan Facility and Revolving Loan Facility dated June
30, 1997 among the Company and Chase Bank of Texas, N.A.
10.8 -- Loan Agreement dated as of October 8, 1997 between The
Cynara Company and Bank One Texas, N.A.
10.9 -- Form of Indemnification Agreement between the Company and
its officers and directors.
</TABLE>
II-2
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.10 -- Securities Exchange Agreement dated as of March 5, 1998
by and among the Company, Capricorn Investors, L.P. and
Capricorn Investors II, L.P.
10.11* -- Stockholders' Agreement dated as of , 1998 by
and among the Company, Capricorn Investors, L.P. and
Capricorn Investors II, L.P.
10.12 -- Employment Agreement dated as of July 31, 1997 between
the Company and Nathaniel A. Gregory.
10.13* -- Stock Option Agreement dated as of , 1998 between
the Company and Nathaniel A. Gregory.
10.14 -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Patrick M. McCarthy.
10.15 -- Stock Option Agreement dated as of July 31, 1997 between
the Company and William B. Wiener III.
10.16 -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Frank Smith.
10.17 -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Frank Smith.
10.18 -- Stock Option Agreement dated as of July 31, 1997 between
the Company and David Volz.
21.1 -- List of subsidiaries of the Company.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3* -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto).
24.1 -- Powers of Attorney (included on the signature page
hereto).
27.1 -- Financial Data Schedule.
99.1 -- Consent of George K. Hickox, Jr. to serve as director.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Consolidated Financial Statement Schedules, Years ended March 31, 1995,
1996 and 1997 and nine months ended December 31, 1996 (unaudited) and
1997 (unaudited).
All other schedules are omitted because the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the 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-3
<PAGE> 122
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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 part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, 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> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 the 30th day of March, 1998.
NATCO GROUP INC.
By: /s/ NATHANIEL A. GREGORY
----------------------------------
Nathaniel A. Gregory
Chief Executive Officer and
Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Nathaniel A. Gregory and William B. Wiener III,
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statements filed
by the Registrant pursuant to Rule 462(b) of the Securities Act of 1933, which
relates to this Registration Statement, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on March 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S> <C>
/s/ NATHANIEL A. GREGORY Chairman of the Board and Chief
- ----------------------------------------------------- Executive Officer (Principal
Nathaniel A. Gregory Executive Officer)
/s/ WILLIAM B. WIENER III Senior Vice President and Chief
- ----------------------------------------------------- Financial Officer (Principal
William B. Wiener III Financial Officer)
/s/ STEPHEN J. GOODLAND Controller (Principal Accounting
- ----------------------------------------------------- Officer)
Stephen J. Goodland
/s/ HERBERT S. WINOKUR, JR. Director
- -----------------------------------------------------
Herbert S. Winokur, Jr.
/s/ E. HALE STALEY Director
- -----------------------------------------------------
E. Hale Staley
/s/ PATRICK M. MCCARTHY Director
- -----------------------------------------------------
Patrick M. McCarthy
/s/ HOWARD I. BULL Director
- -----------------------------------------------------
Howard I. Bull
/s/ KEITH K. ALLAN Director
- -----------------------------------------------------
Keith K. Allan
</TABLE>
II-5
<PAGE> 124
SCHEDULE II
NATCO GROUP INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS COLLECTIONS BALANCE AT
BEGINNING CHARGED TO AND END
OF PERIOD ALLOWANCE WRITE-OFFS OF PERIOD
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended March 31, 1996:
Allowance for doubtful accounts receivable... $601 $ 71 $(100) $572
==== ==== ===== ====
Year Ended March 31, 1997:
Allowance for doubtful accounts receivable... $572 $127 $(191) $508
==== ==== ===== ====
</TABLE>
S-1
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan of Merger dated as of March 26, 1998
among the Company and the stockholders of The Cynara
Company.
2.2 -- Stock Purchase Agreement dated as of May 7, 1997 among
Enterra Petroleum Equipment Group, Inc., National Tank
Company and Weatherford Enterra, Inc.
3.1 -- Certificate of Incorporation of the Company, as amended
and restated.
3.2 -- Certificate of Designations of Series A Junior
Participating Preferred Stock.
3.3 -- Bylaws of the Company, as amended and restated.
4.1* -- Specimen Common Stock certificate.
4.2* -- Rights Agreement dated as of February 17, 1998 by and
among the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
4.3* -- Registration Rights Agreement dated as of March , 1998
among the Company and the stockholders of The Cynara
Company.
4.4* -- Registration Rights Agreement dated as of March , 1998
among the Company, Capricorn Investors, L.P. and
Capricorn Investors II, L.P.
5.1* -- Opinion of Vinson & Elkins L.L.P.
10.1 -- 1998 Director Plan.
10.2 -- Form of Nonemployee Director's Stock Option Agreement.
10.3 -- 1998 Employee Plan.
10.4 -- International Revolving Loan Agreement dated as of June
30, 1997 among the Company and Chase Bank of Texas, N.A.
10.5 -- Collateral Land Mortgage dated January 30, 1995 granted
by NATCO Canada, Ltd. in favor of The Bank of Nova
Scotia.
10.6 -- Collateral Land Mortgage dated January 30, 1995 granted
by NATCO Canada, Ltd. in favor of The Bank of Nova
Scotia.
10.7 -- Term Loan Facility and Revolving Loan Facility dated June
30, 1997 among the Company and Chase Bank of Texas, N.A.
10.8 -- Loan Agreement dated as of October 8, 1997 between The
Cynara Company and Bank One Texas, N.A.
10.9 -- Form of Indemnification Agreement between the Company and
its officers and directors.
10.10 -- Securities Exchange Agreement dated as of March 5, 1998
by and among the Company, Capricorn Investors, L.P. and
Capricorn Investors II, L.P.
10.11* -- Stockholders' Agreement dated as of , 1998 by
and among the Company, Capricorn Investors, L.P. and
Capricorn Investors II, L.P.
10.12 -- Employment Agreement dated as of July 31, 1997 between
the Company and Nathaniel A. Gregory.
10.13* -- Stock Option Agreement dated as of , 1998 between
the Company and Nathaniel A. Gregory.
10.14 -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Patrick M. McCarthy.
10.15 -- Stock Option Agreement dated as of July 31, 1997 between
the Company and William B. Wiener III.
10.16 -- Stock Option Agreement dated as of July 31, 1997 between
the Company and Frank Smith.
</TABLE>
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NATCO GROUP, INC.
NATCO ACQUISITION COMPANY
AND
THE CYNARA COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I Page
DEFINITIONS
SECTION 1.01 Definitions..................................................1
SECTION 1.02 Rules of Construction........................................1
ARTICLE II
TERMS OF MERGER
SECTION 2.01 Statutory Merger.............................................2
SECTION 2.02 Effective Time...............................................2
SECTION 2.03 Effect of the Merger.........................................2
SECTION 2.04 Certificate of Incorporation; Bylaws.........................2
SECTION 2.05 Directors and Officers.......................................2
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Merger Consideration; Conversion and
Cancellation of Securities......................3
SECTION 3.02 Exchange of Certificates.....................................5
SECTION 3.03 Closing......................................................8
SECTION 3.04 Stock Transfer Books.........................................8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01 Organization and Qualification; Subsidiaries.................8
SECTION 4.02 Certificate of Incorporation and Bylaws......................8
SECTION 4.03 Capitalization...............................................9
SECTION 4.04 Authorization of Agreement...................................9
SECTION 4.05 Approvals...................................................10
SECTION 4.06 No Violation................................................10
SECTION 4.07 Financial Statements........................................10
SECTION 4.08 No Material Adverse Effect; Conduct.........................11
SECTION 4.09 Title to Properties.........................................11
</TABLE>
AGREEMENT AND PLAN OF MERGER
-i-
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
SECTION 4.10 Certain Obligations.........................................12
SECTION 4.11 Permits; Compliance.........................................12
SECTION 4.12 Litigation; Compliance with Laws............................12
SECTION 4.13 Employee Benefit Plans......................................12
SECTION 4.14 Taxes.......................................................15
SECTION 4.15 Environmental Matters.......................................16
SECTION 4.16 Intellectual Property.......................................16
SECTION 4.17 Insurance...................................................17
SECTION 4.18 Tax Matters.................................................17
SECTION 4.19 Stockholders................................................17
SECTION 4.20 Certain Business Practices..................................17
SECTION 4.21 Brokers.....................................................18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
SECTION 5.01 Organization and Qualification; Subsidiaries................18
SECTION 5.02 Certificate of Incorporation and Bylaws.....................18
SECTION 5.03 Capitalization..............................................19
SECTION 5.04 Authorization of Agreement..................................20
SECTION 5.05 Approvals...................................................20
SECTION 5.06 No Violation................................................21
SECTION 5.07 Financial Statements........................................21
SECTION 5.08 No Material Adverse Effect; Conduct.........................21
SECTION 5.09 Title to Properties.........................................22
SECTION 5.10 Certain Obligations.........................................22
SECTION 5.11 Permits; Compliance.........................................23
SECTION 5.12 Litigation; Compliance with Laws............................23
SECTION 5.13 Employee Benefit Plans......................................23
SECTION 5.14 Taxes.......................................................26
SECTION 5.15 Environmental Matters.......................................27
SECTION 5.16 Tax Matters.................................................27
SECTION 5.17 Brokers.....................................................28
SECTION 5.18 Financing Registration Statement............................28
SECTION 5.19 Intellectual Property.......................................29
SECTION 5.20 Certain Business Practices..................................29
ARTICLE VI
COVENANTS
SECTION 6.01 Affirmative Covenants.......................................29
</TABLE>
AGREEMENT AND PLAN OF MERGER
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SECTION 6.02 Negative Covenants..........................................30
SECTION 6.03 Access and Information......................................34
SECTION 6.04 Confidentiality Agreement...................................34
SECTION 6.05 Stockholders' Letter........................................34
SECTION 6.06 Registration Rights Agreement...............................34
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Meeting of Stockholders.....................................35
SECTION 7.02 The Public Offering. ......................................35
SECTION 7.03 Appropriate Action; Consents; Filings.......................36
SECTION 7.04 Tax Treatment...............................................37
SECTION 7.05 Public Announcements........................................37
SECTION 7.06 Comfort Letters.............................................38
SECTION 7.07 Exercise or Assumption of Warrants. ........................38
SECTION 7.08 Employee Benefit Plans......................................38
SECTION 7.09 Indemnification of Directors and Officers...................39
SECTION 7.10 Newco.......................................................40
SECTION 7.11 Securities Exchange Agreement...............................40
SECTION 7.12 Event Notices...............................................40
ARTICLE VIII
CLOSING CONDITIONS
SECTION 8.01 Conditions to Obligations of Each Party
Under This Agreement...........................40
SECTION 8.02 Additional Conditions to Obligations of the
Acquiror Companies.............................41
SECTION 8.03 Additional Conditions to Obligations of the Company.........42
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 Survival of Representations, Warranties,
Covenants and Agreements. .....................43
SECTION 9.02 General Indemnification ....................................44
</TABLE>
AGREEMENT AND PLAN OF MERGER
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01 Termination.................................................47
SECTION 10.02 Effect of Termination.......................................48
SECTION 10.03 Amendment...................................................48
SECTION 10.04 Waiver......................................................48
SECTION 10.05 Fees, Expenses and Other Payments...........................48
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 Notices.....................................................48
SECTION 11.02 Headings....................................................50
SECTION 11.03 Severability................................................50
SECTION 11.04 Entire Agreement............................................50
SECTION 11.05 Assignment..................................................50
SECTION 11.06 Parties in Interest.........................................51
SECTION 11.07 Failure or Indulgence Not Waiver;
Remedies Cumulative............................51
SECTION 11.08 Governing Law...............................................51
SECTION 11.09 Arbitration.................................................51
SECTION 11.10 Counterparts................................................52
</TABLE>
ANNEXES
Annex A Schedule of Defined Terms
Annex B Form of Stockholder's Letter
Annex C Terms of Registration Rights Agreement
AGREEMENT AND PLAN OF MERGER
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 26th, 1998 (this
"Agreement"), is by and among NATCO Group Inc., a Delaware corporation
("Acquiror"), Natco Acquisition Company, a Delaware corporation and a
wholly-owned subsidiary of Acquiror ("Newco"), and The Cynara Company, a
Delaware corporation (the "Company"). The Acquiror and Newco are sometimes
referred to herein as the "Acquiror Companies."
RECITALS:
The Board of Directors of the Company has determined that the business
combination to be effected by means of the Merger is consistent with and in
furtherance of the long-term business strategy of the Company and is in the best
interests of the Company and its stockholders and has approved and adopted this
Agreement and recommended approval and adoption of this Agreement by the
stockholders of the Company.
The Board of Directors of the Acquiror has determined that the business
combination to be effected by means of the Merger is consistent with and in
furtherance of the long-term business strategy of the Acquiror and is fair to,
and in the best interests of, the Acquiror and its stockholders and has approved
and adopted this Agreement.
Upon the terms and subject to the conditions of this Agreement and in
accordance with the Corporate Statute, the Company will merge with and into
Newco and Newco will be the Surviving Corporation.
For federal income tax purposes, it is intended that the Merger will
qualify as a reorganization within the meaning of the provisions of Section
368(a) of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. Certain capitalized and other terms used in
this Agreement are defined in Annex A hereto and are used herein with the
meanings ascribed to them therein.
SECTION 1.02 Rules of Construction. Unless the context otherwise
requires, as used in this Agreement: (a) a term has the meaning ascribed to it;
(b) an accounting term not otherwise defined has the meaning ascribed to it in
accordance with GAAP; (c) "including" means "including without limitation;" (d)
words in the singular include the plural; (e) words in the plural include the
singular; (f) words applicable to one gender shall be construed to apply to each
gender; (g) the terms "hereof," "herein," "hereby," "hereto" and derivative or
similar words refer to this entire Agreement;
<PAGE> 7
and (h) the terms "Article" or "Section" shall refer to the specified Article or
Section of this Agreement.
ARTICLE II
TERMS OF MERGER
SECTION 2.01 Statutory Merger. Subject to the terms and conditions and
in reliance upon the representations, warranties, covenants and agreements
contained herein, the Company shall merge with and into Newco at the Effective
Time. The terms and conditions of the Merger and the mode of carrying the same
into effect shall be as set forth in this Agreement. As a result of the Merger,
the separate corporate existence of the Company shall cease and Newco shall
continue as the Surviving Corporation.
SECTION 2.02 Effective Time. At the conclusion of the Closing on the
Closing Date, the parties hereto shall cause the Merger to be consummated by
filing a Certificate of Merger with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, the Corporate Statute.
SECTION 2.03 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the Corporate
Statute. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, except as otherwise provided herein, all the property,
rights, privileges, powers and franchises of Newco and the Company shall vest in
the Surviving Corporation, and all debts, liabilities and duties of Newco and
the Company shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 2.04 Certificate of Incorporation; Bylaws. At the Effective
Time, the certificate of incorporation and the bylaws of Newco, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation and the bylaws of the Surviving Corporation, except that from and
after the Effective Time Article I of the certificate of incorporation shall be
and read in its entirety as follows:
ARTICLE I
The name of the corporation shall be "The Cynara Company".
The certificate of incorporation and bylaws of Newco shall contain
provisions substantially similar in form and substance to the
indemnification provisions contained in Article Ten of the certificate
of incorporation and Article VI of the bylaws of the Company,
respectively.
SECTION 2.05 Directors and Officers. The directors of Newco immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the certificate of incorporation and
bylaws of the Surviving Corporation, and the
AGREEMENT AND PLAN OF MERGER
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<PAGE> 8
officers of the Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Merger Consideration; Conversion and Cancellation of
Securities. On the date on which the Effective Time occurs, by virtue of the
Merger and without any action on the part of the Acquiror Companies, the Company
or the holders of any of the following securities:
(a) Conversion Ratio. Subject to the other provisions of this
Article III, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (including any Company Common
Stock issued upon exercise of the outstanding Warrants pursuant to
Section 7.07 but excluding any Company Common Stock described in
Subsection 3.01(d)) shall be converted into 17.68 shares of Acquiror
Common Stock, the right to receive $146.25 in cash and the right to
receive the Conditional Accelerated Earnout Shares, the Accelerated
Earnout Shares and the Earnout Shares, if any (which right shall not be
assignable except by operation of Law and which right shall in no event
entitle the holder to more than 17.68 shares of Acquiror Common Stock).
The Acquiror shall issue any Conditional Accelerated Earnout Shares on
the Conditional Accelerated Payout Date, any Accelerated Earnout Shares
on the Accelerated Payout Date and any Earnout Shares on the Payout
Date. Notwithstanding the foregoing, (i) if between the date of this
Agreement and the Effective Time the outstanding shares of Company
Common Stock shall have been changed into a different number of shares
or a different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares, the Merger Consideration Per Share of Company Common Stock or
Acquiror Common Stock shall be correspondingly adjusted to reflect such
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares and, (ii) if between the Effective
Time and Payout Date the outstanding shares of Company Common Stock or
Acquiror Common Stock shall have been changed into a different number
of shares or a different class by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the numbers of Earnout Shares, Accelerated Earnout
Shares and Conditional Accelerated Earnout Shares shall, to the extent
such shares have not theretofore been issued, be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(b) Earnout Determination. The Estimated Gross Margin on the
CTOC Project Contract if it becomes an Awarded Project Contract shall
be determined by the Acquiror on or prior to the 30th day following the
date of award thereof. The Estimated Gross Margin on all Awarded
Project Contracts shall be determined by the Acquiror on or prior to
March 31, 2000. The Earned Gross Margin on all Awarded Project
Contracts shall be determined by the Acquiror as of March 31, 2001.
AGREEMENT AND PLAN OF MERGER
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(c) Notwithstanding the provisions of subsections (a) and (b)
of this Section 3.01, no Designated Company Stockholder shall have any
obligation to return any shares of Acquiror Common Stock by reason of
the fact that the calculation of the number of Accelerated Earnout
Shares or Earnout Shares shall result in a negative number.
(d) Cancellation of Converted Shares. All shares of Company
Common Stock shall at the Effective Time, upon conversion thereof into
shares of Acquiror Common Stock and the right to receive cash, cease to
be outstanding and shall without further action be canceled and
retired, and each certificate previously evidencing Company Common
Stock outstanding immediately prior to the Effective Time (other than
Company Common Stock described in Subsection 3.01(d)) shall thereafter
be deemed, for all purposes other than the payment of dividends or
distributions, to represent that number of shares of Acquiror Common
Stock and the right to receive cash determined pursuant to Section
3.01(a) and, if applicable, the right to receive cash pursuant to
Subsection 3.02(e). The holders of certificates previously evidencing
Company Common Stock shall cease to have any rights with respect to
such Company Common Stock except as otherwise provided herein or by
law.
(e) Treasury Stock. Notwithstanding any provision of this
Agreement to the contrary, each share of Company Common Stock held in
the treasury of the Company and each share of Company Common Stock, if
any, owned by the Acquiror or any direct or indirect wholly owned
Subsidiary of the Acquiror or of the Company immediately prior to the
Effective Time shall be canceled and extinguished without conversion
thereof.
(f) Newco Stock. Each share of common stock, par value $1.00
per share, of Newco issued and outstanding immediately prior to the
Effective Time shall be converted into one share of common stock, par
value $1.00 per share, of the Surviving Corporation.
(g) Review of Earnout Determination. The Acquiror shall timely
prepare the estimations of Estimated Gross Margin referenced in the
definitions of Accelerated Additional Shares and Conditional
Accelerated Additional Shares and shall deliver such estimations at
least fifteen (15) days prior to the related payout date to the
Representative (as hereinafter defined) and shall provide the
Representative with a reasonably detailed calculation of Estimated
Gross Margin together with any supporting backup reasonably requested
by the Representative. If the Representative shall have any objections
to the estimations of Estimated Gross Margin in the case of the
Conditional Accelerated Additional Shares or the Accelerated Additional
Shares, the Representative shall so notify the Acquiror and the
Acquiror and the Representative shall endeavor in good faith to resolve
their differences prior to the related payout date. Any dispute not so
resolved shall be deferred until the Payout Date. The Acquiror shall
timely prepare the estimation of Earned Gross Margin referenced in the
definition of Additional Shares and shall deliver such estimation at
least thirty (30) days prior to the Payout Date and shall provide the
Representative with a reasonably detailed calculation of Earned Gross
Margin together with any supporting backup reasonably requested by the
Representative. The Representative shall notify the
AGREEMENT AND PLAN OF MERGER
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<PAGE> 10
Acquiror in writing of any objections that the Representative may have
with respect thereto at least fifteen (15) days prior to the Payout
Date and thereafter the Acquiror and the Representative shall in good
faith endeavor to resolve their differences until the tenth day prior
to the Payout Date. If the parties are unable to resolve their
differences (the "Differences"), the Representative shall have until
the Payout Date to notify the Acquiror that the Representative intends
to apply for arbitration pursuant to Section 11.09 of the Differences.
If the Acquiror is so notified, the Acquiror shall deliver the Earnout
Shares, less the Earnout Shares attributable to the Differences on the
Payout Date. The Earnout Shares attributable to the Differences shall
be delivered by the Acquiror upon resolution of all such Differences,
whether by arbitration or otherwise. The Representative shall be
Douglas P. Heller, and the Representative may be changed at any time by
notice to the Acquiror signed by a majority in interest of the
Designated Company Stockholders (determined at the time by reference to
the holdings of Company Common Stock of each of the Designated Company
Stockholders immediately prior to the Effective Time after giving
effect to the exercise of the Warrants).
SECTION 3.02 Exchange of Certificates.
(a) Exchange Fund. At least ten days prior to the Effective
Date, the Acquiror will appoint the Exchange Agent. At or immediately
prior to the Effective Time, the Acquiror shall deposit, or cause to be
deposited, with the Exchange Agent, for the benefit of the former
holders of Company Common Stock as of the Effective Time, for exchange
in accordance with this Article III, through the Exchange Agent,
certificates evidencing a number of shares of Acquiror Common Stock and
an amount of cash equal to the product of the Merger Consideration Per
Share of Company Common Stock (other than the right to receive the
Earnout Shares) and the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (exclusive of any
such shares to be canceled pursuant to Subsection 3.01(c)), together
with any cash to be paid pursuant to Section 3.02(e). The Exchange
Agent shall, pursuant to irrevocable instructions from the Acquiror
that are reasonably acceptable to the Company, deliver Acquiror Common
Stock, together with any cash to be paid in lieu of fractional
interests in shares of Acquiror Common Stock pursuant to Subsection
3.02(e) and any dividends or distributions to be paid pursuant to
Subsection 3.02(d), in exchange for certificates theretofore evidencing
Company Common Stock surrendered to the Exchange Agent pursuant to
Subsection 3.02(c). Except as contemplated by Subsection 3.02(e), the
Exchange Fund shall not be used for any other purpose.
(b) Letter of Transmittal. The Acquiror will at the request of
any Designated Company Stockholder provide to the Designated Company
Stockholder within 10 days of such request a letter of transmittal and
other appropriate materials for use in surrendering to the Exchange
Agent certificates that prior to the Effective Time evidenced shares of
Company Common Stock. To the extent that the Designated Company
Stockholders do not make any such request prior to the Effective Time,
the Acquiror will cause the Exchange Agent to send, within two Business
Days after the Effective Time, to each record holder of
AGREEMENT AND PLAN OF MERGER
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<PAGE> 11
Company Common Stock immediately prior to the Effective Time a letter
of transmittal and other appropriate materials for use in surrendering
to the Exchange Agent certificates that prior to the Effective Time
evidenced shares of Company Common Stock. Such letter of transmittal
shall include a Form W-9 prescribed by the Regulations under the Code.
(c) Exchange Procedures. Promptly after the Effective Time,
the Exchange Agent shall distribute to each former holder of Company
Common Stock, upon surrender to the Exchange Agent for cancellation of
one or more certificates that theretofore evidenced shares of Company
Common Stock, certificates evidencing the appropriate number of shares
of Acquiror Common Stock and cash into which such shares of Company
Common Stock were converted pursuant to the Merger, together with any
cash to be paid in lieu of fractional interests in shares of Acquiror
Common Stock pursuant to Subsection 3.02(e) and any dividends or
distributions to be paid pursuant to Subsection 3.02(d). If shares of
Acquiror Common Stock are to be issued to a Person other than the
Person in whose name the surrendered certificate or certificates are
registered, it shall be a condition of issuance of the Acquiror Common
Stock that (i) the surrendered certificate or certificates shall be
properly endorsed, with signatures guaranteed or otherwise in proper
form for transfer, and that the Person requesting such payment shall
pay any transfer or other taxes required by reason of the issuance of
Acquiror Common Stock to a Person other than the registered holder of
the surrendered certificate or certificates or (ii) such Person shall
establish to the satisfaction of the Acquiror that such tax has been
paid or is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to any former
holder of Company Common Stock for any Acquiror Common Stock or cash
into which such Company Common Stock shall have been converted pursuant
to the Merger, cash in lieu of fractional share interests or dividends
or distributions thereon required to be delivered to a public official
pursuant to any applicable escheat law in accordance with an opinion of
counsel to such effect.
(d) Distributions with Respect to Unexchanged Shares of
Company Common Stock. No dividends or other distributions declared or
made with respect to Acquiror Common Stock with a record date after the
Effective Time shall be paid to the holder of any certificate that
theretofore evidenced shares of Company Common Stock until the holder
of such certificate shall surrender such certificate. Subject to the
effect of any applicable escheat laws, following surrender of any such
certificate, there shall be paid (i) to the holder of the certificates
evidencing whole shares of Acquiror Common Stock issued in exchange
therefor, without interest, (A) promptly, the amount of dividends or
other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Acquiror Common
Stock and (B), at the appropriate payment date, the amount of dividends
or other distributions, with a record date after the Effective Time but
prior to surrender and a payment date occurring after surrender,
payable with respect to such whole shares of Acquiror Common Stock and
(ii) to the holder of any certificate that theretofore evidenced shares
of Company Common Stock, without interest, promptly the amount of any
cash payable with respect to a fractional share of Acquiror Common
Stock to which such holder is entitled pursuant to Subsection 3.02(e).
AGREEMENT AND PLAN OF MERGER
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<PAGE> 12
(e) No Fractional Shares. Notwithstanding anything herein to
the contrary, no certificates or scrip evidencing fractional shares of
Acquiror Common Stock shall be issued in connection with the Merger,
and any such fractional share interests to which a holder of record of
Company Common Stock at the Effective Time would otherwise be entitled
will not entitle such holder to vote or to any rights of a stockholder
of the Acquiror. In lieu of any such fractional shares, each holder of
record of Company Common Stock at the Effective Time who but for the
provisions of this Subsection 3.02(e) would be entitled to receive a
fractional interest of a share of Acquiror Common Stock pursuant to the
Merger shall be paid cash, without any interest thereon, as hereinafter
provided. The Acquiror shall instruct the Exchange Agent to determine
the number of fractional shares of Acquiror Common Stock allocable to
each holder of record of Company Common Stock at the Effective Time and
to advise the Acquiror of the amount of cash required to be paid to the
holders thereof at the rate of an amount equal to the initial public
offering price per share in the Public Offering per whole share of
Acquiror Common Stock. The Acquiror shall promptly deposit the
aggregate amount of cash so required with the Exchange Agent as part of
the Exchange Fund. Thereafter, the Exchange Agent shall, in accordance
with Subsection 3.02(d), pay to the Persons who would otherwise be
entitled to receive a fractional interest of a share of Acquiror Common
Stock an amount in cash equal to an amount equal to the initial public
offering price per share in the Public Offering multiplied by the
fraction of a share of Acquiror Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains unclaimed by the former holders of Company Common
Stock for twelve months after the Effective Time shall be delivered to
the Acquiror, upon demand, and any former holders of Company Common
Stock who shall not have theretofore complied with this Article III
shall thereafter look only to the Acquiror for the Acquiror Common
Stock and any cash to which they are entitled.
(g) Withholding of Tax. The Acquiror shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant
to this Agreement to any former holder of Company Common Stock such
amounts as the Acquiror (or any affiliate thereof) is required to
deduct and withhold with respect to the making of such payment under
the Code or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by the Acquiror, such withheld
amounts shall be treated for all purposes of this Agreement as having
been paid to the former holder of Company Common Stock in respect of
which such deduction and withholding was made by the Acquiror. To the
extent that any former holder of Company Common Stock shall execute and
return the Form W-9 included in the letter of transmittal, no such
withholding shall be required or made.
(h) Lost Certificates. If any certificate evidencing Company
Common Stock shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the Person claiming such certificate to
be lost, stolen or destroyed and, if required by Acquiror, the posting
by such Person of a bond, in such reasonable amount as Acquiror may
direct, as indemnity against claims that may be made against it with
respect to such certificate, the
AGREEMENT AND PLAN OF MERGER
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<PAGE> 13
Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificate the Acquiror Common Stock and cash into which
such Company Common Stock shall have been converted pursuant to the
Merger, any cash in lieu of fractional shares of Acquiror Common Stock
to which the holder thereof may be entitled pursuant to Section 3.02(e)
and any dividends or other distributions to which the holder thereof
may be entitled pursuant to Subsection 3.02(d).
SECTION 3.03 Closing. The Closing shall take place at the offices of
Vinson & Elkins L.L.P., 1001 Fannin, 3600 First City Tower, Houston, Texas
77002-6760, at 10:00 a.m. on the day on which the closing of the Public Offering
is effected or at such other place and time as the parties hereto may agree.
SECTION 3.04 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
If and to the extent any information required to be furnished in any
Section of the Company's Disclosure Letter is contained in another Section of
the Company's Disclosure Letter, such information will be deemed to be included
in all Sections of the Company's Disclosure Letter if such disclosure is
reasonably apparent on its face. Subject to the provisions of Section 9.01, the
Company hereby represents and warrants to the Acquiror Companies that:
SECTION 4.01 Organization and Qualification; Subsidiaries. The Company
is a legal entity duly organized, validly existing and in good standing under
the Laws of its jurisdiction of incorporation, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary, other than any matters, including the failure to be so duly qualified
and in good standing, that could not reasonably be expected to have a Material
Adverse Effect on the Company. The Company does not have any Subsidiaries.
Except as disclosed in Section 4.01 of the Company's Disclosure Letter, the
Company does not own an equity interest in any partnership, joint venture
arrangement or other business entity that is Material to the Company.
SECTION 4.02 Certificate of Incorporation and Bylaws. The Company has
heretofore marked for identification and furnished to the Acquiror complete and
correct copies of its certificate of incorporation and bylaws, in each case as
amended or restated to the date hereof. The Company is not in violation of any
of the provisions of its certificate of incorporation or bylaws.
AGREEMENT AND PLAN OF MERGER
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SECTION 4.03 Capitalization.
(a) Company Common Stock. The authorized capital stock of the
Company consists solely of (i) 100,000 shares of Company Common Stock
consisting of 90,000 shares of Class A Common Stock and 10,000 shares
of Class B Common Stock, of which as of December 31, 1997: (A)
49,999.99 shares of Class A Common Stock were issued and outstanding,
(B) no shares of Class B Common Stock were issued and outstanding. All
the outstanding shares of Class A Common Stock are duly authorized,
validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Company's certificate of
incorporation or bylaws or any agreement to which the Company is a
party or is bound other than the Stockholders Agreement dated July 1,
1996 by and among the Company, BOCP and the stockholders of the Company
(the "Company Stockholders Agreement"). Except as set forth in
Subsection 4.03(a) of the Company's Disclosure Letter, between December
31, 1997 and the date of this Agreement, no shares of Company Common
Stock have been issued by the Company and the Company has not granted
any options for, or other rights to purchase, shares of Company Common
Stock.
(b) Reserved Shares. Except as set forth in Subsection
4.03(a), no shares of Common Stock are reserved for issuance, and,
except for the Warrants listed in Subsection 4.03(b) of the Company's
Disclosure Letter, there are no contracts, agreements, commitments or
arrangements obligating the Company (i) to offer, sell, issue or grant
any Equity Securities of the Company, (ii) to redeem, purchase or
acquire, or to offer to purchase or acquire, any outstanding Equity
Securities of the Company or (iii) to grant any Lien on any shares of
capital stock of the Company.
(c) Adverse Claims. Except for the Warrants and the Company
Stockholders Agreement, there are no voting trusts, proxies or other
agreements, commitments or understandings of any character to which the
Company is a party or by which the Company is bound with respect to the
voting of any shares of capital stock of the Company or with respect to
the registration of the offering, sale or delivery of any shares of
capital stock of the Company under the Securities Act.
SECTION 4.04 Authorization of Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Company of
this Agreement and each instrument required hereby to be executed and delivered
by it at the Closing and the performance of its obligations hereunder and
thereunder have been duly and validly authorized by all requisite corporate
action on the part of the Company (other than, with respect to this Agreement,
the approval and adoption of this Agreement by the holders of a majority of the
outstanding shares of Company Common Stock in accordance with the Corporate
Statute). This Agreement has been duly executed and delivered by the Company and
(assuming due authorization, execution and delivery hereof by the other parties
hereto) constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms,
AGREEMENT AND PLAN OF MERGER
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except as the same may be limited by legal principles of general applicability
governing the application and availability of equitable remedies.
SECTION 4.05 Approvals. Except as set forth in Section 4.05 of the
Company's Disclosure Letter and for the applicable requirements, if any, of (a)
the Securities Act, (b) the Exchange Act, (c) state securities or blue sky laws,
(b) the HSR Act, (c) the filing and recordation of appropriate merger documents
as required by the Corporate Statute and (d) those Laws, Regulations and Orders
noncompliance with which could not reasonably be expected to have a material
adverse effect on the ability of the Company to perform its obligations under
this Agreement or to have a Material Adverse Effect on the Company, no filing or
registration with, no waiting period imposed by and no Permit or Order of, any
Governmental Authority is required under any Law, Regulation or Order applicable
to the Company to permit the Company to execute, deliver or perform this
Agreement or any instrument required hereby to be executed and delivered by it
at the Closing.
SECTION 4.06 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Permits and Orders of, Governmental Authorities
indicated as required in Section 4.05 and receipt of the approval of this
Agreement by the stockholders of the Company as required by the Corporate
Statute and the approvals or consents required to be obtained from the other
parties disclosed in Section 4.06 of the Company's Disclosure Letter, neither
the execution and delivery by the Company of this Agreement or any instrument
required hereby to be executed and delivered by it at the Closing nor the
performance by the Company of its obligations hereunder or thereunder will (a)
violate or breach the terms of or cause a default under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination, cancellation or acceleration of any obligation under, or result
in the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of the Company or any of its Subsidiaries under (i)
any Law, Regulation or Order applicable to the Company, (ii) the certificate of
incorporation or bylaws of the Company or (iii) any contract or agreement to
which the Company or any of its Subsidiaries is a party or by which it or any of
its properties or assets is bound, or (b) with the passage of time, the giving
of notice or the taking of any action by a third Person, have any of the effects
set forth in clause (a) of this Section, except in any such case for any matters
described in this Section that could not reasonably be expected to have a
material adverse effect upon the ability of the Company to perform its
obligations under this Agreement or a Material Adverse Effect on the Company.
SECTION 4.07 Financial Statements.
(a) The Company Financial Statements (i) have been prepared in
accordance with GAAP and (ii) fairly present the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
thereof and the consolidated results of their operations and cash flows
for the periods indicated.
(b) Except as set forth in Subsection 4.07(b) of the Company's
Disclosure Letter, there exist no liabilities or obligations of the
Company that are Material to the Company,
AGREEMENT AND PLAN OF MERGER
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whether accrued, absolute, contingent or threatened, that would be
required to be reflected, reserved for or disclosed under GAAP in
financial statements of the Company (including the notes thereto) as of
and for the period ended on the date of this representation and
warranty, other than (i) liabilities or obligations that are adequately
reflected, reserved for or disclosed in the Company's Financial
Statements, (ii) liabilities or obligations incurred in the ordinary
course of business of the Company since December 31, 1997, (iii)
liabilities or obligations the incurrence of which is not prohibited by
Subsection 6.02(a) and (iv) liabilities and obligations that are not
Material to the Company.
SECTION 4.08 No Material Adverse Effect; Conduct.
(a) Since December 31, 1997, no event (other than any event
that is of general application to all or a substantial portion of the
Company's industry and other than any event that is expressly subject
to any other representation or warranty contained in Article IV) has,
to the Knowledge of the Company, occurred that, individually or
together with other similar events, could reasonably be expected to
constitute or cause a Material Adverse Effect on the Company.
(b) Except as disclosed in Subsection 4.08(b) of the Company's
Disclosure Letter, during the period from December 31, 1997 to the date
of this Agreement, the Company has not engaged in any conduct that is
proscribed during the period from the date of this Agreement to the
Effective Time by subsections (i) through (xii) of Subsection 6.02(a)
or agreed in writing or otherwise during such period prior to the date
of this Agreement to engage in any such conduct.
SECTION 4.09 Title to Properties. The Company has indefeasible title to
all of the properties reflected in the Company's Balance Sheet, other than any
properties reflected in the Company's Balance Sheet that (i) have been sold or
otherwise disposed of since the date of the Company's Balance Sheet in the
ordinary course of business consistent with past practice or (ii) are not,
individually or in the aggregate, Material to the Company, free and clear of
Liens, other than (x) Liens the existence of which is reflected in the Company's
Financial Statements, (y) Permitted Encumbrances and (z) Liens that,
individually or in the aggregate, are not Material to the Company. The Company
holds under valid lease agreements all real and personal properties reflected in
the Company's Balance Sheet as being held under capitalized leases, and all real
and personal property that is subject to the operating leases to which reference
is made in the notes to the Company's Audited Financial Statements, and enjoy
peaceful and undisturbed possession of such properties under such leases, other
than (i) any properties as to which such leases have terminated in the ordinary
course of business without any Material liability of any party thereto since the
date of the Company's Balance Sheet and (ii) any properties that, individually
or in the aggregate, are not Material to the Company. The Company has not
received any written notice of any adverse claim to the title to any properties
owned by it or with respect to any lease under which any properties are held by
it, other than any claims that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company.
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SECTION 4.10 Certain Obligations. Except as set forth in Section 4.10
of the Company's Disclosure Letter, the Company is not a party to or bound by
any Material Contract. Except as set forth in Section 4.10 of the Company's
Disclosure Letter, all Material Contracts to which the Company is a party are in
full force and effect, the Company has performed its obligations thereunder to
date and, to the Knowledge of the Company, each other party thereto has
performed its obligations thereunder to date, other than any failure of a
Material Contract to be in full force and effect or any nonperformance thereof
that could not reasonably be expected to have a Material Adverse Effect on the
Company.
SECTION 4.11 Permits; Compliance. To the Knowledge of the Company, the
Company has obtained all Permits that are necessary to carry on its business as
currently conducted, except for any such Permits that its failure to possess,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Company. Such Permits are in full force and
effect, have not been violated in any respect that could reasonably be expected
to have a Material Adverse Effect on the Company and, to the Knowledge of the
Company, no suspension, revocation or cancellation thereof has been threatened
and there is no action, proceeding or investigation pending or threatened
regarding suspension, revocation or cancellation of any of such Permits, except
where the suspension, revocation or cancellation of such Permits could not
reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 4.12 Litigation; Compliance with Laws. There are no actions,
suits, investigations or proceedings (including any proceedings in arbitration)
pending or, to the Knowledge of the Company, threatened against the Company, at
law or in equity, in any Court or before or by any Governmental Authority,
except actions, suits or proceedings that (a) are set forth in Section 4.12 or
Section 4.15 of the Company's Disclosure Letter or (b), individually or, with
respect to multiple actions, suits or proceedings that allege similar theories
of recovery based on similar facts, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company. There are no claims
pending or, to the Knowledge of the Company, threatened by any Persons against
the Company for indemnification pursuant to any statute, organizational
document, contract or otherwise with respect to any action, suit, investigation
or proceeding pending or previously determined in any Court or before or by any
Governmental Authority. Except as set forth in Section 4.12 of the Company's
Disclosure Letter, the Company is in substantial compliance with all applicable
Laws and Regulations and is not in default with respect to any Order applicable
to the Company, except such events of noncompliance or defaults that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Company.
SECTION 4.13 Employee Benefit Plans.
(a) Listing. Each Benefit Plan of the Company is listed in
Subsection 4.13(a) of the Company's Disclosure Letter, including, with
respect to Terminated Benefit Plans, the date of termination. True and
correct copies of each of the following have been made available to the
Acquiror: (i) the most recent annual report (Form 5500) relating to
each such Current Benefit Plan filed with the IRS, (ii) the plan
document for each such Current Benefit Plan, (iii) the trust agreement,
if any, relating to each such Current Benefit Plan, (iv) the most
AGREEMENT AND PLAN OF MERGER
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recent summary plan description for each such Current Benefit Plan for
which a summary plan description is required by ERISA, (v) the most
recent actuarial report or valuation relating to each such Current
Benefit Plan subject to Title IV of ERISA and (vi) the most recent
determination letter, if any, issued by the IRS with respect to any
such Current Benefit Plan intended to be qualified under Section 401 of
the Code.
(b) Liability Related to Plans. No event has occurred and, to
the Knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company could be subject to
any liability under the terms of such Benefit Plans, or with respect to
any such Benefit Plans, under ERISA, the Code or any other applicable
Law, other than any event, condition or set of circumstances that could
not reasonably be expected to have a Material Adverse Effect on the
Company.
(c) Qualified Status. Each Current Benefit Plan intended to be
qualified under Code Section 401 (i) satisfies in form the requirements
of such Section, (ii) is a standardized prototype which does not
require an individual favorable determination letter from the IRS,
(iii) has not, since adoption of the prototype, been amended and (iv)
has not been operated in a way that would adversely affect its
qualified status.
(d) No Termination of Current Plans. There has been no
termination or partial termination of any such Current Benefit Plan
within the meaning of Section 411(d)(3) of the Code. The Company
intends to terminate its Management Incentive Plan (the "MIP") as of or
immediately prior to the Closing and to pay any accrued amounts to
employees of the Company entitled to participate in the MIP as of the
termination date.
(e) Terminated Plans. Any such Terminated Benefit Plan
intended to have been qualified under Section 401 of the Code received
a favorable determination letter from the IRS with respect to its
termination.
(f) No Claims. There are no actions, suits or claims pending
(other than routine claims for benefits) or, to the Knowledge of the
Company, threatened against, or with respect to, any of such Benefit
Plans or their assets that could reasonably be expected to have a
Material Adverse Effect on the Company.
(g) Pending Matters. To the Knowledge of the Company, there is
no matter pending (other than routine qualification determination
filings) with respect to any of such Benefit Plans before the IRS, the
Department of Labor, the PBGC or any other Governmental Authority.
(h) Required Contributions. All contributions required to be
made by the Company or the Company's Subsidiaries to such Benefit Plans
pursuant to their terms and provisions have been made timely.
AGREEMENT AND PLAN OF MERGER
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(i) No ERISA Violations. As to any such Current Benefit Plan
subject to Title IV of ERISA, (i) there has been no event or condition
that presents a material risk of plan termination, (ii) no accumulated
funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code has been incurred
within six years prior to date of this Agreement, (iii) no reportable
event within the meaning of Section 4043 of ERISA (for which the
disclosure requirements of Regulation section 2615.3 promulgated by the
PBGC have not been waived) has occurred within six years prior to the
date of this Agreement, (iv) no notice of intent to terminate such
Benefit Plan has been given under Section 4041 of ERISA, (v) no
proceeding has been instituted under Section 4042 of ERISA to terminate
such Benefit Plan, (vi) no liability to the PBGC has been incurred
(other than with respect to required premium payments) and (vii) the
assets of the Benefit Plan equal or exceed the actuarial present value
of the benefit liabilities, within the meaning of Section 4041 of
ERISA, under the Benefit Plan, based upon reasonable actuarial
assumptions and the asset valuation principles established by the PBGC.
(j) Nondeductible Payments. Except as set forth in Subsection
4.13(j) of the Company's Disclosure Letter, in connection with the
consummation of the transactions contemplated by this Agreement, no
payment of money or other property, acceleration of benefits or
provision of other rights has been or will be made under any such
Current Benefit Plans or any of the programs, agreements, policies or
other arrangements described in Subsection 4.13(l) of the Company's
Disclosure Letter that would be reasonably likely to be nondeductible
under Section 280G of the Code, whether or not some other subsequent
action or event would be required to cause such payment, acceleration
or provision to be triggered.
(k) No Required Increases. Except as set forth in Subsection
4.13(k) of the Company's Disclosure Letter, the execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby will not (i) require the Company to make a larger contribution
to, or pay greater benefits or provide other rights under, any Current
Benefit Plan or any of the programs, agreements, policies or other
arrangements described in Subsection 4.13(l) of the Company's
Disclosure Letter than it otherwise would, whether or not some other
subsequent action or event would be required to cause such payment or
provision to be triggered or (ii) create or give rise to any additional
vested rights or service credits under any Current Benefit Plan or any
of such programs, agreements, policies or other arrangements, whether
or not some other subsequent action or event would be required to cause
such creation or acceleration to be triggered.
(l) Severance and Employment Agreements. Except as set forth
in Subsection 4.13(l) of the Company's Disclosure Letter, the Company
is not a party to nor is it bound by any severance agreement (involving
$50,000 or more), program or policy. True and correct copies of all
employment agreements with officers of the Company and all vacation,
overtime and other compensation policies of the Company relating to its
employees have been made available to the Acquiror.
AGREEMENT AND PLAN OF MERGER
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(m) Retiree Benefits. Except as set forth in Subsection
4.13(m) of the Company's Disclosure Letter, no Benefit Plan provides
retiree medical or retiree life insurance benefits to any Person and
the Company is not contractually or otherwise obligated (whether or not
in writing) to provide any Person with life insurance or medical
benefits upon retirement or termination of employment, other than as
required by the provisions of Sections 601 through 608 of ERISA and
Section 4980B of the Code. Each Benefit Plan or other arrangement
described in Subsection 4.13(m) of the Company's Disclosure Letter may
be unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(n) Multiemployer Plans. The Company does not contribute or
have any obligation to contribute, and has not within six years prior
to the date of this Agreement contributed or had an obligation to
contribute, to a multiemployer plan within the meaning of Section 3(37)
of ERISA.
(o) Vacation Policies. Except as set forth in Subsection
4.13(o) of the Company's Disclosure Letter, the vacation policies of
the Company do not provide for carryover vacation from one calendar
year to the next.
(p) Collective Bargaining Agreements. No collective bargaining
agreement to which the Company is a party is currently in effect or is
being negotiated by the Company. There is no pending or, to the
Knowledge of the Company, threatened labor dispute, strike or work
stoppage against the Company that could reasonably be expected to have
a Material Adverse Effect on the Company. To the Knowledge of the
Company, neither the Company nor any representative or employee of the
Company has in the United States committed any unfair labor practices
in connection with the operation of the business of the Company, and
there is no pending or, to the Knowledge of the Company, threatened
charge or complaint against the Company by the National Labor Relations
Board or any comparable agency of any state of the United States.
SECTION 4.14 Taxes.
(a) Tax Returns and Taxes. Except for such matters as could
not reasonably be expected to have a Material Adverse Effect on the
Company, (i) all Tax Returns that are required to be filed by or with
respect to the Company on or before the Effective Time have been or
will be timely filed, (ii) all Taxes payable by the Company with
respect to the income, operations, business or capital of the Company
on or before the Effective Time have been or will be timely paid in
full, (iii) all withholding Tax requirements imposed on or with respect
to the Company have been or will be satisfied in full in all respects
and (iv) no penalty, interest or other charge is or will become due
with respect to the late filing of any such Tax Return or late payment
of any such Tax.
(b) Audits. Except as set forth in Subsection 4.14(b) of the
Company's Disclosure Letter, all Tax Returns have been audited by the
applicable Governmental
AGREEMENT AND PLAN OF MERGER
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Authority or the applicable statute of limitations has expired for the
period covered by such Tax Returns.
(c) Extensions of Times. Except as set forth in Subsection
4.14(c) of the Company's Disclosure Letter, there is not in force any
extension of time with respect to the due date for the filing of any
Tax Return or any waiver or agreement for any extension of time for the
assessment or payment of any Tax due with respect to the period covered
by any Tax Return.
(d) Claims. There is no claim against or with respect to the
income, operations, business or capital of the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return, that, in either case, could
reasonably be expected to have a Material Adverse Effect on the
Company.
(e) Affiliated Group. Except as set forth in Subsection
4.14(e) of the Company's Disclosure Letter, the Company has not, during
the last ten years, been a member of an affiliated group filing a
consolidated federal income Tax Return.
SECTION 4.15 Environmental Matters. Except for matters disclosed in
Section 4.15 of the Company's Disclosure Letter and except for matters that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Company, (a) the properties, operations and
activities of the Company are in compliance with all applicable Environmental
Laws; (b) the Company and the properties and operations of the Company are not
subject to any existing, pending or, to the Knowledge of the Company, threatened
action, suit, investigation, inquiry or proceeding by or before any Court or
Governmental Authority under any Environmental Law; (c) all Permits, if any,
required to be obtained or filed by the Company under any Environmental Law in
connection with the business of the Company have been obtained or filed and are
valid and currently in full force and effect; (d) there has been no release of
any hazardous substance, pollutant or contaminant into the environment by the
Company or in connection with its properties or operations; (e) there has been
no exposure (attributable to the action of the Company) of any Person or
property to any hazardous substance, pollutant or contaminant in connection with
the properties, operations and activities of the Company; and (f) the Company
has made available to the Acquiror all internal and external environmental
audits and studies and all correspondence on substantial environmental matters
(in each case relevant to the Company) in the possession of the Company.
SECTION 4.16 Intellectual Property. Other than as disclosed in Section
4.16 of the Company's Disclosure Letter, the Company owns or holds licenses
under or otherwise has the right to use or sublicense, all foreign and domestic
patents, trademarks (common law and registered), trademark registration
applications, service marks (common law and registered), service mark
registration applications, trade names and copyrights, copyright applications,
trade secrets, know-how and other proprietary information as are necessary for
the conduct of the business of the Company as currently conducted except for any
such intellectual property as to which the failure to own or hold licenses could
not reasonably be expected to have a Material Adverse Effect on the
AGREEMENT AND PLAN OF MERGER
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Company. Other than as disclosed in Section 4.16 of the Company's Disclosure
Letter, the Company is not currently in receipt of any notice of infringement or
notice of conflict with the asserted rights of others in any patents,
trademarks, service marks, trade names, trade secrets and copyrights owned or
held by other Persons, except, in each case, for matters that could not
reasonably be expected to have a Material Adverse Effect on the Company. Neither
the execution and delivery of this Agreement nor consummation of the
transactions contemplated hereby will violate or breach the terms or cause any
cancellation of any Material license held by the Company under any patent,
trademark, service mark, trade name, trade secret or copyright.
SECTION 4.17 Insurance. Section 4.17 of the Company's Disclosure Letter
sets forth a list, including the name of the underwriter, the risks insured,
coverage and related limits and deductibles, expiration dates and significant
riders, of the principal insurance policies currently maintained by the Company.
To the Knowledge of the Company, all such policies are in full force and effect
and all premiums due thereon have been paid.
SECTION 4.18 Tax Matters. The Company has not taken or agreed to
take any action that would prevent the Merger from constituting a reorganization
within the meaning of section 368(a) of the Code. Specifically:
(a) Preservation of Proprietary Interest. Prior to and in connection
with the Merger, (x) none of the Company Common Stock will be redeemed,
(y) no extraordinary distribution will be made with respect to the
Company Common Stock and (z) none of the Company Common Stock will be
acquired by any Person related (as the term "related" is defined in
Treas. Reg. Sections 1.368-1(e)(3) without regard to Sections
1.368-1(e)(3)(i)(A)) to the Company.
(b) Expenses. The Company and the stockholders of the Company will each
pay their respective expenses, if any, incurred in connection with the
Merger.
(c) Intercorporate Indebtedness. There is no intercorporate
indebtedness existing between the Company and the Acquiror or between
the Company and Newco that was issued, acquired, or will be settled at
a discount.
(d) Investment Company. The Company is not an investment company as
defined in section 368(a)(2)(F)(iii) and (iv) of the Code.
(e) Bankruptcy. The Company is not under the jurisdiction of a court in
a title 11 or similar case within the meaning of section 368(a)(3)(A)
of the Code.
SECTION 4.19 Stockholders. Section 4.19 of the Company's Disclosure
Letter contains a true and complete list of all Persons who as of the date
hereof own shares of Company Common Stock of record or, to the Knowledge of the
Company, beneficially.
SECTION 4.20 Certain Business Practices. To the Company's Knowledge,
as of the date of this Agreement, neither the Company nor any director, officer,
employee or agent of the
AGREEMENT AND PLAN OF MERGER
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Company has (i) used any funds for unlawful contributions, gifts, entertainment
or other unlawful payments relating to political activity, (ii) made any
unlawful payment to any foreign or domestic government official or employee or
to any foreign or domestic political party or campaign or violated any provision
of the Foreign Corrupt Practices Act of 1977, as amended, (iii) consummated any
transaction, made any payment, entered into any agreement or arrangement or
taken any other action in violation of Section 1128B(b) of the Social Security
Act, as amended, or (iv) made any other unlawful payment, except for any such
matters that could not reasonably be expected to have a Material Adverse Effect
on the Company.
SECTION 4.21 Brokers. Except as set forth in Section 4.21 of the
Company's Disclosure Letter, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
If and to the extent any information required to be furnished in any
Section of the Acquiror's Disclosure Letter is contained in another Section of
the Acquiror's Disclosure Letter, such information will be deemed to be included
in all Sections of the Acquiror's Disclosure Letter if such disclosure is
reasonably apparent on its face. Subject to the provisions of Section 9.01, the
Acquiror Companies hereby represent and warrant to the Company that:
SECTION 5.01 Organization and Qualification; Subsidiaries. The
Acquiror, Newco and each other Subsidiary of the Acquiror are legal entities
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation or organization, have all requisite
power and authority to own, lease and operate their respective properties and to
carry on their business as it is now being conducted and are duly qualified and
in good standing to do business in each jurisdiction in which the nature of the
business conducted by them or the ownership or leasing of their respective
properties makes such qualification necessary, other than any matters, including
the failure to be so duly qualified and in good standing, that could not
reasonably be expected to have a Material Adverse Effect on the Acquiror.
Section 5.01 of the Acquiror's Disclosure Letter sets forth, as of the date of
this Agreement, a true and complete list of all Significant Subsidiaries of the
Acquiror, together with the jurisdiction of incorporation of each such
Subsidiary and the percentage of each such Subsidiary's outstanding capital
stock or other equity interests owned by the Acquiror or another Subsidiary of
the Acquiror. Except for investments in Subsidiaries, neither the Acquiror,
Newco nor any of the Acquiror's other Subsidiaries owns an equity interest in
any partnership or joint venture arrangement or other business entity that is
Material to the Acquiror.
SECTION 5.02 Certificate of Incorporation and Bylaws. The Acquiror has
heretofore marked for identification and furnished to the Company complete and
correct copies of the certificate of incorporation and the bylaws or the
equivalent organizational documents, in each case as amended
AGREEMENT AND PLAN OF MERGER
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or restated to the date hereof, of the Acquiror and each of its Significant
Subsidiaries. None of the Acquiror, Newco or any of the Acquiror's Significant
Subsidiaries is in violation of any of the provisions of its certificate of
incorporation or bylaws (or equivalent organizational documents).
SECTION 5.03 Capitalization.
(a) As of the date of this Agreement, the authorized capital
stock of the Acquiror consists of 50,000,000 shares of Common Stock, of
which 6,666,667 shares are, as of such date, issued and outstanding and
owned beneficially and of record by the Stockholders, free and clear of
all Liens, and 5,000,000 shares of Preferred Stock, without par value,
of which 200,000 shares have been designated as the Series A Junior
Participating Preferred Stock and of which none is issued or
outstanding. As of the date hereof, no other shares of capital stock of
the Acquiror are issued or outstanding. Section 5.03(a) of the
Acquiror's Disclosure Letter sets forth the Persons who own the
Acquiror Common Stock of record and beneficially as of the date hereof,
including the number of shares owned by each, and the pro forma
ownership of the Acquiror Common Stock after giving effect to the
consummation of the Securities Exchange Agreement, the Merger and the
Public Offering (based on the assumptions therein set forth). The
Acquiror has heretofore delivered to the Company a true and correct
copy of the Securities Exchange Agreement.
(b) Each outstanding share of Common Stock has been duly
authorized, validly issued and is fully paid and nonassessable. No
shares of Common Stock were issued in violation of any preemptive
rights created by statute, the Acquiror's certificate of incorporation
or bylaws or any agreement as to which the Acquiror is a party or
bound. Except for shares to be issued pursuant to the Exchange
Agreement, this Agreement, and the Acquiror Stock Options listed in
Subsection 5.03(b) of the Acquiror's Disclosure Letter and except as
otherwise set forth in Subsection 5.03(b) of the Disclosure Letter, no
shares of Common Stock or other capital stock of the Acquiror were
reserved for issuance and, except for the Exchange Agreement, this
Agreement, and the Acquiror Stock Options listed in Subsection 5.03(b)
of the Acquiror's Disclosure Letter and the other agreements listed in
Subsection 5.03(b) of the Acquiror's Disclosure Letter, there are no
contracts, agreements, commitments or arrangements obligating the
Acquiror (i) to offer, sell, issue or grant any Equity Securities of
the Acquiror, (ii) to redeem, purchase or acquire, or offer to purchase
or acquire, any outstanding Equity Securities of the Acquiror or (iii)
to grant any Lien on any shares of capital stock of the Acquiror.
(c) The authorized capital stock of each Significant
Subsidiary of the Acquiror is as set forth in Subsection 5.03(c) of the
Acquiror's Disclosure Letter. Except as set forth in Subsection 5.03(c)
of the Acquiror's Disclosure Letter, (i) all the issued and outstanding
shares of capital stock of, or other equity interests in, each
Significant Subsidiary of the Acquiror are owned by the Acquiror or one
of its Subsidiaries, have been duly authorized and are validly issued,
and, with respect to capital stock, are fully paid and nonassessable,
and were not issued in violation of any preemptive or similar rights of
any Person; (ii) all such issued and outstanding shares, or other
equity interests, that are owned by the Acquiror or
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one of its Subsidiaries are owned free and clear of all Liens; (iii) no
shares of capital stock of, or other equity interests in, any
Significant Subsidiary of the Acquiror are reserved for issuance, and
there are no contracts, agreements, commitments or arrangements
obligating the Acquiror or any of its Subsidiaries (A) to offer, sell,
issue, grant, pledge, dispose of or encumber any Equity Securities of
any of the Significant Subsidiaries of the Acquiror or (B) to redeem,
purchase or acquire, or offer to purchase or acquire, any outstanding
Equity Securities of any of the Significant Subsidiaries of the
Acquiror or (C) to grant any Lien on any outstanding Equity Securities
of any of the Significant Subsidiaries of the Acquiror; and (iv) all
the outstanding shares of capital stock of Newco are owned directly by
the Acquiror; except for any matter under clause (i), (ii) or (iii) of
this Subsection 5.03(c) that could not reasonably be expected to have a
Material Adverse Effect on the Acquiror.
(d) Except as set forth in Section 5.03(d) of the Acquiror's
Disclosure Letter, there are no voting trusts, proxies or other
agreements, commitments or understandings of any character to which the
Acquiror or any of its Subsidiaries is a party or by which the Acquiror
or any of its Subsidiaries is bound with respect to the voting of any
shares of capital stock of the Acquiror or any of its Subsidiaries or
with respect to the registration of the offering, sale or delivery of
any shares of capital stock of the Acquiror or any of its Subsidiaries,
except in the case of any Subsidiaries of the Acquiror that are not
Significant Subsidiaries for any matters that could not reasonably be
expected to have a Material Adverse Effect on the Acquiror.
SECTION 5.04 Authorization of Agreement. Each of the Acquiror and Newco
has all requisite corporate power and authority to execute and deliver this
Agreement and each instrument required hereby to be executed and delivered by it
at the Closing, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby. The execution and delivery by
the Acquiror and Newco of this Agreement and each instrument required hereby to
be executed and delivered by the Acquiror or Newco at the Closing and the
performance of their respective obligations hereunder and thereunder have been
duly and validly authorized by all requisite corporate action (including
stockholder action) on the part of the Acquiror and Newco, respectively. This
Agreement has been duly executed and delivered by the Acquiror and Newco and
(assuming due authorization, execution and delivery hereof by the other party
hereto) constitutes a legal, valid and binding obligation of the Acquiror and
Newco, enforceable against the Acquiror and Newco in accordance with its terms,
except as the same may be limited by legal principles of general applicability
governing the application and availability of equitable remedies.
SECTION 5.05 Approvals. Except for the applicable requirements, if any,
of (a) the Securities Act, (b) the Exchange Act, (c) state securities or blue
sky laws, (d) the HSR Act, (e) the filing and recordation of appropriate merger
documents as required by the Corporate Statute and (f) those Laws, Regulations
and Orders noncompliance with which could not reasonably be expected to have a
material adverse effect on the ability of the Acquiror or Newco to perform its
obligations under this Agreement or to have a Material Adverse Effect on the
Acquiror, no filing or registration with, no waiting period imposed by and no
Permit or Order of, any Governmental Authority is required under any Law,
Regulation or Order applicable to the Acquiror or Newco to permit the
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Acquiror or Newco to execute, deliver or perform this Agreement or any
instrument required hereby to be executed and delivered by it at the Closing.
SECTION 5.06 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Permits and Orders of, Governmental Authorities
indicated as required in Section 5.05, neither the execution and delivery by the
Acquiror or Newco of this Agreement or any instrument required hereby to be
executed and delivered by the Acquiror or Newco at the Closing nor the
performance by the Acquiror or Newco of its respective obligations hereunder or
thereunder will (a) violate or breach the terms of or cause a default under or
result in the termination, cancellation or acceleration of any obligation under,
or result in the creation of any Lien upon any of the properties or assets of
the Acquiror or any of its Subsidiaries under (i) any Law, Regulation or Order
applicable to the Acquiror or Newco, (ii) the certificate of incorporation or
bylaws of the Acquiror or Newco or (iii) any contract or agreement to which the
Acquiror or any of its Subsidiaries is a party or by which it or any of its
properties or assets is bound, or (b) with the passage of time, the giving of
notice or the taking of any action by a third Person, have any of the effects
set forth in clause (a) of this Section, except in any such case for any matters
described in this Section that could not reasonably be expected to have a
material adverse effect upon the ability of the Acquiror or Newco to perform its
obligations under this Agreement or a Material Adverse Effect on the Acquiror.
SECTION 5.07 Financial Statements.
(a) The Acquiror's Consolidated Financial Statements (i) have
been prepared in accordance with GAAP and (ii) fairly present the
consolidated financial position of the Acquiror and its Subsidiaries as
of the respective dates thereof and the consolidated results of their
operations and cash flows for the periods indicated (including, in the
case of any unaudited interim financial statements, reasonable
estimates of normal and recurring year-end adjustments).
(b) Except as set forth in Subsection 5.07(b) of the
Acquiror's Disclosure Letter, there exist no liabilities or obligations
of the Acquiror and its Subsidiaries that are Material to the Acquiror,
whether accrued, absolute, contingent or threatened, that would be
required to be reflected, reserved for or disclosed under GAAP in
consolidated financial statements of the Acquiror as of and for the
period ended on the date of this representation and warranty, other
than (i) liabilities or obligations that are adequately reflected,
reserved for or disclosed in the Acquiror's Consolidated Financial
Statements, (ii) liabilities or obligations incurred in the ordinary
course of business of the Acquiror and its Subsidiaries since December
31, 1997, (iii) liabilities or obligations the incurrence of which is
not prohibited by Subsection 6.02(b) and (iv) liabilities or
obligations that are not Material to the Acquiror.
SECTION 5.08 No Material Adverse Effect; Conduct.
(a) Since December 31, 1997, no event (other than any event
that is of general application to all or a substantial portion of the
Acquiror's industry and other than any event
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that is expressly subject to any other representation or warranty
contained in Article V) has, to the Knowledge of the Acquiror, occurred
that, individually or together with other similar events, could
reasonably be expected to constitute or cause a Material Adverse Effect
on the Acquiror.
(b) Except as disclosed in the Acquiror's Disclosure Letter,
during the period from September 30, 1997 to the date of this
Agreement, neither the Acquiror nor any of its Subsidiaries has engaged
in any conduct that is proscribed during the period from the date of
this Agreement to the Effective Time by clauses (i) through (viii) of
Subsection 6.02(b) or agreed in writing or otherwise during such period
prior to the date of this Agreement to engage in any such conduct.
SECTION 5.09 Title to Properties. The Acquiror or its Subsidiaries,
individually or together, have indefeasible title to all of the properties
reflected in the Acquiror's Consolidated Balance Sheet, other than any
properties reflected in the Acquiror's Consolidated Balance Sheet that (a) have
been sold or otherwise disposed of since the date of the Acquiror's Consolidated
Balance Sheet in the ordinary course of business consistent with past practice
or (b) are not, individually or in the aggregate, Material to the Acquiror, free
and clear of Liens, other than (i) Liens the existence of which is reflected in
the Acquiror's Consolidated Financial Statements, (ii) Permitted Encumbrances
and (iii) Liens that, individually or in the aggregate, are not Material to the
Acquiror. The Acquiror or its Subsidiaries, individually or together, hold under
valid lease agreements all real and personal properties reflected in the
Acquiror's Consolidated Balance Sheet as being held under capitalized leases,
and all real and personal property that is subject to the operating leases to
which reference is made in the notes to the Acquiror's Audited Consolidated
Financial Statements, and enjoy peaceful and undisturbed possession of such
properties under such leases, other than (x) any properties as to which such
leases have terminated in the ordinary course of business without any Material
liability of any party thereto since the date of the Acquiror's Consolidated
Balance Sheet and (y) any properties that, individually or in the aggregate, are
not Material to the Acquiror. Neither the Acquiror nor any of its Subsidiaries
has received any written notice of any adverse claim to the title to any
properties owned by them or with respect to any lease under which any properties
are held by them, other than any claims that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on the
Acquiror.
SECTION 5.10 Certain Obligations. Except as set forth in Section 5.10
of the Acquiror's Disclosure Letter, neither the Acquiror nor any of its
Subsidiaries is a party to or bound by any Material Contract. Except as set
forth in Section 5.10 of the Acquiror's Disclosure Letter, all Material
Contracts to which the Acquiror or any of its Subsidiaries is a party are in
full force and effect, the Acquiror or the Subsidiary of the Acquiror that is a
party to or bound by each such Material Contract has performed its obligations
thereunder to date and, to the Knowledge of the Acquiror, each other party
thereto has performed its obligations thereunder to date, other than any failure
of any such Material Contract to be in full force and effect or any
nonperformance thereof that could not reasonably be expected to have a Material
Adverse Effect on the Acquiror.
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SECTION 5.11 Permits; Compliance. To the Knowledge of the Acquiror, the
Acquiror and its Subsidiaries have obtained all Permits that are necessary to
carry on their businesses as currently conducted, except for any such Permits
that the failure to possess, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Acquiror. Such
Permits are in full force and effect, have not been violated in any respect that
could reasonably be expected to have a Material Adverse Effect on the Acquiror
and, to the Knowledge of the Acquiror, no suspension, revocation or cancellation
thereof has been threatened and there is no action, proceeding or investigation
pending or threatened regarding suspension, revocation or cancellation of any of
such Permits, except where the suspension, revocation or cancellation of such
Permits could not reasonably be expected to have a Material Adverse Effect on
the Acquiror.
SECTION 5.12 Litigation; Compliance with Laws. There are no actions,
suits, investigations or proceedings (including any proceedings in arbitration)
pending or, to the Knowledge of the Acquiror, threatened against the Acquiror or
any of its Subsidiaries, at law or in equity, in any Court or before or by any
Governmental Authority, except actions, suits or proceedings that (a) are set
forth in Section 5.12 or Section 5.15 of the Acquiror's Disclosure Letter or
(b), individually or, with respect to multiple actions, suits or proceedings
that allege similar theories of recovery based on similar facts, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect on
the Acquiror. There are no claims pending or, to the Knowledge of the Acquiror,
threatened by any Persons against the Acquiror or any of its Subsidiaries for
indemnification pursuant to any statute, organizational document, contract or
otherwise with respect to any action, suit, investigation or proceeding pending
or previously determined in any Court or before or by any Governmental
Authority. The Acquiror and its Subsidiaries are in substantial compliance with
all applicable Laws and Regulations and are not in default with respect to any
Order applicable to the Acquiror or any of its Subsidiaries, except such events
of noncompliance or defaults that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Acquiror.
SECTION 5.13 Employee Benefit Plans.
(a) Listing. Each Benefit Plan of the Acquiror and its
Subsidiaries is listed in Subsection 5.13(a) of the Acquiror's
Disclosure Letter, including, with respect to Terminated Benefit Plans,
the date of termination. True and correct copies of each of the
following have been made available to the Company: (i) the most recent
annual report (Form 5500) relating to each such Current Benefit Plan
filed with the IRS, (ii) the plan document for each such Current
Benefit Plan, (iii) the trust agreement, if any, relating to each such
Current Benefit Plan, (iv) the most recent summary plan description for
each such Current Benefit Plan for which a summary plan description is
required by ERISA, (v) the most recent actuarial report or valuation
relating to each such Current Benefit Plan subject to Title IV of ERISA
and (vi) the most recent determination letter, if any, issued by the
IRS with respect to any such Current Benefit Plan intended to be
qualified under Section 401 of the Code.
(b) Liability Related to Plans. No event has occurred and, to
the Knowledge of the Acquiror, there exists no condition or set of
circumstances in connection with which the
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Acquiror or any of its Subsidiaries could be subject to any liability
under the terms of any Benefit Plans of the Acquiror or any of its
Subsidiaries or, with respect to any such Benefit Plan, under ERISA,
the Code or any other applicable Law, other than any condition or set
of circumstances that could not reasonably be expected to have a
Material Adverse Effect on the Acquiror.
(c) Qualified Status. Each Current Benefit Plan intended to be
qualified under Code Section 401 (i) satisfies in form the requirements
of such Section, (ii) has received a favorable determination letter
from the IRS regarding such qualified status, (iii) except as set forth
in Section 5.13(c)(iii) of the Acquiror's Disclosure Letter, has not,
since receipt of the most recent favorable determination letter, been
amended and (iv) has not been operated in a way that would adversely
affect its qualified status.
(d) No Termination of Current Plans. There has been no
termination or partial termination of any such Current Benefit Plan
within the meaning of Section 411(d)(3) of the Code.
(e) Terminated Plans. Any such Terminated Benefit Plan
intended to have been qualified under Section 401 of the Code received
a favorable determination letter from the IRS with respect to its
termination.
(f) No Claims. There are no actions, suits or claims pending
(other than routine claims for benefits) or, to the Knowledge of the
Acquiror, threatened against, or with respect to, any of such Benefit
Plans or their assets that could reasonably be expected to have a
Material Adverse Effect on the Acquiror.
(g) Pending Matters. To the Knowledge of the Acquiror, there
is no matter pending (other than routine qualification determination
filings) with respect to any of such Benefit Plans before the IRS, the
Department of Labor, the PBGC or any other Governmental Authority.
(h) Required Contributions. All contributions required to be
made by the Acquiror or the Acquiror's Subsidiaries to such Benefit
Plans pursuant to their terms and provisions have been made timely.
(i) No ERISA Violations. As to any such Current Benefit Plan
subject to Title IV of ERISA, (i) there has been no event or condition
that presents the material risk of plan termination, (ii) no
accumulated funding deficiency, whether or not waived, within the
meaning of Section 302 of ERISA or Section 412 of the Code has been
incurred, (iii), except as set forth in Subsection 5.13(i)(iii) of the
Acquiror's Disclosure Letter, no reportable event within the meaning of
Section 4043 of ERISA (for which the disclosure requirements of
Regulation section 2615.3 promulgated by the PBGC have not been waived)
has occurred within six years prior to the date of this Agreement, (iv)
no notice of intent to terminate such Benefit Plan has been given under
Section 4041 of ERISA, (v) no proceeding has been
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instituted under Section 4042 of ERISA to terminate such Benefit Plan,
(vi) no liability to the Pension Benefit Guaranty Corporation has been
incurred (other than with respect to required premium payments) and
(vii) the assets of the Benefit Plan equal or exceed the actuarial
present value of the benefit liabilities, within the meaning of Section
4041 of ERISA, under the Benefit Plan, based upon reasonable actuarial
assumptions and the asset valuation principles established by the PBGC.
(j) Nondeductible Payments. Except as set forth in Subsection
5.13(j) of the Acquiror's Disclosure Letter, in connection with the
consummation of the transactions contemplated by this Agreement, no
payment of money or other property, acceleration of benefits or
provision of other rights has been or will be made under any such
Current Benefit Plans or any of the programs, agreements, policies or
other arrangements described in Subsection 5.13(l) of the Acquiror's
Disclosure Letter that would be reasonably likely to be nondeductible
under Section 280G of the Code, whether or not some other subsequent
action or event would be required to cause such payment, acceleration
or provision to be triggered.
(k) No Required Increases. Except as set forth in Subsection
5.13(k) of the Acquiror's Disclosure Letter, the execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby will not (i) require the Acquiror or any of its Subsidiaries to
make a larger contribution to, or pay greater benefits or provide other
rights under, any Current Benefit Plan or any of the programs,
agreements, policies or other arrangements described in Subsection
5.13(l) of the Acquiror's Disclosure Letter than it otherwise would,
whether or not some other subsequent action or event would be required
to cause such payment or provision to be triggered or (ii) create or
give rise to any additional vested rights or service credits under any
Current Benefit Plan or any of such programs, agreements, policies or
other arrangements, whether or not some other subsequent action or
event would be required to cause such creation or acceleration to be
triggered.
(l) Severance and Employment Agreements. Except as set forth
in Subsection 5.13(l) of the Acquiror's Disclosure Letter, neither the
Acquiror nor any of its Subsidiaries is a party to or is bound by any
severance agreement (involving $50,000 or more), program or policy.
True and correct copies of all employment agreements with officers of
the Acquiror and its Subsidiaries, and all vacation, overtime and other
compensation policies of the Acquiror and its Subsidiaries relating to
their employees have been made available to the Acquiror.
(m) Retiree Benefits. Except as set forth in Subsection
5.13(m) of the Acquiror's Disclosure Letter, no Benefit Plan provides
retiree medical or retiree life insurance benefits to any Person and
neither the Acquiror nor any of its Subsidiaries is contractually or
otherwise obligated (whether or not in writing) to provide any Person
with life insurance or medical benefits upon retirement or termination
of employment, other than as required by the provisions of Sections 601
through 608 of ERISA and Section 4980B of the Code. Each Benefit Plan
or other arrangement described in Subsection 5.13(m) of the Acquiror's
Disclosure Letter may, except as described therein, be unilaterally
amended or terminated
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in its entirety without liability except as to benefits accrued
thereunder prior to such amendment or termination.
(n) Multiemployer Plans. Neither the Acquiror nor any of its
Subsidiaries contributes or has an obligation to contribute, and has
not within six years prior to the date of this Agreement contributed or
had an obligation to contribute, to a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(o) Vacation Policies. Except as set forth in Subsection
5.13(o) of the Acquiror's Disclosure Letter, the vacation policies of
the Acquiror and its Subsidiaries do not provide for carryover vacation
from one calendar year to the next.
(p) Collective Bargaining Agreements. Except as set forth in
Section 5.13(p) of the Acquiror's Disclosure Letter, no collective
bargaining agreement to which the Acquiror or any of its Subsidiaries
is a party is currently in effect or is being negotiated by the
Acquiror or any of its Subsidiaries. There is no pending or, to the
Knowledge of the Acquiror, threatened labor dispute, strike or work
stoppage against the Acquiror or any of its Subsidiaries that could
reasonably be expected to have a Material Adverse Effect on the
Acquiror. To the Knowledge of the Acquiror, neither the Acquiror or any
of its Subsidiaries nor any representative or employee of the Acquiror
or any of its Subsidiaries has in the United States committed any
unfair labor practices in connection with the operation of the business
of the Acquiror and its Subsidiaries, and there is no pending or, to
the Knowledge of the Acquiror, threatened charge or complaint against
the Acquiror or any of its Subsidiaries by the National Labor Relations
Board or any comparable agency of any state of the United States.
SECTION 5.14 Taxes.
(a) Tax Returns and Taxes. Except for such matters as could
not reasonably be expected to have a Material Adverse Effect on the
Acquiror, (i) all Tax Returns that are required to be filed by or with
respect to the Acquiror or any of its Subsidiaries on or before the
Effective Time have been or will be timely filed, (ii) all Taxes that
are due on or before the Effective Time have been or will be timely
paid in full, (iii) all withholding Tax requirements imposed on or with
respect to the Acquiror or any of its Subsidiaries have been or will be
satisfied in full in all respects and (iv) no penalty, interest or
other charge is or will become due with respect to the late filing of
any such Tax Return or late payment of any such Tax.
(b) Audits. Except as set forth in Subsection 5.14(b) of the
Acquiror's Disclosure Letter, all Tax Returns have been audited by the
applicable Governmental Authority or the applicable statute of
limitations has expired for the period covered by such Tax Returns.
(c) Extensions of Times. Except as set forth in Subsection
5.14(c) of the Acquiror's Disclosure Letter, there is not in force any
extension of time with respect to the
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due date for the filing of any Tax Return or any waiver or agreement
for any extension of time for the assessment or payment of any Tax due
with respect to the period covered by any Tax Return.
(d) Claims. There is no claim against or with respect to the
income, operations, business or capital of the Acquiror or any of its
Subsidiaries for any Taxes, and no assessment, deficiency or adjustment
has been asserted or proposed with respect to any Tax Return, that, in
either case, could reasonably be expected to have a Material Adverse
Effect on the Acquiror.
(e) Consolidated Tax Returns. Except as set forth in
Subsection 5.14(e) of the Acquiror's Disclosure Letter, none of the
Acquiror and its Subsidiaries has, during the last ten years, been a
member of an affiliated group filing a consolidated federal income Tax
Return.
(f) Final Company Return. The Acquiror represents that it will
cause the timely filing of any required Tax Return relating to the
federal income Taxes of the Company for the one day period ended at the
Effective Time.
SECTION 5.15 Environmental Matters. Except for matters disclosed in
Section 5.15 of the Acquiror's Disclosure Letter and except for matters that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Acquiror, (a) the properties, operations and
activities of the Acquiror and its Subsidiaries are in compliance with all
applicable Environmental Laws; (b) the Acquiror and its Subsidiaries and the
properties and operations of the Acquiror and its Subsidiaries are not subject
to any existing, pending or, to the Knowledge of the Acquiror, threatened
action, suit, investigation, inquiry or proceeding by or before any Court or
Governmental Authority under any Environmental Law; (c) all Permits, if any,
required to be obtained or filed by the Acquiror or any of its Subsidiaries
under any Environmental Law in connection with the business of the Acquiror and
its Subsidiaries have been obtained or filed and are valid and currently in full
force and effect; (d) there has been no release of any hazardous substance,
pollutant or contaminant into the environment by the Acquiror or its
Subsidiaries or in connection with their properties or operations; and (e) there
has been no exposure of any Person or property to any hazardous substance,
pollutant or contaminant in connection with the properties, operations and
activities of the Acquiror and its Subsidiaries; and (f) the Acquiror has made
available to the Company all internal and external audits and studies and all
correspondence in the possession of the Acquiror or any of its Subsidiaries
relating to any environmental matter involving to the Acquiror or any of its
Subsidiaries that is Material to the Acquiror.
SECTION 5.16 Tax Matters. To the Knowledge of the Acquiror, neither the
Acquiror nor any of its Affiliates has taken or agreed to take any action that
would prevent the Merger from constituting a reorganization within the meaning
of section 368(a) of the Code. Specifically:
(a) Preservation of Proprietary Interest. In connection
with the Merger, none of the Company Common Stock will be acquired by
the Acquiror or a Person related (as
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defined in Treas. Reg. Sections 1.368-1(e)(3)) to the Acquiror for
consideration other than Acquiror Common Stock except for the cash
received pursuant to Section 3.01(a) and any cash paid in lieu of
fractional share interests in Acquiror Common Stock pursuant to
Section 3.02(e).
(b) Assets. The Surviving Corporation will acquire at least 90
percent of the fair market value of the Company's net assets and at
least 70 percent of the fair market value of the Company's gross assets
held by the Company immediately prior to the Merger, taking into
account amounts used to pay Merger expenses, any dissenting holders of
Company Common Stock and any distributions other than regular
dividends.
(c) Acquiror's Plans. The Acquiror has no plan or intention to
(i) liquidate the Surviving Corporation, (ii) merge the Surviving
Corporation with or into another corporation, (iii) sell or otherwise
dispose of the stock of the Surviving Corporation, (iv) cause the
Surviving Corporation to issue additional shares of its capital stock
that would result in the Acquiror's losing control (within the meaning
of section 368(c) of the Code) of the Surviving Corporation, (v) cause
or permit the Surviving Corporation to sell or otherwise dispose of any
of the assets acquired from the Company except for dispositions made in
the ordinary course of business or successive transfers of assets to
one or more corporations controlled in each transfer by the transferor
corporation or (vi) reacquire or cause any of its Subsidiaries to
acquire any of the Acquiror Common Stock issued to the holders of
Company Common Stock in the Merger.
(d) No Newco Liabilities. The liabilities of the Company that
will be assumed by the Surviving Corporation in the Merger and the
liabilities to which the Company's assets are subject were incurred by
the Company in the ordinary course of its business.
(e) Business Continuity. Following the Merger, the Surviving
Corporation will continue the historic business of the Company or use a
significant portion of its historic business assets in a business
(within the meaning of Treas. Reg. Sections 1.368-1(d)).
(f) Intercorporate Indebtedness. There is no intercorporate
indebtedness existing between the Company and the Acquiror or between
the Company and Newco that was issued, acquired, or will be settled at
a discount.
SECTION 5.17 Brokers. Except as set forth in Section 5.17 of the
Acquiror's Disclosure Letter, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Acquiror.
SECTION 5.18 Financing Registration Statement. The information
contained in the Financing Registration Statement, other than any such
information supplied by or on behalf of the Company, will not, at the time the
Financing Registration Statement is declared effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information contained in
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the Financing Registration, other than any such information supplied by or on
behalf of the Company, will not, at the date the Prospectus (or any supplement
thereto) is first mailed to investors, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 5.19 Intellectual Property. Other than as disclosed in Section
5.19 of the Acquiror's Disclosure Letter, the Acquiror and its Subsidiaries own
or hold licenses under or otherwise have the right to use or sublicense, all
foreign and domestic patents, trademarks (common law and registered), trademark
registration applications, service marks (common law and registered), service
mark registration applications, trade names and copyrights, copyright
applications, trade secrets, know-how and other proprietary information as are
necessary for the conduct of the businesses of the Acquiror and its Subsidiaries
as currently conducted except for any such intellectual property as to which the
failure to own or hold licenses could not reasonably be expected to have a
Material Adverse Effect on the Acquiror. Other than as disclosed in Section 5.19
of the Acquiror's Disclosure Letter, neither the Acquiror nor any of its
Subsidiaries is currently in receipt of any notice of infringement or notice of
conflict with the asserted rights of others in any patents, trademarks, service
marks, trade names, trade secrets and copyrights owned or held by other Persons,
except, in each case, for matters that could not reasonably be expected to have
a Material Adverse Effect on the Acquiror. Neither the execution and delivery of
this Agreement nor consummation of the transactions contemplated hereby will
violate or breach the terms or cause any cancellation of any Material license
held by the Acquiror or any of its Subsidiaries under any patent, trademark,
service mark, trade name, trade secret or copyright.
SECTION 5.20 Certain Business Practices. To the Acquiror's Knowledge,
as of the date of this Agreement, neither the Acquiror or any of its
Subsidiaries nor any director, officer, employee or agent of the Acquiror or any
of its Subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful payments relating to political activity, (ii)
made any unlawful payment to any foreign or domestic government official or
employee or to any foreign or domestic political party or campaign or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii)
consummated any transaction, made any payment, entered into any agreement or
arrangement or taken any other action in violation of Section 1128B(b) of the
Social Security Act, as amended, or (iv) made any other unlawful payment, except
for any such matters that could not reasonably be expected to have a Material
Adverse Effect on the Acquiror.
ARTICLE VI
COVENANTS
SECTION 6.01 Affirmative Covenants. Each of the Company and the
Acquiror hereby covenants and agrees that, prior to the Effective Time, unless
otherwise expressly contemplated by this Agreement or consented to in writing by
the other, it will and will cause its Subsidiaries:
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(a) Ordinary Course. To operate its business in the
usual and ordinary course consistent with past practices;
(b) Maintenance of Organization. to use all reasonable efforts
to preserve substantially intact its business organization, maintain
its rights and franchises, retain the services of its respective key
employees and maintain its relationships with its respective customers
and suppliers;
(c) Maintenance of Assets. to maintain and keep its properties
and assets in as good repair and condition as at present, ordinary wear
and tear excepted, and maintain supplies and inventories in quantities
consistent with its customary business practice; and
(d) Maintenance of Insurance. to use all reasonable efforts to
keep in full force and effect insurance and bonds comparable in amount
and scope of coverage to that currently maintained;
except for any matters that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on such party and
except, in the case of the Company or the Acquiror, for any and all matters
relating to the Public Offering.
SECTION 6.02 Negative Covenants.
(a) Except as set forth in Subsection 6.02(a) of the Company's
Disclosure Letter, the Company covenants and agrees that, except as
expressly contemplated by this Agreement or otherwise consented to in
writing by the Acquiror, from the date of this Agreement until the
Effective Time, it will not do, and will not permit any of its
Subsidiaries to do, any of the following:
(i) Issuance of Securities. Offer, sell, issue or
grant, or authorize the offering, sale, issuance or grant, of
any Equity Securities of the Company, other than issuances of
Company Common Stock upon the exercise of Warrants outstanding
at the date of this Agreement in accordance with the terms
thereof (as in effect on the date of this Agreement).
(ii) Redemptions and Purchases of Securities. (A)
Redeem, purchase or acquire, or offer to purchase or acquire,
any outstanding Equity Securities of the Company, (B) effect
any reorganization or recapitalization; or (C) split, combine
or reclassify any of the outstanding Equity Securities of the
Company or issue or authorize or propose the issuance of any
other Equity Securities in respect of, in lieu of or in
substitution for, outstanding Equity Securities of the
Company.
(iii) Dividends. Declare or pay any dividend on, or
make any other distribution in respect of, outstanding shares
of capital stock, except for cash dividends payable at the end
of each calendar quarter and for any period ending on
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or before the Effective Time that, in the aggregate,
approximate the estimated liability of the holders of Company
Common Stock for federal and state income taxes relating to
operations of the Company for such calendar quarter or other
period immediately prior to the Effective Time.
(iv) Business Combinations. Acquire, by merging or
consolidating with, by purchasing an equity interest in or a
portion of the assets of, or in any other manner acquiring,
any business or any corporation, partnership, association or
other business organization or division thereof or otherwise
acquire any assets of any other Person (other than (x) the
purchase of assets from suppliers or vendors in the ordinary
course of business and consistent with past practice and (y)
other acquisitions of equity interests, assets and businesses
in an amount not to exceed $250,000 in the aggregate).
(v) Sale of Material Assets. Sell, lease, exchange or
otherwise dispose of, or to grant any Lien (other than a
Permitted Encumbrance) with respect to, any of the assets of
the Company or any of its Subsidiaries that are Material to
the Company, except for (x) dispositions of assets and
inventories in the ordinary course of business and consistent
with past practice and (y) dispositions of assets and purchase
money Liens incurred in connection with the original
acquisition of assets and secured by the assets acquired in an
amount not to exceed $250,000 in the aggregate.
(vi) Debt Incurrence. Incur any obligations for
borrowed money or purchase money indebtedness that are
Material to the Company, whether or not evidenced by a note,
bond, debenture or similar instrument, except (A) drawings
under credit lines existing at the date of this Agreement, (B)
purchase money indebtedness as to which Liens may be granted
as permitted by Subsection 6.02(a)(v), and (C) other
indebtedness incurred in the ordinary course of business
consistent with past practice and in no event (including
purchase money indebtedness incurred pursuant to clause (B))
in excess of $250,000.
(vii) Material Contracts. Enter into any Material
Contract with any third Person (other than customers and
vendors in the ordinary course of business) which provides for
an exclusive arrangement with that third Person or is
substantially more restrictive on the Company or substantially
less advantageous to the Company than Material Contracts
existing on the date hereof.
(viii) Charter Amendments. Adopt any amendments to
its charter or bylaws or other organizational documents that
would alter the terms of its capital stock or other equity
interests or would have a material adverse effect on the
ability of the Company to perform its obligations under this
Agreement.
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(ix) Compensation Increases. (A) increase the
compensation payable to or to become payable to any director,
executive officer or employee, (B) grant any severance or
termination pay; (C) amend or otherwise modify the terms of
any outstanding options, warrants or rights the effect of
which shall be to make such terms more favorable to the
holders thereof; (D) take any action to accelerate the vesting
of any outstanding Company Stock Options; (E) amend or take
any other actions to increase the amount or accelerate the
payment or vesting of any benefit under any Benefit Plan
(including the acceleration of vesting, waiving of performance
criteria or the adjustment of awards or any other actions
permitted upon a change in control of such party); except (i)
pursuant to any contract, agreement or other legal obligation
of the Company existing at the date of this Agreement, (ii)
increases in salary payable or to become payable upon
promotion to an office having greater operational
responsibilities, (iii), in the case of severance or
termination payments, grants made pursuant to the severance
policy of the Company existing at the date of this Agreement
and (iv) in the case of options, warrants, rights or Benefit
Plans, amendments required by ERISA or other applicable law.
(x) Employment and Other Agreements. (A) enter into
any employment or severance agreement with, any director,
officer or employee, either individually or as part of a class
of similarly situated persons or (B) establish, adopt or enter
into any new Benefit Plan; except employment and severance
agreements and Benefit Plans for the benefit of any newly
employed or promoted officers or employees, in which case, the
terms of such agreements and Benefit Plans shall be reasonably
consistent with those existing at the date of this Agreement.
(xi) Tax and Accounting Changes. (A) Change any of
its methods of accounting in effect at December 31, 1997,
except as may be required to comply with GAAP, (B) make or
rescind any election relating to Taxes (other than any
election which must be made periodically which is made
consistent with past practice), (C) settle or compromise any
claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except
where the cost to the Company and its Subsidiaries of such
settlements or compromises, individually or in the aggregate,
does not exceed $250,000) or (D) change any of its methods of
reporting income or deductions for federal income tax purposes
from those employed in the preparation of the federal income
tax returns for the taxable year ending December 31, 1996,
except, in each case, as may be required by Law and for
matters that could not reasonably be expected to have a
Material Adverse Effect on the Company.
(xii) Agreements. Agree in writing or otherwise to do
any of the foregoing.
(b) The Acquiror covenants and agrees that, except as
expressly contemplated by this Agreement or otherwise consented to in
writing by the Company, from the date of this
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Agreement until the Effective Time, it will not do, and will not permit
any of its Subsidiaries to do, any of the following:
(i) Issuance of Securities. Offer, sell, issue or
grant, or authorize the offering, sale, issuance or grant, of
any Equity Securities of the Acquiror or any of its
Subsidiaries, other than issuances of Acquiror Common Stock
(A) upon the exercise of Acquiror Stock Options outstanding at
the date of this Agreement in accordance with the terms
thereof (as in effect on the date of this Agreement), (B) upon
the expiration of any restrictions upon issuance of any grant
existing at the date of this Agreement of restricted stock or
stock bonus pursuant to the terms (as in effect on the date of
this Agreement) of any Benefit Plans of the Acquiror or any of
its Subsidiaries, (C), periodically, pursuant to the terms (as
in effect on the date of this Agreement) of any Benefit Plan
of the Acquiror or any of its Subsidiaries or (D) pursuant to
any stock split, stock dividend or recapitalization effected
in contemplation of the Public Offering, (E) pursuant to the
Exchange Agreement or (F), at the Closing, pursuant to the
Public Offering.
(ii) Redemptions of Securities. (A) Redeem, purchase
or acquire, or offer to purchase or acquire, any outstanding
Equity Securities of the Acquiror or any of its Subsidiaries
(other than (1) any such acquisition by the Acquiror or any of
its wholly-owned Subsidiaries directly from any wholly-owned
Subsidiary of the Acquiror in exchange for capital
contributions or loans to such Subsidiary, (2) any repurchase,
forfeiture or retirement of shares of Acquiror Common Stock or
Acquiror Stock Options occurring pursuant to the terms (as in
effect on the date of this Agreement) of any existing Benefit
Plan of the Acquiror or any of its Subsidiaries, (3) any
periodic purchase of Acquiror Common Stock for allocation to
employee's accounts occurring pursuant to the terms (as in
effect on the date of this Agreement) of any existing Benefit
Plan of the Acquiror or any of its Subsidiaries and (4) any
redemption, purchase or acquisition by a Subsidiary that could
not reasonably be expected to have a Material Adverse Effect
on the Acquiror) or (B) effect any stock combination or
recapitalization in contemplation of the Public Offering.
(iii) Dividends. Declare or to pay any dividend on,
or to make any other distribution in respect of, outstanding
shares of capital stock, except for dividends by a
wholly-owned Subsidiary of the Acquiror to the Acquiror or
another wholly-owned Subsidiary of the Acquiror.
(iv) Charter Amendments. Adopt any amendments to its
charter or bylaws or other organizational documents that would
alter the terms of the Acquiror's Common Stock or could
reasonably be expected to have a material adverse effect on
the ability of the Acquiror to perform its obligations under
this Agreement.
(v) Agreements. Agree in writing or otherwise to do
any of the foregoing.
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SECTION 6.03 Access and Information.
(a) Each of the parties shall, and shall cause its
Subsidiaries to, (i) afford to the other party and its officers,
directors, employees, accountants, consultants, legal counsel, agents
and other representatives (collectively, the "Representatives" of such
party) reasonable access at reasonable times upon reasonable prior
notice to the officers, employees, agents, properties, offices and
other facilities of such party and its Subsidiaries and to their books
and records and (ii) furnish promptly to the other party and its
Representatives such information concerning the business, properties,
contracts, records and personnel of such party and its Subsidiaries
(including financial, operating and other data and information) as may
be reasonably requested, from time to time, by or on behalf of the
other party.
(b) If this Agreement is terminated for any reason pursuant to
Article IX hereof, a party that has received information in accordance
with Section 6.03(a), within ten days after request therefor from the
other party, shall return or destroy (and provide the other party
within such ten-day time period with a certificate of an executive
officer certifying such destruction) all of the information furnished
to it and its Representatives pursuant to the provisions of Section
6.03(a) and all internal memoranda, analyses, evaluations and other
similar material containing or reflecting any such information, in each
case other than information available to the general public without
restriction.
SECTION 6.04 Confidentiality Agreement. The parties shall comply with,
and shall cause their respective Representatives to comply with, all of their
respective obligations under the Confidentiality Agreement.
SECTION 6.05 Stockholders' Letter. The Company agrees to use all
reasonable efforts to obtain from each owner of shares of Company Common Stock
of record or, to the Knowledge of the Company, beneficially as of the date of
the Company Stockholders' Meeting a Stockholder's Letter dated the date of the
Company Stockholders' Meeting and from any Person who shall thereafter but prior
to the Closing Date become an owner of Company Common Stock of record or, to the
Knowledge of the Company, beneficially a Stockholder's Letter dated the Closing
Date.
SECTION 6.06 Registration Rights Agreement. The Acquiror and the
Designated Company Stockholders agree to negotiate in good faith the terms and
provisions of the Registration Rights Agreement and, upon agreement thereon, to
execute and deliver the Registration Rights Agreement.
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ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Meeting of Stockholders. The Company shall, promptly after
the date of this Agreement, take all actions necessary in accordance with the
Corporate Statute and its certificate of incorporation and bylaws to convene a
special meeting of the Company's stockholders to consider approval and adoption
of this Agreement (the "Company Stockholders' Meeting"), and the Company shall
consult with the Acquiror in connection therewith. The Company shall use all
reasonable efforts to secure the vote or consent of stockholders required by the
Corporate Statute and its certificate of incorporation and bylaws to approve and
adopt this Agreement.
SECTION 7.02 The Public Offering.
(a) As indicated in Section 8.01(a), consummation of the
Public Offering is a condition precedent to the consummation of the
Merger and the transactions contemplated hereby. As promptly as
practicable after the execution of this Agreement, the Acquiror shall
prepare and file with the Commission a registration statement on Form
S-1 (such registration statement, together with any amendments thereof
or supplements thereto, being the "Financing Registration Statement"),
in connection with the registration under the Securities Act of the
offering, sale and delivery of Acquiror Common Stock to be issued by
the Acquiror in the Public Offering. The Acquiror shall use all
reasonable efforts to cause such Financing Registration Statement to be
declared effective by the Commission and to consummate the Public
Offering as soon as practicable. The Company shall furnish all
information concerning it and the holders of its capital stock as the
Acquiror may reasonably request in connection with such actions, and
the Company shall use all reasonable efforts to cooperate in the
Acquiror's endeavor in this regard.
(b) The information supplied by the Company for inclusion in
the Financing Registration Statement shall not, at the time the
Financing Registration Statement is declared effective, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein concerning the Company not misleading. The
information supplied by the Company for inclusion in the Prospectus
shall not, at the date the Prospectus (or any supplement thereto) is
first mailed to investors, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements concerning the Company
therein, in the light of the circumstances under which they were made,
not misleading. If at any time prior to the Effective Time any event or
circumstance relating to the Company or any of its Affiliates, or its
or their respective officers or directors, should be discovered by the
Company that should be set forth in an amendment to the Financing
Registration Statement or a supplement to the Prospectus, the Company
shall promptly inform the Acquiror, and the Acquiror shall undertake to
amend the Financing Registration Statement or supplement the Prospectus
accordingly.
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(c) The Acquiror will advise the Company, promptly after it
receives notice thereof, of the time when the Financing Registration
Statement has become effective or any amendment thereto or any
supplement to the Prospectus has been filed, the issuance of any stop
order suspending the effectiveness of the Financing Registration
Statement, the suspension of the qualification of the Acquiror Common
Stock issuable in connection with the Public Offering for offering or
sale in any jurisdiction, any request by the staff of the Commission
for amendment of the Financing Registration Statement or the
Prospectus, the receipt from the staff of the Commission of comments
thereon or any request by the staff of the Commission for additional
information with respect thereto.
SECTION 7.03 Appropriate Action; Consents; Filings.
(a) The Company and the Acquiror shall each use all reasonable
efforts (i) to take, or to cause to be taken, all appropriate action,
and to do, or to cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make
effective the transactions contemplated by this Agreement, (ii) to
obtain from any Governmental Entities any Permits or Orders required to
be obtained or made by the Acquiror or the Company or any of their
Subsidiaries in connection with the authorization, execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby, including the Merger, (iii) to make
all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required
under (A) the Securities Act (in the case of Acquiror) and the Exchange
Act and the Regulations thereunder, and any other applicable federal or
state securities Laws, (B) the HSR Act and (C) any other applicable
Law. The Acquiror and the Company shall cooperate with each other in
connection with the making of all such filings, including providing
copies of all such documents to the nonfiling party and its advisors
prior to filings and, if requested, shall accept all reasonable
additions, deletions or changes suggested in connection therewith. In
addition to the information required to be included in the Financing
Registration Statement and the Prospectus, the Company and the Acquiror
shall furnish all information required for any application or other
filing to be made pursuant to any applicable Law or any applicable
Regulations of any Governmental Authority in connection with the
transactions contemplated by this Agreement.
(b) Each of the Company and the Acquiror shall give prompt
notice to the other of (i) any notice or other communication from any
Person alleging that the consent of such Person is or may be required
in connection with the Merger or the Public Offering, (ii) any notice
or other communication from any Governmental Authority in connection
with the Merger or the Public Offering, (iii) any actions, suits,
claims, investigations or proceedings commenced or threatened in
writing against, relating to or involving or otherwise affecting the
Company, the Acquiror or their Subsidiaries that relate to the
consummation of the Merger or the Public Offering, (iv) the occurrence
of a default or event that, with notice or lapse of time or both, will
become a default under any Material Contract of the Acquiror or of the
Company, and (v) any change that is reasonably likely to have a
Material Adverse Effect on the Company or the Acquiror or is likely to
delay or impede the ability of either the
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Acquiror or the Company to consummate the transactions contemplated by
this Agreement or to fulfill their respective obligations set forth
herein.
(c) The Acquiror and the Company agree to cooperate and use
all reasonable efforts vigorously to contest and resist any action,
including legislative, administrative or judicial action, and to have
vacated, lifted, reversed or overturned any Order (whether temporary,
preliminary or permanent) of any Court or Governmental Authority that
is in effect and that restricts, prevents or prohibits the consummation
of the Merger or any other transactions contemplated by this Agreement,
including the vigorous pursuit of all available avenues of
administrative and judicial appeal and all available legislative
action. The Acquiror and the Company also agree to take any and all
actions, including the disposition of assets or the withdrawal from
doing business in particular jurisdictions, required by any Court or
Governmental Authority as a condition to the granting of any Permit or
Order necessary for the consummation of the Merger or as may be
required to avoid, lift, vacate or reverse any administrative or
judicial action that would otherwise cause any condition to Closing not
to be satisfied; provided, however, that in no event shall either party
take, or be required to take, any action that could reasonably be
expected to have an Material Adverse Effect on the Acquiror or the
Company.
(d) (i) Each of the Company and Acquiror shall give (or shall
cause their respective Subsidiaries to give) any notices to
third Persons, and use, and cause their respective
Subsidiaries to use, all reasonable efforts to obtain any
consents from third Persons (A) necessary, proper or advisable
to consummate the transactions contemplated by this Agreement,
(B) otherwise required under any contracts, licenses, leases
or other agreements in connection with the consummation of the
transactions contemplated hereby or (C) required to prevent a
Material Adverse Effect on the Company from occurring prior to
or after the Effective Time or a Material Adverse Effect on
the Acquiror from occurring after the Effective Time.
(ii) If any party shall fail to obtain any consent
from a third Person described in Subsection (d)(i) above, such
party shall use all reasonable efforts, and shall take any
such actions reasonably requested by the other parties, to
limit the adverse effect upon the Company and Acquiror, their
respective Subsidiaries, and their respective businesses
resulting, or that could reasonably be expected to result
after the Effective Time, from the failure to obtain such
consent.
SECTION 7.04 Tax Treatment. Each party hereto shall use all reasonable
efforts to cause the Merger to qualify, and shall not take, and shall use all
reasonable efforts to prevent any Affiliate of such party from taking, any
actions which could prevent the Merger from qualifying as a reorganization under
the provisions of Section 368(a) of the Code.
SECTION 7.05 Public Announcements. The Acquiror and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with
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respect to the Merger and shall not issue any such press release or make any
such public statement prior to such consultation.
SECTION 7.06 Comfort Letters.
(a) The Company shall use all reasonable efforts to cause
Ernst & Young, LLP to deliver a letter dated as of the date of the
Prospectus, and addressed to the Company and the Acquiror, in form and
substance reasonably satisfactory to Acquiror and customary in scope
and substance for agreed upon procedures letters delivered by
independent public accountants in connection with registration
statements and prospectuses similar to the Financing Registration
Statement and the Prospectus.
(b) The Acquiror shall use all reasonable efforts to cause
KPMG Peat Marwick LLP to deliver a letter dated as of the date of the
Prospectus and addressed to the Acquiror and the Company, in form and
substance reasonably satisfactory to the Company and customary in scope
and substance for agreed upon procedures letters delivered by
independent public accountants in connection with registration
statements and prospectuses similar to the Financing Registration
Statement and the Prospectus.
SECTION 7.07 Exercise or Assumption of Warrants. BOCP joins in this
Agreement for the limited purpose of agreeing to exercise the Warrants at the
Closing by providing, in the case of the Warrants issued by the Company, to the
Company and, in the case of the Warrants granted by stockholders of the Company,
to such stockholders the exercise consideration, and by executing and delivering
all such documents and instruments, required by the terms of the Warrants to be
provided upon the exercise thereof. In connection therewith, the Company
reaffirms its obligations to issue shares of Company Common Stock upon exercise
of the Warrants issued by it in accordance with the terms and provisions
thereof, and agrees to make available at the Closing certificates evidencing the
Company Common Stock issuable upon exercise of all the Warrants issued by it and
certificates evidencing Company Common Stock issuable upon surrender for
transfer of shares of Company Common Stock acquired by BOCP upon exercise of
Warrants granted by such stockholders, such certificates to be registered in the
name of BOCP in such denominations as shall be requested by BOCP at least two
Business Days prior to the Closing.
SECTION 7.08 Employee Benefit Plans. Until the first anniversary of the
Effective Time, the Acquiror shall and shall cause the Surviving Corporation to
provide each employee of the Company at the Effective Time ("Company
Participants") with employee benefits after the Effective Time that are
substantially comparable to similarly situated employees of the Acquiror;
provided, however, that for a period of time beginning at the Effective Time and
ending no later than December 31, 1998, the Acquiror may satisfy the
requirements of the preceding clause by continuing to maintain the Benefit Plans
of the Company existing at the Effective Time without change, except for changes
required by applicable law and changes not adverse to the Company Participants.
The Benefit Plans of the Acquiror and the Surviving Corporation in which Company
Participants are eligible to participate shall provide Company Participants with
credit for service prior to the Effective Time with the Company and its
predecessors, including The Dow Chemical Company.
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SECTION 7.09 Indemnification of Directors and Officers.
(a) Until six years from the Effective Time, the certificate
of incorporation and bylaws of the Surviving Corporation as in effect
immediately after the Effective Time shall not be amended to reduce or
limit the rights of indemnity afforded to the present and former
directors and officers of the Company thereunder or as to the ability
of the Company to indemnify such persons or to hinder, delay or make
more difficult the exercise of such rights of indemnity or the ability
to indemnify. The Surviving Corporation will at all times exercise the
powers granted to it by its certificate of incorporation, its bylaws
and applicable law to indemnify to the fullest extent possible the
present and former directors, officers, employees and agents of the
Company against claims made against them arising from their service in
such capacities prior to the Effective Time.
(b) If any claim or claims shall, subsequent to the Effective
Time and within six years thereafter, be made against any present or
former director, officer, employee or agent of the Company based on or
arising out of the services of such Person prior to the Effective Time
in the capacity of such Person as a director, officer, employee or
agent of the Company, the provisions of subsection (a) of this Section
respecting the certificate of incorporation and bylaws of the Surviving
Corporation shall continue in effect until the final disposition of all
such claims.
(c) The Acquiror hereby agrees after the Effective Time to
guarantee the payment of the Surviving Corporation's indemnification
obligations described in Subsection 7.11(a) up to an amount determined
as of the Effective Time equal to (i) the fair market value of any
assets of the Surviving Corporation or any of its Subsidiaries
distributed to the Acquiror or any of its Subsidiaries (other than the
Surviving Corporation and its Subsidiaries), minus (ii) any liabilities
of the Surviving Corporation or any of its Subsidiaries assumed by the
Acquiror or any of its Subsidiaries (other than the Surviving
Corporation and its Subsidiaries), minus (iii) the fair market value of
any assets of the Acquiror or any of its Subsidiaries (other than the
Surviving Corporation and its Subsidiaries) contributed to the
Surviving Corporation or any of its Subsidiaries and (iv) plus any
liabilities of the Acquiror or any of its Subsidiaries (other than the
Surviving Corporation and its Subsidiaries) assumed by the Surviving
Corporation or any of its Subsidiaries. If any other entity is merged
with or into the Surviving Corporation or the Surviving Corporation
acquires any other Material business or Material portion of the assets
of another entity, the Acquiror shall assume all obligations to
indemnify the former directors and officers of the Company hereunder.
(d) Notwithstanding Subsection (a), (b) or (c) of this Section
7.11, the Acquiror and the Surviving Corporation shall be released from
the obligations imposed by such subsection if the Acquiror shall assume
the obligations of the Surviving Corporation thereunder by operation of
Law or otherwise. Notwithstanding anything to the contrary in this
Section 7.11, neither the Acquiror nor the Surviving Corporation shall
be liable for any settlement effected without its written consent,
which shall not be unreasonably withheld.
AGREEMENT AND PLAN OF MERGER
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(e) The provisions of this Section 7.11 are intended to be for
the benefit of, and shall be enforceable by, each Person entitled to
indemnification hereunder and the heirs and representatives of such
Person.
SECTION 7.10 Newco. Prior to the Effective Time, Newco shall not
conduct any business or make any investments other than as specifically
contemplated by this Agreement and will not have any assets (other than the
minimum amount of cash required to be paid to Newco for the valid issuance of
its stock to the Acquiror) or any liabilities (other than stockholder's equity).
The Acquiror shall take all action necessary to cause Newco to perform its
obligations under this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement.
SECTION 7.11 Securities Exchange Agreement. Prior to the Effective
Time, the Acquiror will not amend, modify or terminate the Securities Exchange
Agreement without the prior written consent of the Company.
SECTION 7.12 Event Notices. From and after the date of this Agreement
until the Effective Time, each party hereto shall promptly notify the other
party hereto of (i) the occurrence or nonoccurrence of any event the occurrence
or nonoccurrence of which would be likely to cause any condition to the
obligations of such party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied and (ii) the failure of such
party to comply with any covenant or agreement to be complied with by it
pursuant to this Agreement which would be likely to result in any condition to
the obligations of such party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied. No delivery of any notice
pursuant to this Section 7.13 shall cure any breach of any representation or
warranty or any failure to comply with any covenant or agreement of such party
contained in this Agreement or otherwise limit or affect the remedies available
hereunder to the party receiving such notice.
ARTICLE VIII
CLOSING CONDITIONS
SECTION 8.01 Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by the parties hereto, in whole or in part, to the extent
permitted by applicable Law:
(a) Effectiveness of the Financing Registration Statement. The
Financing Registration Statement shall have been declared effective by
the Commission under the Securities Act. No stop order suspending the
effectiveness of the Financing Registration Statement shall have been
issued by the Commission and no proceedings for that purpose shall have
been initiated by the Commission.
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(b) Stockholder Approval. This Agreement shall have been
approved and adopted by the requisite vote of the stockholders of the
Company as required by the Corporate Statute.
(c) No Order. No Governmental Authority or Court shall have
enacted, issued, promulgated, enforced or entered any Law, Regulation
or Order (whether temporary, preliminary or permanent) that is in
effect and that has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(d) HSR Act. The applicable waiting period under the HSR Act
shall have expired or been terminated.
(e) Foreign Governmental Authorities. The applicable waiting
period under any competition Laws, Regulations and Orders of foreign
Governmental Authorities, as set forth in the Acquiror's Disclosure
Letter and the Company's Disclosure Letter, shall have expired or been
terminated and any Permits or Orders required thereunder in order to
consummate the Merger shall have been received by the parties hereto.
(f) Public Offering. The Public Offering shall be consummated
concurrently with the Closing of the transactions contemplated hereby.
(g) Dissenting Stockholders. No holders of Company Common
Stock shall have dissented from the Merger under conditions such that
the aggregate amount of the Merger Consideration otherwise payable with
respect to shares of Company Common Stock held by such holders,
together with the Merger Expenses payable by the Company, shall equal
or exceed nine percent (9%) of the total Merger Consideration payable
with respect to all shares of Company Common Stock assuming no such
holders dissented from the Merger.
(h) Registration Rights Agreement. The Registration Rights
Agreement among the Acquiror and the Designated Company Stockholders
shall have been executed and delivered by such parties.
SECTION 8.02 Additional Conditions to Obligations of the Acquiror
Companies. The obligations of the Acquiror Companies to effect the Merger and
the other transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived by the Acquiror Companies, in whole or in part, to the
extent permitted by applicable Law:
(a) Representations and Warranties. Each of the
representations and warranties of the Company contained in this
Agreement that is qualified as to materiality shall be true and
correct in all respects and each of such representations and
warranties that is not so qualified shall be true and correct in all
material respects as of the date of this Agreement and as of the
Closing Date as though made again on and as of the Closing Date. The
Acquiror
AGREEMENT AND PLAN OF MERGER
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Companies shall have received a certificate of the President and the
Chief Financial Officer of the Company, dated the Closing Date, to such
effect.
(b) Agreements and Covenants. The Company shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date. The Acquiror Companies shall have received a
certificate of the President and the Chief Financial Officer of the
Company, dated the date of the Closing Date, to such effect.
(c) Tax Opinion. The Acquiror shall have received the opinion
dated on or prior to the Closing Date of Vinson & Elkins LLP to the
effect that (i) the Merger will constitute a reorganization under
section 368(a) of the Code, (ii) the Acquiror, the Company and Newco
will each be a party to that reorganization, and (iii) no gain or loss
will be recognized by the Acquiror, the Company or Newco by reason of
the Merger.
(d) Stockholders' Letters. The Acquiror shall have received
from each owner of shares of Company Common Stock of record or, to the
Knowledge of the Company, beneficially as of the date of the Company
Stockholders' Meeting a Stockholder's Letter dated the date of the
Company Stockholders' Meeting and from any Person who shall thereafter
but prior to the Closing Date become an owner of Company Common Stock
of record or, to the Knowledge of the Company, beneficially a
Stockholder's Letter dated the Closing Date.
(e) Warrants. All the outstanding Warrants shall have, at or
prior to the Closing, been exercised to purchase Company Common Stock
and there shall be no other warrants, options or other obligations of
Cynara outstanding to issue shares of Company Common Stock.
SECTION 8.03 Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger and the other transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of the following conditions, any or all of which may be waived by
the Company, in whole or in part, to the extent permitted by applicable Law:
(a) Representations and Warranties. Each of the
representations and warranties of the Acquiror Companies contained in
this Agreement that is qualified as to materiality shall be true and
correct in all respects and each of such representations and warranties
that is not so qualified shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as
though made again on and as of the Closing Date. The Company shall have
received a certificate of the President and the Chief Financial Officer
of each of the Acquiror Companies, dated the Closing Date, to such
effect.
(b) Agreements and Covenants. The Acquiror Companies shall
have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied
with by them on or prior to the Closing Date. The
AGREEMENT AND PLAN OF MERGER
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Company shall have received a certificate of the President and the
Chief Financial Officer of each of the Acquiror Companies, dated the
Closing Date, to such effect.
(c) Tax Opinion. The Company shall have received the opinion
dated on or prior to the Closing Date of Reed Smith Shaw & McClay, LLP
to the effect that (i) the Merger will constitute a reorganization
under section 368(a) of the Code, (ii) the Acquiror, the Company and
Newco will each be a party to that reorganization, and (iii) no gain or
loss will be recognized by the stockholders of the Company upon the
receipt of shares of Acquiror Common Stock in exchange for shares of
Company Common Stock pursuant to the Merger except with respect to the
cash portion of the Merger Consideration Per Share of Company Common
Stock, any cash received in lieu fractional share interests, and any of
the Conditional Earned Shares, the Accelerated Earned Shares and Earned
Shares treated as imputed interest.
(d) Conformance of Acquiring Company Representations with
Financing Registration Statement Disclosures. The disclosures in the
Financing Registration Statement, at the time that it shall become
effective, and in the Prospectus, at the Closing Date, shall not
include any information that shall indicate that the condition set
forth in subsection (a) of this Section 8.03 shall not have been
satisfied.
(e) Bank Debt. The Acquiror Companies shall have either paid
in full the outstanding indebtedness under the Company's credit
facility at Banc One, Texas, N.A. or agreed with such bank to cause the
Surviving Corporation to assume the indebtedness under such credit
facility.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 Survival of Representations, Warranties, Covenants and
Agreements. The representations and warranties of the parties contained in
Articles IV and V (other than those contained in Section 4.14 and in Sections
5.07 through 5.15, inclusive, and Sections 5.19 and 5.20) shall survive both the
Closing and any investigation by the parties with respect thereto but shall
terminate and be of no further force or effect on the first anniversary of the
Closing Date. The representations and warranties contained in Sections 5.07
through 5.15 and Sections 5.19 and 5.20 shall terminate at the Effective Time
and shall be of no further force or effect. The representations and warranties
contained in Section 4.14 shall survive the Closing and any investigation by the
parties with respect thereto but shall terminate and be of no further force or
effect on the earlier of the fourth anniversary of the Closing Date or the date
that is thirty (30) days after the results of an audit of the Company's federal
income tax returns through the Closing have been reported to the Company by the
Internal Revenue Service. Notwithstanding the foregoing, any such representation
or warranty as to which a bona fide claim relating thereto is asserted in
writing in accordance with Section 9.02 during such survival period shall, with
respect only to such claim, survive such survival period pending resolution
thereof. The covenants and agreements in this Article IX shall survive the
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Closing and shall remain in full force and effect for such period as is
necessary to resolve any bona fide claim made with respect to any representation
or warranty contained in this Agreement during the survival period thereof. The
remaining covenants and agreements of the parties hereto contained in this
Agreement shall survive the Closing without any contractual limitation on the
period of survival.
SECTION 9.02 General Indemnification.
(a) If the transactions contemplated hereby to occur at the
Closing are effected, the Acquiror, on the one hand, hereby agrees, and
the Designated Company Stockholders, on the other, hereby severally
agree (the Acquiror and such holders together each being an
"Indemnifying Party"), from and after the Closing, to indemnify and
hold harmless all those persons who hold Company Common Stock
immediately prior to the Effective Time, on the one hand, and the
Acquiror, on the other (each such group or person being the
"Indemnified Party") against any losses, claims, damages or liabilities
("Losses") that such Indemnified Party shall actually incur, to the
extent that such Losses (or actions, suits or proceedings in respect
thereof and any appeals therefrom ("Proceedings")):
(i) arise out of or are based upon any allegation
that any representation or warranty made herein in Article IV
or V for the benefit of the Acquiror or the Company,
respectively, is untrue or has been breached in any respect;
or
(ii) arise out of or are based upon any allegation
that any covenant or agreement made herein for the benefit of
the Indemnified Party by the Indemnifying Party has not been
performed in accordance with its terms;
and will reimburse the Indemnified Party for any legal or other
expenses reasonably incurred by it in connection with investigating or
defending against any such Losses or Proceedings. Notwithstanding the
foregoing, the Indemnifying Party shall be severally liable to the
Indemnified Party under this Section only for the amount of individual
Losses incurred by the Indemnified Party that exceed $250,000 in the
aggregate; provided, however, that the amount of such Losses that are
subject to indemnification hereunder shall not exceed $2,500,000 in the
aggregate for all Designated Company Stockholders on the one hand and
the Acquiror on the other; and provided, further, that the Losses
incurred by an Indemnified Party shall, for purposes of determining the
threshold level thereof in accordance with this sentence and otherwise,
be offset by (i) the proceeds of any insurance received by the
Indemnified Party with respect thereto and (ii) the amount of any
federal income tax benefit actually realized by the Indemnified Party
with respect thereto. No Designated Company Stockholder shall be liable
hereunder for more than his pro rata share of Losses (based on the
number of shares of Company Common Stock owned immediately prior to the
Effective Time, including for this purpose the shares of Company Common
Stock issuable upon exercise of all the Warrants) and may elect, in his
sole discretion, to pay such Losses in cash or in Acquiror Common Stock
or both. If the Designated Company Stockholder shall elect to pay all
or any portion of such Losses in Acquiror Common Stock, the value of
such
AGREEMENT AND PLAN OF MERGER
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Acquiror Common Stock shall be deemed to be the lower of the Initial
Offering Price or the Current Market Price.
(b) Promptly after receipt by the Indemnified Party under
subsection (a) of this Section of notice of a Loss or the commencement
of any Proceeding against which it believes it is indemnified under
this Section, the Indemnified Party shall, if a claim in respect
thereto is to be made against the Indemnifying Party under this
Section, notify the Indemnifying Party in writing of the commencement
thereof; provided, however, that the omission so to notify the
Indemnifying Party shall not relieve it from any liability which it may
have to the Indemnified Party to the extent that the Indemnifying Party
is not prejudiced by such omission.
(c) The Indemnifying Party shall, within thirty (30) days
after receipt of a notice of Loss or Proceeding given pursuant to
subsection (b) of this Section, either (i) acknowledge liability, as
between the Indemnifying Party and the Indemnified Party, for such Loss
or the amount in controversy in such Proceeding and pay the Indemnified
Party the amount of such Loss or the amount in controversy in such
Proceeding in cash in immediately available funds (or establish by
agreement with the Indemnified Party an alternative payment schedule),
(ii) acknowledge liability, as between the Indemnifying Party and the
Indemnified Party, for such Loss or the amount in controversy in such
Proceeding, disavow the validity of the Loss or Proceeding or the
amount thereof and, in the case of a proceeding to the extent that it
shall so desire in accordance with subsection (d) of this Section,
assume the legal defense thereof, or (iii) object (or reserve the right
to object until additional information is obtained) to the claim for
indemnification or the amount thereof, setting forth the grounds
therefor in reasonable detail. If the Indemnifying Party does not
respond to the Indemnified Party as provided in this subsection within
such 30-day period, the Indemnifying Party shall be deemed to have
acknowledged its liability for such indemnification claim in accordance
with clause (i) of this subsection and the Indemnified Party may
exercise any and all of its rights under applicable law to collect such
amount.
(d) In the case of a Loss as to which the Indemnifying Party
shall have responded pursuant to clause (ii) or (iii) of subsection (c)
above, the parties shall attempt in good faith to resolve their
differences for a period of 60 days following receipt by the
Indemnified Party or Parties of the response of the Indemnifying Party
pursuant to subsection (c) above and, if the parties are unable to
resolve their differences within such period, the Indemnified Party or
Parties may submit the matter to arbitration in accordance with the
provisions of Section 11.09.
(e) If a Proceeding shall be brought against an Indemnified
Party and it shall notify the Indemnifying Party thereof in accordance
with subsection (b) of this Section, the Indemnifying Party shall, if
it shall have responded to such notice in accordance with clause (ii)
of subsection (c) of this Section, be entitled to assume the legal
defense thereof with counsel reasonably satisfactory to the Indemnified
Party. After notice from the Indemnifying Party to the Indemnified
Party of its election to assume the defense of such claim or such
AGREEMENT AND PLAN OF MERGER
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action, the Indemnifying Party shall not be liable to the Indemnified
Party under this Section for any attorney's fees or other expenses
(except reasonable costs of investigation) subsequently incurred by the
Indemnified Party in connection with the defense thereof. If the
Indemnifying Party does not assume the defense of a Proceeding as to
which it has acknowledged liability, as between itself and the
Indemnified Party, pursuant to clause (ii) of subsection (c) of this
Section, the Indemnified Party may require the Indemnifying Party to
reimburse it on a current basis for its reasonable expenses of
investigation, reasonable attorney's fees and expenses and reasonable
out-of-pocket expenses incurred in the defense thereof and, subject to
the provisions of subsection (f) of this Section, the Indemnifying
Party shall be bound by the result obtained with respect thereto by the
Indemnified Party.
(f) An Indemnifying Party will not, without the prior written
consent of the Indemnified Party (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of
any judgment with respect to any pending or threatened Proceeding in
respect of which indemnification or contribution may be sought
hereunder (whether or not the Indemnified Party is an actual or
potential party to such Proceeding) unless such settlement, compromise
or consent includes an unconditional release of the Indemnified Party
from all liability arising out of such Proceeding. If the Indemnifying
Party has responded to the Indemnified Party pursuant to clause (i) of
subsection (c) of this Section, the Indemnified Party may settle or
compromise or consent to the entry of any judgment with respect to the
Proceeding that was the subject of notice to the Indemnifying Party
pursuant to subsection (c) of this Section without the consent of the
Indemnifying Party (but no such settlement, compromise or consent shall
increase the indemnification obligation of the Indemnifying Party to
which it has consented pursuant to clause (i) of subsection (c) of this
Section). An Indemnified Party will not otherwise, without the prior
written consent of the Indemnifying Party (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of
any judgment with respect to any pending or threatened Proceeding, but,
if such Proceeding is settled or compromised or if there is entered any
judgment with respect to any such Proceeding, in either case with the
consent of the Indemnifying Party, or if there be a final judgment of
the plaintiff in any such Proceeding, the Indemnifying Party agrees to
indemnify and hold harmless any Indemnified Party from and against any
loss or liability by reason of such settlement, compromise or judgment.
(g) From and after the Closing, the provisions of this Section
shall be the sole and exclusive remedy of each party hereto for (i) any
breach of the other party's representations or warranties contained in
this Agreement or (ii) any breach of the other party's covenants or
agreements contained in this Agreement.
(h) From and after the Closing, all representations,
warranties, covenants and agreements herein to or for the benefit of
the Company by the Acquiror shall be deemed to be representations,
warranties, covenants and agreements directly to, with and for the
benefit of the Designated Company Stockholders and the Designated
Company Stockholders shall have the right to indemnification in
accordance with Article IX from the Acquiror in connection therewith.
AGREEMENT AND PLAN OF MERGER
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
by the stockholders of the Company:
(a) by mutual consent of the Acquiror and the Company;
(b) by the Acquiror, upon a breach of any covenant or
agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue,
in either case such that the conditions set forth in Subsection 8.02(a)
or Subsection 8.02(b) would not be satisfied (a "Terminating Company
Breach"); provided that, if (i) such Terminating Company Breach is
curable by the Company through the exercise of reasonable efforts, (ii)
the effective date of the Financing Registration Statement has not
theretofore occurred and (iii) the Company is exercising reasonable
efforts to cure the Terminating Company Breach, the Acquiror may not,
for such period not exceeding 30 days as the Company continues to exert
such efforts, terminate this Agreement under this Subsection 9.01(b);
(c) by the Company, upon breach of any covenant or agreement
on the part of the Acquiror Companies set forth in this Agreement, or
if any representation or warranty of the Acquiror Companies shall have
become untrue, in either case such that the conditions set forth in
Subsection 8.03(a) or Subsection 8.03(b) would not be satisfied (a
"Terminating Acquiror Breach"); provided that, if (i) such Terminating
Acquiror Breach is curable by the Company through the exercise of
reasonable efforts, (ii) the effective date of the Financing
Registration Statement has not theretofore occurred and (iii) the
Acquiror is exercising reasonable efforts to cure the Terminating
Acquiror Breach, the Company may not terminate, for such period not
exceeding 30 days as the Acquiror continues to exert such efforts, this
Agreement under this Subsection 9.01(c);
(d) by either Acquiror or the Company, if there shall be any
Order which is final and nonappealable preventing the consummation of
the Merger, unless the party relying on such Order has not complied
with its obligations under Section 7.03;
(e) by either Acquiror or the Company, if the Merger shall not
have been consummated before July 31, 1998; or
(f) by either Acquiror or the Company, if this Agreement shall
fail to receive the requisite vote for approval and adoption by the
stockholders of the Company at the Stockholders' Meeting.
AGREEMENT AND PLAN OF MERGER
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The right of any party hereto to terminate this Agreement pursuant to
this Section 9.01 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 10.02 Effect of Termination. Except as provided in Section
10.05 or Section 10.01 of this Agreement, in the event of the termination of
this Agreement pursuant to Section 10.01, this Agreement shall forthwith become
void, there shall be no liability on the part of the Acquiror Companies or the
Company or any of their respective officers or directors to the other and all
rights and obligations of any party hereto shall cease, except that nothing
herein shall relieve any party from liability for any breach of this Agreement.
SECTION 10.03 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
share of Company Common Stock shall be converted pursuant to this Agreement upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 10.04 Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby. For purposes of this Section
10.04, the Acquiror Companies shall be deemed to be one party.
SECTION 10.05 Fees, Expenses and Other Payments. All Expenses incurred
by the parties hereto shall be borne solely and entirely by the party which has
incurred such Expenses; provided, however, that the Acquiror may, at its option,
pay any Expenses of the Company and, provided further, that the Company shall
bear all expenses of Reed Smith Shaw & McClay LLP in connection with this
Agreement and the transactions contemplated herein.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given upon receipt, if delivered personally, mailed by registered or certified
mail (postage prepaid, return receipt requested) to the parties at the following
addresses or sent by electronic transmission to the telecopier number specified
below:
AGREEMENT AND PLAN OF MERGER
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(a) If to any of the Acquiror Companies, to:
National Tank Company
2950 North Loop West
Suite 750
Houston, Texas 77092
Attention: William B. Wiener III
Senior Vice President and
Chief Financial Officer
Telecopier No.: 713/683-7841
with a copy to:
Vinson & Elkins L.L.P.
First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: William E. Joor III
Telecopier No.: (713) 758-2346
(b) If to the Company, to:
The Cynara Company
2925 Briarpark
Suite 1200
Houston, Texas 77042
Attention: Richard D. Peters
Telecopier No.: (713) 975-9611
AGREEMENT AND PLAN OF MERGER
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with copies to:
George K. Hickox
Heller Hickox Dimeling Schreiber & Park
1629 Locust Street
Philadelphia, Pennsylvania 19103
Telecopier No.: (215) 546-1041
and
Lori L. Lasher, Esquire
Reed Smith Shaw & McClay, LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, Pennsylvania 19103
Telecopier No.: (215) 851-1420
or to such other address or telecopier number as any party may, from time to
time, designate in a written notice given in a like manner. Notice given by
telecopier shall be deemed delivered on the day the sender receives telecopier
confirmation that such notice was received at the telecopier number of the
addressee. Notice given by mail as set out above shall be deemed delivered three
days after the date the same is postmarked.
SECTION 11.02 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.03 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 11.04 Entire Agreement. This Agreement (together with the
Annexes, the Company's Disclosure Letter, the Acquiror's Disclosure Letter and
the Confidentiality Agreement) constitutes the entire agreement of the parties,
and supersedes all prior agreements and undertakings, both written and oral,
among the parties, with respect to the subject matter hereof.
SECTION 11.05 Assignment. This Agreement shall not be assigned by
operation of Law or otherwise.
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SECTION 11.06 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, other than pursuant
to Sections 7.08 and 7.09 hereof, nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 11.07 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 11.08 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Texas, regardless of the
Laws that might otherwise govern under applicable principles of conflicts of
law; provided, however, that any matter involving the internal corporate affairs
of any corporate party hereto shall be governed by the provisions of the
Corporate Statute.
SECTION 11.09 Arbitration. Any dispute referenced in subsection (g) of
Section 3.01 or subsection (d) of Section 9.02 shall be resolved by binding
arbitration under the Commercial Arbitration Rules (the "AAA Rules") of the
American Arbitration Association (the "AAA"). This arbitration provision is
expressly made pursuant to and shall be governed by the Federal Arbitration Act,
9 U.S.C. Sections 1-14. The parties hereto agree that, pursuant to Section 9 of
the Federal Arbitration Act, a judgment of a United States District Court of
competent jurisdiction shall be entered upon the award made pursuant to the
arbitration. Three arbitrators, who shall have the authority to allocate the
costs of any arbitration initiated under this paragraph, shall be selected
according to the AAA Rules or, if such AAA Rules do not so provide, then in
accordance with the following sentence within ten (10) days of the submission to
the AAA of the response to the statement of claim or the date on which any such
response is due, whichever is earlier. The alternative selection shall be made
as follows: one by a majority in interest of the Designated Company
Stockholders, one by the Acquiror and one by the two so selected. The
arbitrators shall conduct the arbitration in accordance with the Federal Rules
of Evidence. The arbitrators shall decide the amount and extent of pre-hearing
discovery which is appropriate. The arbitrators shall have the power to enter
any award of monetary or injunctive relief (including the power to issue
permanent injunctive relief and also the power to reconsider any prior request
for immediate injunctive relief by either of the parties and any order as to
immediate injunctive relief previously granted or denied by a court in response
to a request therefor by either of the parties), including the power to render
an award as provided in Rule 43 of the AAA Rules; provided, however, that the
arbitrators shall not have the power to award punitive damages under any
circumstances (whether styled as punitive, exemplary, or treble damages, or any
penalty or punitive type of damages) regardless of whether such damages may be
available under applicable law, the parties hereby waiving their rights, if any,
to recover any such damages, whether in arbitration or litigation. The
arbitrators shall award the prevailing party its costs and reasonable attorney's
fees, and the losing party shall bear the entire cost of the arbitration,
including the arbitrators' fees. The arbitration
AGREEMENT AND PLAN OF MERGER
-51-
<PAGE> 57
award may be enforced in any court having jurisdiction over the parties and the
subject matter of the arbitration. The arbitration shall be held in Houston,
Texas.
SECTION 11.10 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
AGREEMENT AND PLAN OF MERGER
-52-
<PAGE> 58
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
NATCO GROUP INC.
By: /s/ Nathaniel A. Gregory
------------------------------------
Name: Nathaniel A. Gregory
Title: Chairman
NATCO ACQUISITION COMPANY
By: /s/ Nathaniel A. Gregory
------------------------------------
Name:
Title:
THE CYNARA COMPANY
By: /s/ Ralph M. Kelly
------------------------------------
Name: Ralph M. Kelly
Title: Chief Executive Officer
THE DESIGNATED COMPANY STOCKHOLDERS
/s/ William R. Dimeling
------------------------------------
William R. Dimeling
/s/ Robert J. Hamaker
------------------------------------
Robert J. Hamaker
/s/ Douglas P. Heller
------------------------------------
Douglas P. Heller
/s/ George K. Hickox, Jr.
------------------------------------
George K. Hickox, Jr.
/s/ Ralph M. Kelley
------------------------------------
Ralph M. Kelly
AGREEMENT AND PLAN OF MERGER
-53-
<PAGE> 59
/s/ Steven G. Park
------------------------------------
Steven G. Park
/s/ Richard R. Schreiber
------------------------------------
Richard R. Schreiber
/s/ John C. Tuten, Jr.
------------------------------------
John C. Tuten, Jr.
THE 1998 TRUST FOR JODY SMITH HAMAKER
By: /s/ Jody Smith Hamaker
----------------------------------
Name: Jody Smith Hamaker
--------------------------------
Title: Trustee
-------------------------------
BANC ONE CAPITAL PARTNERS II, LTD.
By: /s/ Suzanne B. Kriscunas
----------------------------------
Name: Suzanne B. Kriscunas
Title: Authorized Signer
AGREEMENT AND PLAN OF MERGER
-54-
<PAGE> 60
ANNEX A
SCHEDULE OF DEFINED TERMS
The following terms when used in the Agreement shall have the meanings
set forth below unless the context shall otherwise require:
"Accelerated Additional Shares" shall mean that number of shares of
Acquiror Common Stock (not less than zero) that is equal to 90% of the Estimated
Gross Margin expressed in dollars on all Awarded Project Contracts divided by
$49.75, less any Conditional Accelerated Additional Shares.
"Accelerated Earnout Shares" shall mean the Accelerated Additional
Shares divided by the number of shares of Company Common Stock outstanding at
the Effective Time (after giving effect to the exercise of the Warrants).
"Accelerated Payout Date" shall mean May 31, 2000.
"Acquiror" shall mean Cummings Point Industries, Inc., a Delaware
corporation, and its successors from time to time.
"Acquiror Common Stock" shall mean the common stock, par value $0.01
per share, of the Acquiror.
"Acquiror Companies" shall have the meaning ascribed to such term in
the first paragraph of this Agreement.
"Acquiror's Audited Consolidated Financial Statements" shall mean the
consolidated balance sheets of the Acquiror and its Subsidiaries as of March 31,
1996 and the related consolidated statements of operations and cash flows for
the fiscal years ended March 31, 1995 and 1996, together with the notes thereto,
all as audited by KPMG Peat Marwick LLP, independent accountants, under their
report with respect thereto dated June 27, 1997.
"Acquiror's Consolidated Balance Sheet" shall mean the consolidated
balance sheet of the Acquiror as of December 31, 1997 included in the Acquiror's
Unaudited Consolidated Financial Statements.
"Acquiror's Consolidated Financial Statements" shall mean the
Acquiror's Audited Consolidated Financial Statements and the Acquiror's
Unaudited Consolidated Financial Statements.
"Acquiror's Disclosure Letter" shall mean a letter of even date
herewith delivered by the Acquiror to the Company with the execution of the
Agreement, which, among other things, shall identify exceptions to the
Acquiror's representations and warranties contained in Article V by specific
section and subsection references.
<PAGE> 61
"Acquiror's Unaudited Consolidated Financial Statements" shall mean the
unaudited consolidated balance sheet of the Acquiror and its Subsidiaries as of
December 31, 1997 and the related consolidated statements of operations and cash
flows for the fiscal quarters ended December 31, 1996 and December 31, 1997,
together with the notes thereto.
"Acquiror Option Plan" shall mean the Acquiror's Non-Employee Directors
Stock Option Plan and the Acquiror's Employee Stock Incentive Plan.
"Acquiror Stock Options" shall mean stock options granted pursuant to
the Acquiror Option Plans, as well as the individual employee issued otherwise
than pursuant to a plan but that are set forth in Section 5.03(b) of the
Acquiror's Disclosure Letter.
"Additional Shares" shall mean that number of shares of Acquiror Common
Stock (not less than zero) that is equal to the Earned Gross Margin expressed in
dollars on all Awarded Project Contracts divided by $49.75 less any Accelerated
Additional Shares and any Conditional Accelerated Additional Shares.
"Affiliate" shall, with respect to any Person, mean any other Person
that controls, is controlled by or is under common control with the former.
"Agreement" shall mean the Agreement and Plan of Merger made and
entered into as of March __, 1998 among the Acquiror, Newco and the Company,
including any amendments thereto and each Annex (including this Annex A) and
Schedule thereto (including the Acquiror's Disclosure Letter and the Company's
Disclosure Letter).
"Award Date" shall mean the date of receipt of the purchase order or
commitment that, with respect to the definition of Awarded Project Contract,
constitutes an Awarded Project Contract.
"Awarded Project Contract" shall mean the receipt, on or prior to March
31, 2000, of (i) a purchase order related to a Project Contract, (ii) a
commitment related to a Project Contract, e.g., a letter of intent, and work is
commenced on the project substantially in accordance with the schedule
contemplated by the commitment; provided, that a purchase order is subsequently
received and accepted or (iii) a commitment with respect to the design
engineering phase of a Project Contract and work is commenced on the project
substantially in accordance with the schedule contemplated by the commitment;
provided, that, in the case of clause (iii), a purchase order on the remaining
phase is received within six months thereafter
"Benefit Plans" shall mean, with respect to a specified Person, any
employee pension benefit plan (whether or not insured), as defined in Section
3(2) of ERISA, any employee welfare benefit plan (whether or not insured) as
defined in Section 3(1) of ERISA, any plans that would be employee pension
benefit plans or employee welfare benefit plans if they were subject to ERISA,
such as foreign plans and plans for directors, any stock bonus, stock ownership,
stock option, stock purchase, stock appreciation rights, phantom stock or other
stock plan (whether qualified or nonqualified), and any bonus or incentive
compensation plan sponsored, maintained, or contributed to by the specified
AGREEMENT AND PLAN OF MERGER
ANNEX A-2
<PAGE> 62
Person or any of its Subsidiaries for the benefit of any of the present or
former directors, officers, employees, agents, consultants or other similar
representatives providing services to or for the specified Person or any of its
Subsidiaries in connection with such services or any such plans which have been
so sponsored, maintained, or contributed to within six years prior to the date
of this Agreement; provided, however, that such term shall not include (a)
routine employment policies and procedures developed and applied in the ordinary
course of business and consistent with past practice, including wage, vacation,
holiday and sick or other leave policies, (b) workers compensation insurance and
(c) directors and officers liability insurance.
"BOCP" shall mean Banc One Capital Partners II, LTD as the holder of
the Warrants.
"Business Day" means any day other than a day on which banks in the
State of Texas are authorized or obligated to be closed;
"Certificate of Merger" shall have the meaning ascribed to such term
in Section 2.04.
"Closing" shall mean a meeting, which shall be held in accordance with
Section 3.03, of all Persons interested in the transactions contemplated by the
Agreement at which all documents deemed necessary by the parties to the
Agreement to evidence the fulfillment or waiver of all conditions precedent to
the consummation of the transactions contemplated by the Agreement are executed
and delivered.
"Closing Date" shall mean the date of the Closing as determined
pursuant to Section 3.03.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and Regulations promulgated thereunder.
"Commission" shall mean the Securities and Exchange Commission.
"Company" shall mean The Cynara Company, a Delaware corporation, and
its successors from time to time.
"Company Common Stock" shall mean both the Class A common stock, par
value $0.001 per share, and the Class B common stock, par value $0.001 per
share, of the Company.
"Company Participants" shall have the meaning ascribed to such term in
Section 7.08 herein.
"Company Stockholders Agreement" shall mean that certain Stockholders
Agreement dated July 1, 1996 by and among the Company, BOCP and the stockholders
of the Company.
"Company's Audited Consolidated Financial Statements" shall mean the
consolidated balance sheets of the Company and its Subsidiaries as of December
31, 1997 and the related consolidated and combined statements of operations and
cash flows for the fiscal years ended December 31 1996 and December 31, 1997,
together with the notes thereto, all as audited by Ernst
AGREEMENT AND PLAN OF MERGER
ANNEX A-3
<PAGE> 63
& Young LLP, independent accountants, under their report with respect thereto
dated March 11, 1998.
"Company's Consolidated Balance Sheet" shall mean the consolidated
balance sheet of the Company as of September 30, 1997 included in the Company's
Unaudited Consolidated Financial Statements.
"Company's Consolidated Financial Statements" shall mean the Company's
Audited Consolidated Financial Statements and the Company's Unaudited
Consolidated Financial Statements.
"Company's Disclosure Letter" shall mean a letter of even date herewith
delivered by the Company to the Acquiror Companies concurrently with the
execution of the Agreement, which, among other things, shall identify exceptions
to the Company's representations and warranties contained in Article IV by
specific section and subsection references.
"Company's Unaudited Consolidated Financial Statements" shall mean the
unaudited consolidated balance sheet of the Company and its Subsidiaries as of
September 30, 1997 and the related consolidated statements of operations and
cash flows for the three months periods ended September 30, 1996 and September
30, 1997, together with the notes thereto.
"Conditional Accelerated Additional Shares" shall mean that number of
shares of Acquiror Common Stock that is equal to 75% of the Estimated Gross
Margin expressed in dollars on the CTOC Project Contract if it shall become an
Awarded Project Contract divided by $49.75.
"Conditional Accelerated Earnout Shares" shall mean the Conditional
Accelerated Additional Shares divided by the number of shares of Company Common
Stock outstanding at the Effective Time (after giving effect to the exercise of
the Warrants).
"Conditional Accelerated Payout Date" shall mean the 30th Business Day
following the award of the CTOC Project Contract if it shall become an Awarded
Project Contract.
"Confidentiality Agreement" shall mean that certain confidentiality
agreement between the Acquiror and the Company dated December 11, 1997.
"Constituent Corporations" shall mean the Company and Newco.
"control" (including the terms "controlled," "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise.
"Corporate Statute" shall mean the General Corporation Law of the
State of Delaware.
AGREEMENT AND PLAN OF MERGER
ANNEX A-4
<PAGE> 64
"Court" shall mean any court or arbitration tribunal of the United
States, any foreign country or any domestic or foreign state, and any political
subdivision thereof.
"CTOC" shall mean the Carigali-Triton Operating Company Cakerawala
Project.
"Current Benefit Plans" shall mean Benefit Plans that are sponsored,
maintained, or contributed to by a specified Person or any of its Subsidiaries
as of the date of this Agreement.
"Current Market Price" shall mean the closing sales price per share on
the date of determination on the principal national securities exchange on which
the Common Stock is admitted for trading or, if the Common Stock is not traded
on such date, the average of the low asked and high bid prices per share of
Common Stock on such exchange on such dates, or, if the Common Stock is not then
admitted for trading on any national securities exchange, the average of the low
asked and high bid prices per share on the date of determination in the
over-the-counter market as reported by a securities brokerage firm of national
reputation.
"Designated Company Stockholders" shall mean those holders of Company
Common Stock (including BOCP) who have executed and delivered this Agreement for
the limited purpose of joining in the mutual covenants contained in Article IX
herein and to enforce provisions of Article IX as contemplated therein and who
shall have the right to become a party to the Registration Rights Agreement
pursuant to Sections 6.05 and 8.01(h) herein.
"Direct Costs" shall mean all the following costs:
o Cost of purchased materials and services including
inbound freight if applicable
o Cost of membrane elements as calculated on a
fully-absorbed facility basis applied evenly to all
production, excluding depreciation
o Engineering and drafting costs as allocated on a
fully-burdened hourly basis related to the Awarded
Project Contract (burden to include indirect hours,
vacation and sick time, overtime premium, fringe
benefits, office space rental, other allocated office
costs, office supplies, computer hardware and
software costs, automobile costs, travel and
entertainment costs, and training costs)
o Commissions paid to internal and external parties
o Direct project related financing costs including fees
and interest for letters of credit and bonds
o Project-specific insurance
o Duties on import of U.S. goods
o Warranty charge equal to 0.5% of project revenue;
provided, however, that costs related to charges by Affiliates of the Company
solely for purposes of this calculation will be competitive.
AGREEMENT AND PLAN OF MERGER
ANNEX A-5
<PAGE> 65
"Earned Gross Margin" shall mean the actual Gross Margin, expressed in
dollars, earned on an Awarded Project Contract as determined on March 31, 2001,
together with a good faith estimate of the remaining Gross Margin, expressed in
dollars, to be earned thereon after such date.
"Earnout Shares" shall mean the number of Additional Shares divided by
the number of shares of Company Common Stock outstanding at the Effective Time
(after giving effect to the exercise of the Warrants).
"Effective Time" shall mean the date and time of the completion of the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with Section 2.02.
"Environmental Law or Laws" shall mean any and all laws, statutes,
ordinances, rules, regulations, or orders of any Governmental Authority
pertaining to health or the environment currently in effect and applicable to a
specified Person and its Subsidiaries, including the Clean Air Act, as amended,
the Comprehensive Environmental, Response, Compensation, and Liability Act of
1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe
Drinking Water Act, as amended, the Toxic Substances Control Act, as amended,
the Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, the Oil Pollution Act of 1990, as amended
("OPA"), any state or local Laws implementing the foregoing federal Laws, and
all other environmental conservation or protection Laws. For purposes of the
Agreement, the terms "hazardous substance" and "release" have the meanings
specified in CERCLA; provided, however, that to the extent the Laws of the state
or locality in which the property is located establish a meaning for "hazardous
substance" or "release" that is broader than that specified in CERCLA, such
broader meaning shall apply within the jurisdiction of such state or locality,
and the term "hazardous substance" shall include all dehydration and treating
wastes, waste (or spilled) oil, and waste (or spilled) petroleum products, and
(to the extent in excess of background levels) radioactive material, even if
such are specifically exempt from classification as hazardous substances
pursuant to CERCLA or RCRA or the analogous statutes of any jurisdiction
applicable to the specified Person or its Subsidiaries or any of their
respective properties or assets.
"Equity Securities" shall mean, with respect to a specified Person, any
shares of capital stock of, or other equity interests in, or any securities that
are convertible into or exchangeable for any shares of capital stock of, or
other equity interests in, or any outstanding options, warrants or rights of any
kind to acquire any shares of capital stock of, or other equity interests in,
such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the Regulations promulgated thereunder.
"Estimated Gross Margin" shall mean the Gross Margin expressed in
dollars to be derived from an Awarded Project Contract, as estimated in good
faith by the Acquiror.
AGREEMENT AND PLAN OF MERGER
ANNEX A-6
<PAGE> 66
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the Regulations promulgated thereunder.
"Exchange Agent" shall mean a bank or trust company having a net worth
in excess of $100 million designated and appointed to act in the capacities
required thereof under Section 3.02.
"Exchange Fund" shall mean the fund of Acquiror Common Stock and cash
comprising the Merger Consideration Per Share of Company Common Stock in the
aggregate, cash in lieu of fractional share interests and dividends and
distributions, if any, with respect to such shares of Acquiror Common Stock
established at the Exchange Agent pursuant to Section 3.02.
"Expenses" shall mean all reasonable out-of-pocket expenses (including
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the Registration
Rights Agreement, the solicitation of stockholder approvals and all other
matters related to the consummation of the transactions contemplated hereby.
"Financing Registration Statement" shall have the meaning ascribed to
such term in Subsection 7.02(a).
"GAAP" shall mean accounting principles generally accepted in the
United States consistently applied by a specified Person.
"Governmental Authority" shall mean any governmental agency or
authority (other than a Court) of the United States, any foreign country, or any
domestic or foreign state, and any political subdivision or agency thereof, and
shall include any multinational authority having governmental or
quasi-governmental powers.
"Gross Margin" shall mean all revenue derived from an Awarded Project
Contract less all Direct Costs associated with such Awarded Project Contract.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the Regulations promulgated thereunder.
"Initial Offering Price" shall mean the initial public offering price
per share of Acquiror Common Stock set forth on the cover page of the Prospectus
included in the Financing Registration Statement on the effective date thereof
as declared by the Commission under the Securities Act.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" shall mean, with respect to either the Company or the
Acquiror, the knowledge (obtained after reasonable inquiry) of any executive
officer of such party.
AGREEMENT AND PLAN OF MERGER
ANNEX A-7
<PAGE> 67
"Law" shall mean all laws, statutes, ordinances and Regulations of the
United States, any foreign country, or any domestic or foreign state, and any
political subdivision or agency thereof, including all decisions of Courts
having the effect of law in each such jurisdiction.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing), any conditional sale or other title retention agreement, any lease
in the nature thereof or the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction.
"Material" shall mean material to the condition (financial and other),
results of operations or business of a specified Person and its Subsidiaries, if
any, taken as a whole; provided, however, that, as used in this definition the
word "material" shall have the meaning accorded thereto in Section 11 of the
Securities Act.
"Material Adverse Effect" shall mean any change or effect that would be
material and adverse to the consolidated business, condition (financial or
otherwise), operations, performance or properties (but excluding any outstanding
capital stock or other securities) of a specified Person and its Subsidiaries,
if any, taken as a whole; provided, however, that, as used in this definition
the word "material" shall have the meaning accorded thereto in Section 11 of the
Securities Act. Notwithstanding anything herein to the contrary, if the Company
is not awarded any Project Contract in Southeast Asia, such circumstance shall
not constitute a Material Adverse Effect on the Company.
"Material Contract" shall mean each contract, lease, indenture,
agreement, arrangement or understanding to which a specified Person or any of
its Subsidiaries is a party or to which any of the assets or operations of such
specified Person or any of its Subsidiaries is subject that is of a type that
would be required to be included as an exhibit to a registration statement on
Form S-1 pursuant to Paragraph (2), (4), (10) or (14) of Item 601(b) of
Regulation S-K under the Securities Act if such a registration statement were to
be filed by such Person under the Securities Act on the date of determination.
Notwithstanding the foregoing, such term shall, in the case of the Company,
include any of the following contracts, agreements or commitments, whether oral
or written:
(1) Any collective bargaining agreement or other
agreement with any labor union;
(2) any agreement, contract or commitment with any other
Person, other than any agency or representation entered in the ordinary
course of business, containing any covenant limiting the freedom of
such specified Person or any of its Subsidiaries to engage in any line
of business or to compete with any other Person;
(3) any partnership, joint venture or profit sharing agreement
with any Person, which partnership, joint venture or profit sharing
agreement generated revenues during its most recently completed fiscal
year of $100,000 or more;
(4) any employment or consulting agreement, contract or
commitment between the Company or any of its Subsidiaries and any
employee, officer or director thereof
AGREEMENT AND PLAN OF MERGER
ANNEX A-8
<PAGE> 68
(i) having more than one year to run from the date hereof, (ii)
providing for an obligation to pay or accrue compensation of $100,000
or more per annum or (iii) providing for the payment or accrual of any
additional compensation upon a change in control of such Person or any
of its Subsidiaries or upon any termination of such employment or
consulting relationship following a change in control of such Person or
any of its Subsidiaries; and
(5) any agency or representation agreement with any Person
which is not terminable by the Company or one of its Subsidiaries
without penalty upon not more than one year's notice;
"Merger" shall mean the merger of the Company with an into Newco as
provided in Article II of this Agreement.
"Merger Consideration" shall mean the aggregate Merger Consideration
Per Share of Company Common Stock payable pursuant to Section 3.01 herein with
respect to a specific number of shares of Company Common Stock.
"Merger Consideration Per Share of Company Common Stock" shall mean the
number of shares of Acquiror Common Stock, the right to receive an amount of
cash and the right to receive the Earnout Shares into which each share of
Company Common Stock is to be converted pursuant to the Merger as provided in
Section 3.01(a).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Newco" shall mean Natco Acquisition Company, a Delaware corporation
and a wholly-owned Subsidiary of the Acquiror.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Order" shall mean any judgment, order or decree of any Court or
Governmental Authority, federal, foreign, state or local.
"Payout Date" shall mean May 31, 2001.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permit" shall mean any and all permits, licenses, authorizations,
orders, certificates, registrations or other approvals granted by any
Governmental Authority.
"Permitted Encumbrances" shall mean the following:
(1) liens for taxes, assessments and other governmental
charges not delinquent or which are currently being contested in good
faith by appropriate proceedings; provided
AGREEMENT AND PLAN OF MERGER
ANNEX A-9
<PAGE> 69
that, in the latter case, the specified Person or one of its
Subsidiaries shall have set aside on its books adequate reserves with
respect thereto;
(2) mechanics' and materialmen's liens not filed of record and
similar charges not delinquent or which are filed of record but are
being contested in good faith by appropriate proceedings; provided
that, in the latter case, the specified Person or one of its
Subsidiaries shall have set aside on its books adequate reserves with
respect thereto;
(3) liens in respect of judgments or awards with respect to
which the specified Person or one of its Subsidiaries shall in good
faith currently be prosecuting an appeal or other proceeding for review
and with respect to which such Person or such Subsidiary shall have
secured a stay of execution pending such appeal or such proceeding for
review; provided that, such Person or such Subsidiary shall have set
aside on its books adequate reserves with respect thereto;
(4) easements, leases, reservations or other rights of others
in, or minor defects and irregularities in title to, property or assets
of a specified Person or any of its Subsidiaries; provided that, such
easements, leases, reservations, rights, defects or irregularities do
not materially impair the use of such property or assets for the
purposes for which they are held; and
(5) any lien or privilege vested in any lessor, licensor or
permittor for rent or other obligations of a specified Person or any of
its Subsidiaries thereunder so long as the payment of such rent or the
performance of such obligations is not delinquent.
(6) the Lien of Banc One, Texas, N.A. on all assets of the
Company.
"Person" shall mean an individual, partnership, limited liability
company, corporation, joint stock company, trust, estate, joint venture,
association or unincorporated organization, or any other form of business or
professional entity, but shall not include a Governmental Authority.
"Project Contract" shall mean a contract to supply a new membrane
system, including all or part of the responsibilities for design, manufacture,
delivery and startup of membranes and related equipment, where the destination
of such membrane system is Southeast Asia; provided, however, that this
definition shall not include long term service and parts contracts except to the
extent they relate to spare parts ordered in conjunction with the original
contract.
"Prospectus" shall mean the prospectus included in the Financing
Registration Statement at the time the Financing Registration Statement is
declared effective and as thereafter amended or supplemented.
"Public Offering" shall mean the initial public offering of Acquiror
Common Stock contemplated by the Financing Registration Statement.
AGREEMENT AND PLAN OF MERGER
ANNEX A-10
<PAGE> 70
"Registration Rights Agreement" shall mean an agreement among the
Acquiror and the Designated Company Stockholders pursuant to which the Acquiror
agrees to provide rights of registration of the offering, sale and delivery of
shares of Acquiror Common Stock under the registration provisions of the
Securities Act which shall give effect to the terms included on the Terms Sheet
attached hereto as Annex C.
"Regulation" shall mean any rule or regulation of any Governmental
Authority having the effect of law.
"Reports" shall mean, with respect to a specified Person, all reports,
registrations, filings and other documents and instruments required to be filed
by the specified Person or any of its Subsidiaries with any Governmental
Authority.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the Regulations promulgated thereunder.
"Securities Exchange Agreement" shall mean that certain agreement dated
March 5, 1998 between the Acquiror and the Stockholders providing for the
issuance by the Company of an aggregate of 1,479,258 shares of Acquiror Common
Stock in exchange for $7,444,365 in aggregate principal amount of 13%
Subordinated Notes Due 2000.
"Southeast Asia" shall mean the countries and territorial waters
included in the area bounded by and including Australia to the south, the
Philippines to the east, China to the north and Pakistan to the west.
"Significant Subsidiary" means any Subsidiary of the Company or
Acquiror, as the case may be, that would constitute a Significant Subsidiary of
such party within the meaning of Rule 1-02 of Regulation S-X of the Commission.
"Stockholders" shall mean Capricorn Investors, Ltd., a Delaware limited
partnership, and Capricorn Investors II, Ltd., a Delaware limited partnership.
A "Subsidiary" of a specified Person shall be any corporation,
partnership, limited liability company, joint venture or other legal entity of
which the specified Person (either alone or through or together with any other
Subsidiary) owns, directly or indirectly, 50 percent or more of the stock or
other equity or partnership interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
"Stockholder's Letter" shall mean a letter in form and substance
substantially similar to the form thereof attached hereto as Annex B.
"Stockholders' Meeting" shall have the meaning ascribed to such term
in Subsection 7.01(a).
"Surviving Corporation" shall mean Newco as the corporation surviving
the Merger.
AGREEMENT AND PLAN OF MERGER
ANNEX A-11
<PAGE> 71
"Tax Returns" shall mean all returns and reports of or with respect to
any Tax which are required to be filed by or with respect to the Company or any
of its Subsidiaries.
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes, ad valorem
taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with
respect to gross receipts, premiums, real property, personal property, windfall
profits, sales, use, transfers, licensing, employment, payroll and franchises
imposed by or under any Law; and such terms shall include any interest, fines,
penalties, assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute thereof.
"Terminated Benefit Plans" shall mean Benefit Plans that were
sponsored, maintained, or contributed to by a specified Person or any of its
Subsidiaries within six years prior to the date of this Agreement but which have
been terminated prior to the date of this Agreement.
"Warrants" shall mean those certain warrants to purchase Company Common
Stock issued by the Company and those options granted by stockholders of the
Company, in each case held by BOCP as described in Section 4.03(b) of the
Company's Disclosure Letter.
AGREEMENT AND PLAN OF MERGER
ANNEX A-12
<PAGE> 72
ANNEX B
STOCKHOLDER'S LETTER
[Date]
NATCO Group Inc.
Brookhollow Central III
2950 North Loop West, Suite 750
Houston, Texas 77092
Ladies and Gentlemen:
The undersigned is a holder of Class A Common Stock of The Cynara
Company, a Delaware corporation (the "Company"). Pursuant to the terms and
subject to the conditions of that certain Agreement and Plan of Merger by and
among NATCO Group Inc., a Delaware corporation (the "Acquiror"), Natco
Acquisition Company, a newly formed Delaware corporation and a wholly owned
Subsidiary of the Acquiror ("Newco"), and the Company dated as of March __, 1998
(the "Merger Agreement"), providing for, among other things, the merger of the
Company with and into Newco (the "Merger"), the undersigned will be entitled to
receive shares of Acquiror Common Stock in exchange for shares of Company Common
Stock owned by the undersigned at the Effective Time of the Merger as determined
pursuant to the Merger Agreement. Capitalized terms used but not defined herein
are defined in Annex A to the Merger Agreement and are used herein with the same
meanings as ascribed to them therein.
The undersigned hereby represents that the undersigned the beneficial
owner of the shares of Company Common Stock of which it is the record owner on
the stock record books of the Company as of the date hereof and is an
"accredited investor" within the meaning of such term as defined in Rule 501 of
the General Rules and Regulations under the Securities Act. The undersigned
acknowledges receipt of a draft dated March ___, 1998 of a Registration
Statement on Form S-1 of NATCO Group Inc. to be filed with the Commission under
the Securities Act.
The undersigned has been advised that the offering, sale and delivery
of the shares of Acquiror Common Stock to be received by the undersigned
pursuant to the Merger will not have been registered with the Commission under
the Securities Act and that, therefore, such shares of Acquiror Common Stock may
not be resold by the undersigned unless the offering, sale and delivery of such
shares are so registered under the Securities Act or an exemption from such
registration is available. In that regard, the undersigned represents that the
undersigned is acquiring the shares of Acquiror Common Stock to be received by
the undersigned pursuant to the Merger without a view to the distribution
thereof within the meaning of such term as used in the Securities Act and Rule
144 of the General Rules and Regulations thereunder.
The undersigned understands that instructions will be given to the
transfer agent for the Acquiror Common Stock with respect to the Acquiror Common
Stock to be received by the undersigned pursuant to the Merger and that there
will be placed on the certificates representing such
AGREEMENT AND PLAN OF MERGER
ANNEX B-1
<PAGE> 73
shares of Acquiror Common Stock, or any substitutions therefor, a legend stating
in substance as follows:
"These shares were issued in a transaction in which the offering, sale
and delivery thereof were not registered under the Securities Act of
1933, as amended, in reliance on an exemption from such registration
requirement. These shares may only be sold or otherwise transferred in
a transaction in which the offering, sale and delivery thereof are
registered under such Act or for which an exemption from such
registration requirement is provided by such Act.
It is understood and agreed that the legend set forth above shall be removed
upon surrender of certificates bearing such legend by delivery of substitute
certificates without such legend if the undersigned shall have delivered to the
Acquiror an opinion of counsel, in form and substance reasonably satisfactory to
the Acquiror, to the effect that (i) the sale or disposition of the shares
represented by the surrendered certificates may be effected without registration
of the offering, sale and delivery of such shares under the Securities Act and
(ii) the shares to be so transferred may be publicly offered, sold and delivered
by the transferee thereof without compliance with the registration provisions of
the Securities Act.
By its execution hereof, the Acquiror agrees that it will, from and
after the Effective Time of the Merger and for so long as the undersigned owns
any shares of Acquiror Common Stock to be received by the undersigned pursuant
to the Merger that are subject to the restrictions on sale, transfer or other
disposition herein set forth, take all reasonable efforts to make timely filings
with the Commission of all reports required to be filed by it pursuant to the
Exchange Act and will promptly furnish upon written request of the undersigned a
written statement confirming that such reports have been so timely filed.
If you are in agreement with the foregoing, please so indicate by
signing below and returning a copy of this letter to the undersigned, at which
time this letter shall become a binding agreement between us.
Very truly yours,
By:
------------------------------------
Name:
Title:
Date:
Address:
ACCEPTED this ___ day
of __________, 1998
NATCO Group Inc.
By:
Name:
Title:
AGREEMENT AND PLAN OF MERGER
ANNEX B-2
<PAGE> 74
ANNEX C
TERMS SHEET FOR REGISTRATION RIGHTS AGREEMENT
1. Parties: The Acquiror, the Stockholders and the Designated Company
Stockholders.
2. Issuer: The registration rights are to be granted by the Acquiror.
3. Number of "Demand" rights: One.
4. Number of shares of Acquiror Common Stock required to "trigger" a
"Demand" right: 250,000
5. Number of "Piggy-Back" rights: Unlimited.
6. Demand and Piggy-Back rights shall apply only to firmly underwritten
offerings of Acquiror Common Stock for cash.
7. The Acquiror shall have the right to decline a Demand request for up to
60 days if the Acquiror in good faith in possession of material inside
information the premature publication of which would adversely affect
the Acquiror.
8. Expenses: All expenses related to the registration statement process
shall be for the account of the Acquiror, including legal fees and
expenses of counsel to the selling stockholders in connection with a
"demand" registration statement, but excluding underwriting discounts
and commissions, legal fees and expenses of counsel to any selling
stockholder in connection with the exercise of a "piggy-back" right
and stamp or transfer taxes applicable to the sale of shares by any
selling stockholder.
9. The Registration Rights Agreement shall reflect, on a "most favored
nation" basis, any rights granted to any other stockholders of the
Company between the date of this Agreement and the date of the
Registration Rights Agreement except that the number of "demand" rights
shall not be increased and the requirement that "demand" and
"piggy-back" rights shall apply only to formerly underwritten offerings
of Acquiror Common Stock for cash shall not be varied as a result of
the grant to any other stockholders of the Company of a registration
right with respect to a distribution of Common Stock by a limited
partnership to its partners.
AGREEMENT AND PLAN OF MERGER
ANNEX B-3
<PAGE> 1
EXHIBIT 2.2
================================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
ENTERRA PETROLEUM EQUIPMENT GROUP, INC.,
AND
NATIONAL TANK COMPANY
AND JOINED HEREIN FOR THE LIMITED PURPOSES HEREINAFTER SET FORTH BY
WEATHERFORD ENTERRA, INC.
MAY 7, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Transfer of Shares to Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Transfer Taxes and Recording Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Corporate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Capital Stock and Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Validity of Agreement and Conflict with Other Instruments . . . . . . . . . . . . . . . . 5
2.4 Approvals and Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.9 No Adverse Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.10 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.11 Warranties and Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.12 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.14 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.15 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.16 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.17 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.18 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
REPRESENTATIONS AND WARRANTIES OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Corporate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Approvals and Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Financing Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Cooperation; Record Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.3 Repurchase of Uncollected Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . 17
4.4 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 Proprietary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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4.6 Use of Corporate Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 Conduct of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.8 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.9 Governmental Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.10 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
JOINT CONDITIONS TO THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Laws, Regulations and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 No Restraining Order; Absence of Certain Actions . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
BUYER'S CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Consents of Third Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.7 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.8 Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SELLER'S CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.3 Receipt of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.4 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.1 Survival Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.2 Indemnification by the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 Indemnification by the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.4 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.5 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.6 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.7 Failure to Pay Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8 Adjustment of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.10 Express Negligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.2 Liability Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 Notice of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
DEFINITIONS OF CERTAIN TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.1 Tax Returns for Pre-Closing Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.2 Tax Returns for Post-Closing Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.3 Allocation of Franchise Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.4 Preparation of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.1 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.9 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.12 Negotiated Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
JOINDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into this 7th day of
May, 1997, by and between Enterra Petroleum Equipment Group, Inc., a Delaware
corporation (the "Seller"), and National Tank Company, a Delaware corporation
(the "Buyer"), and joined herein for the limited purposes hereinafter set forth
by Weatherford Enterra, Inc., a Delaware corporation ("Weatherford").
W I T N E S S E T H :
WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock of Total Engineering Services Team, Inc., a Louisiana corporation
(the "Company"), which, together with the Subsidiaries, operates the Business;
WHEREAS, the Seller desires to sell, and the Buyer desires to acquire,
all the issued and outstanding shares of capital stock of the Company;
WHEREAS, in connection with such transaction, the parties hereto
desire to set forth certain representations, warranties and agreements, all as
more fully set forth below; and
WHEREAS, capitalized terms used but not defined in the textual
provisions of this Agreement are defined in Article 10 herein and are used
herein with the meanings ascribed to them therein.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 Transfer of Shares to Buyer. Subject to the terms and
conditions of this Agreement and in consideration of the obligations of the
Buyer as provided herein, at the Closing, the Seller shall sell, assign,
transfer and deliver to the Buyer, and the Buyer shall purchase and acquire
from the Seller, good title, free and clear of any Liens, to all of the issued
and outstanding shares (the "Shares") of Common Stock, par value $10.00 per
share.
1.2 Consideration. Subject to the terms and conditions of this
Agreement and in consideration of the obligations of the Seller as provided
herein, the Buyer shall pay the Cash Purchase Price as follows:
(a) At the Closing, the Buyer shall deliver to the Seller
cash in the amount of $22,475,000 (the "Closing Payment").
-1-
<PAGE> 6
(b) Pursuant to the provisions of Section 1.4 hereof, as
appropriate,
(i) the Buyer shall deliver to the Seller cash
equal to the amount by which the Cash Purchase Price exceeds
the Closing Payment; or
(ii) the Seller shall deliver to the Buyer cash
equal to the amount by which the Closing Payment exceeds the
Cash Purchase Price.
(c) Payments of the Closing Payment and the amount due
and payable pursuant to the provisions of Section 1.4 hereof shall be made in
same day funds by wire transfer to such account and at such location as the
Seller or the Buyer, as the case may be, may reasonably direct by notice
received by the payor at least two Business Days before the Closing Date or the
date payment is due and payable pursuant to the provisions of Section 1.4
hereof, as the case may be.
(d) The parties hereto acknowledge that, in determining
the Cash Purchase Price, the parties have ascribed no consideration to the
consolidated cash and cash equivalents of the Company and the Subsidiaries as
of the Closing Date. Accordingly, notwithstanding anything contained in this
Agreement to the contrary, at the Closing the Company shall pay to the Seller
an amount equal to the cash and cash equivalents of the Company as of the
Closing Date. No such payment shall be deemed to be a part of the Cash
Purchase Price. From and after the Closing, all cash and cash equivalents
received or acquired by the Company shall be for the account of the Company
and, indirectly as the owner of all the outstanding capital stock of the
Company, the Buyer.
(e) The parties hereto further acknowledge that, in
determining the Cash Purchase Price, the parties have ascribed no consideration
to any net consolidated intercompany account payable (an "Intercompany
Payable") by the Company and the Subsidiaries to the Seller or any Affiliate of
the Seller or to any net consolidated intercompany account receivable (an
"Intercompany Receivable") of the Company and the Subsidiaries from the Seller
or any Affiliate of the Seller that may exist on the Closing Date.
Accordingly, notwithstanding any provision in this Agreement to the contrary,
at the time of the payment contemplated by Section 1.4 hereof, the Company
shall forgive any Intercompany Receivable and the Seller shall forgive any
Intercompany Payable.
1.3 Closing. Subject to the conditions set forth in this
Agreement, the Closing shall take place at the offices of Fulbright & Jaworski
L.L.P., located at 1301 McKinney, Houston, Texas, at such time, date and place
as the parties hereto shall mutually agree upon in writing (the "Closing
Date"). At the Closing, the Seller shall deliver to the Buyer a certificate or
certificates evidencing the Shares, together with stock powers for the same
duly executed in blank by the Seller, and the parties hereto shall deliver all
other documents reasonably deemed necessary or desirable by the parties hereto
to evidence the fulfillment or waiver of all conditions precedent to
consummation of the transactions contemplated by this Agreement. Nothing
contained herein shall be deemed to require or permit the Buyer to purchase
less than all the
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<PAGE> 7
Shares. Failure to consummate the transactions contemplated hereby on such
date shall not result in a termination of this Agreement or relieve any party
hereto of any obligation hereunder. Title to and ownership of the Shares, and
control over and risk of loss with respect to the Shares and the Business,
shall pass to the Buyer at the Closing.
1.4 Purchase Price Adjustment.
(a) Within 90 calendar days after the Closing Date, the
Buyer shall prepare and deliver to the Seller a statement as of the Closing
Date reflecting the Cash Purchase Price and the calculation thereof (the "Final
Statement"). The elements of the definition of Cash Purchase Price contained
in the Final Statement shall be derived from consolidated financial statements
of the Company and the Subsidiaries as of the Closing Date and for the period
commencing on January 1, 1997 and ended on the Closing Date (the "Company's
Closing Financial Statements"), which shall be prepared in accordance with
generally accepted accounting principles applied consistently with those used
to prepare the Company's Financial Statements; provided, however, that, for
purposes of determining the Cash Purchase Price, the assets consisting of any
cash and cash equivalents paid by the Company to the Seller pursuant to Section
1.2(d) hereof, any Intercompany Receivable to be forgiven pursuant to Section
1.2(e) hereof and the liability consisting of any Intercompany Payable to be
forgiven pursuant to Section 1.2(e) hereof shall be excluded from the Company's
Closing Financial Statements. The determination of the Cash Purchase Price
shall be consistent with the methodology exemplified in Annex A attached hereto
and that by this reference is incorporated herein. The Buyer shall provide the
Seller with access to copies of all work papers and other relevant documents to
verify the entries contained in the Final Statement. The Seller shall have a
period of 15 calendar days after delivery to it of the Final Statement to
review it and make any objections the Seller may have in writing to the Buyer.
If written objections to the Final Statement are delivered to the Buyer within
such 15 day period, then the Buyer and the Seller shall attempt to resolve the
matter or matters in dispute. If no written objections are made within the
time period provided above, the Buyer shall pay to the Seller, in accordance
with Section 1.2(c) hereof, the aggregate amount, if any, by which the Cash
Purchase Price exceeds the Closing Payment and the Seller shall pay to the
Buyer, in accordance with Section 1.2(c) hereof, the aggregate amount, if any,
by which the Closing Payment exceeds the Cash Purchase Price, in each case on
the third Business Day following the end of such 15 day period.
(b) If disputes exist with respect to the Final Statement
and cannot be resolved by the Buyer and the Seller within 15 calendar days
after the delivery of the objections to the Final Statement, then the specific
matters in dispute shall be submitted to such independent accounting firm as
may be approved by the Buyer and the Seller, which firm shall render its
opinion as to such matters. Based on such opinion, such independent accounting
firm will then send to the Buyer and the Seller its determination on the
specific matters in dispute, which determination shall be final and binding on
the parties hereto. On the third Business Day following delivery of such
opinion to the Buyer and the Seller, the Buyer shall pay to the Seller, in
accordance with Section 1.2(c) hereof, the aggregate amount, if any, by which
the Cash
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<PAGE> 8
Purchase Price exceeds the Closing Payment and the Seller shall pay to the
Buyer, in accordance with Section 1.2(c) hereof, the aggregate amount, if any,
by which the Closing Payment exceeds the Cash Purchase Price. The fees and
other costs charged by such independent accounting firm shall be borne by the
Buyer and the Seller equally.
1.5 Transfer Taxes and Recording Fees. The Buyer shall pay and
be responsible for the aggregate amount of all federal, state, county, local or
foreign sales, use, value added, transfer, stamp and other similar Taxes, and
transfer, recording or similar fees and charges, imposed in connection with or
as a result of the consummation of the transactions contemplated by this
Agreement. The Buyer hereby agrees to indemnify the Seller and its Affiliates
against, and agrees to protect, save and hold the Seller and its Affiliates
harmless from, any loss, liability, obligation or claim (whether or not
ultimately successful) for federal, state, county, local or foreign sales, use,
value added, transfer, stamp and other similar Taxes (and any interest,
penalties, additions to tax and fines thereon or related thereto), and
transfer, recording or similar fees and charges, imposed in connection with or
as a result of the consummation of the transactions contemplated by this
Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as otherwise set forth in the Disclosure Schedule, the Seller
represents and warrants to the Buyer as follows:
2.1 Corporate Matters.
(a) Weatherford, the Seller, the Company and each
Subsidiary are corporations duly incorporated, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation.
Each of the Company and the Subsidiaries has all requisite power and authority
under all applicable Laws, Regulations, Orders and Authorizations to own,
operate and lease its properties and assets and to carry on the Business in the
manner currently conducted, and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the properties owned or leased by it
or the business transacted by it requires it to be so licensed or qualified,
except where the failure to be so qualified or licensed would not have a
Material Adverse Effect. Each State in which the Company or a Subsidiary is
qualified to do business is listed in Section 2.1(a) of the Disclosure
Schedule. Weatherford and the Seller each has all requisite corporate power
and authority to enter into this Agreement and to perform its obligations under
this Agreement.
(b) True, correct and complete copies of the Articles of
Incorporation and the Bylaws, or similar corporate documents, of the Company
and each Subsidiary have been provided by the Seller to the Buyer, and such
Articles of Incorporation, Bylaws and similar corporate documents are in full
force and effect.
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<PAGE> 9
(c) The only subsidiaries of the Company are the
Subsidiaries. Neither the Company nor any Subsidiary controls, or owns any
investment in the equity of, any other Person.
(d) Set forth in Section 2.1(d) of the Disclosure
Schedule is a list of assumed names under which the Company and the
Subsidiaries operate the Business.
2.2 Capital Stock and Ownership.
(a) The total number of shares of capital stock, and the
classes and par values thereof, that each of the Company and the Subsidiaries
is authorized to issue and the numbers of such shares that are issued and
outstanding are as set forth in Section 2.2(a) of the Disclosure Schedule. No
shares of such capital stock are held in the treasury of the Company or any
Subsidiary and no shares of such capital stock are reserved for issuance by the
Company or any Subsidiary.
(b) The Shares (i) constitute all the issued and
outstanding shares of capital stock of the Company, (ii) are owned of record
and beneficially by the Seller, free and clear of any Liens and (iii) have been
duly authorized and validly issued, are fully paid and nonassessable and were
issued without violating the preemptive rights of any Person.
(c) All the issued and outstanding shares of capital
stock of each Subsidiary are owned of record and beneficially by the Company
and have been duly authorized and validly issued, are fully paid and
nonassessable, were issued without violating the preemptive rights of any
Person and are free and clear of any Liens.
(d) There are not outstanding any (i) securities of the
Company or any Subsidiary that are convertible into or exchangeable for any
shares of capital stock or other securities of the Company or any Subsidiary,
(ii) subscriptions, options, warrants or other rights obligating the Company or
any Subsidiary to issue, or entitling any third party to acquire from the
Company or any Subsidiary, any shares of capital stock or other securities of
the Company or any Subsidiary or (iii) other than this Agreement, agreements or
understandings with respect to the sale, assignment, transfer, pledge or voting
of, or dividends or distributions on, or relating to any other restriction or
limitation on the rights of a holder of, shares of capital stock of the Company
or any Subsidiary.
(e) There are no contracts, agreements, commitments or
arrangements obligating the Company or any Subsidiary to redeem, purchase or
acquire, or offer to purchase or acquire, any shares of, or any outstanding
option, warrant or right to purchase or acquire, or any securities that are
convertible into or exchangeable for, any shares of, any class of capital stock
of the Company.
2.3 Validity of Agreement and Conflict with Other Instruments.
(a) This Agreement, and all transactions contemplated
hereby, have been duly authorized and approved by all necessary corporate
action on the part of the
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<PAGE> 10
Seller. No further corporate action is necessary on the part of the Seller to
execute and deliver this Agreement or to perform its obligations hereunder,
including consummation of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Seller and is a legal, valid and
binding obligation of the Seller enforceable against the Seller in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect that affect creditors' rights generally and by legal and
equitable limitations on the availability of specific remedies. The execution,
delivery and performance of this Agreement by Weatherford for the limited
purposes herein expressed have been duly authorized and approved by all
necessary corporate action on the part of Weatherford, and this Agreement has
been duly executed and delivered by Weatherford for such limited purposes and
is a legal, valid and binding agreement of Weatherford for such purposes
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws from time to time in effect that affect creditors' rights
generally and by legal and equitable limitations on the availability of
specific remedies.
(b) The execution, delivery and performance of this
Agreement and the other agreements and documents to be delivered by the Seller
to the Buyer pursuant hereto, the consummation of the transactions contemplated
hereby or thereby and the compliance with the provisions hereof or thereof by
the Seller will not, with or without the passage of time or the giving of
notice or both:
(i) conflict with, constitute a breach, violation
or termination of any provision of, or give rise to any right
of termination, cancellation or acceleration, or loss of any
right or benefit or both, under, any of the Contracts and
Other Agreements,
(ii) conflict with or violate the Certificate of
Incorporation, Bylaws or similar corporate documents of the
Seller, the Company or any Subsidiary,
(iii) result in the creation or imposition of any
Lien on any of the Shares or on any of the assets of the
Company or any Subsidiary,
(iv) subject to fulfillment of the condition
precedent set forth in Section 5.1 hereof, violate any Law,
Regulation, Order or any other restriction of any kind or
character applicable to the Seller, the Company or any
Subsidiary or any of their respective properties or assets,
or
(v) result in the termination, forfeiture,
revocation, suspension or adverse modification of any
Authorization,
other than conflicts, breaches, violations, terminations, Liens, forfeitures,
revocations, suspensions or modifications that would not materially and
adversely affect the ability of the Seller to consummate the transactions
provided for in this Agreement and that would not have a Material Adverse
Effect.
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<PAGE> 11
2.4 Approvals and Authorizations.
(a) Other than notices given pursuant to the HSR Act, no
Order or Authorization of, or exemption by, or the giving of notice to, or the
registration with, or the taking of any other action in respect of, any Person
not a party to this Agreement, including any Governmental Entity, and no
filing, recording, publication or registration in any public office or any
other place is now, or under existing law in the future will be, necessary on
behalf of the Seller, Weatherford, the Company or any Subsidiary to authorize
the execution, delivery and performance of this Agreement by the Seller or
Weatherford or any other agreement contemplated hereby to be executed and
delivered by the Seller and the consummation of the transactions contemplated
hereby or thereby, or to effect the legality, validity, binding effect or
enforceability thereof.
(b) All material Authorizations of all Governmental
Entities required or necessary for the Company and the Subsidiaries to carry on
the Business in the places and in the manner currently conducted have been duly
obtained and are in full force and effect. No material violation has occurred
under any such Authorization, no proceeding is pending or, to the knowledge of
the Seller, threatened with respect to the revocation or limitation of any of
such Authorization, and, to the knowledge of the Seller, no event has occurred
that permits, or with the passage of time or the giving of notice or the taking
of action by a third Person would permit, revocation or limitation of any such
Authorization. The Company and the Subsidiaries have complied with all Laws,
Regulations and Orders applicable to the Business, including those respecting
the provision of services by the Company and the Subsidiaries, except for
violations that would not have a Material Adverse Effect.
2.5 Financial Statements. The Seller has delivered to the Buyer
a true and complete copy of the Company's Financial Statements. The Company's
Financial Statements present fairly the consolidated financial position of the
Company and the Subsidiaries and the results of their operations, stockholders'
equity and cash flows as of the dates and for the periods indicated therein in
conformity with generally accepted accounting principles consistently applied.
The Company's Financial Statements do not include any material income or assets
or omit to state any material expenses or liabilities, absolute or contingent,
and do not include or omit to state any other facts that render the Company's
Financial Statements materially misleading as of the date thereof.
2.6 Title to Properties.
(a) The Company or the Subsidiaries, individually or
together, have good title to all of the properties reflected in the Company's
Financial Statements, other than any properties that have been sold or
otherwise disposed of since the date thereof in the ordinary course of business
and consistent with past practice or that are not, individually or in the
aggregate, material to the Company, free and clear of Liens, other than (i)
Liens the existence of which is reflected in the Company's Financial
Statements, (ii) Permitted Liens and (iii) Liens that, individually or in the
aggregate, would not have a Material Adverse Effect. The Company or the
Subsidiaries,
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<PAGE> 12
individually or together, hold under valid lease agreements all real and
personal properties reflected in the Company's Financial Statements as being
held under capitalized leases, and all real and personal property that is
subject to the operating leases to which reference is made in the notes to the
Company's Financial Statements, and enjoy peaceful and undisturbed possession
of such properties under such leases, other than (i) any properties as to which
such leases have expired in accordance with their terms since December 31, 1996
without any liability of any party thereto and (ii) any properties that,
individually or in the aggregate, are not material to the Company.
(b) Either the Company or a Subsidiary owns or possesses
licenses or other rights to use all rights to all Proprietary Rights necessary
for the conduct of the Business as currently conducted. Set forth in Section
2.6(b) of the Disclosure Schedule is a complete and accurate list of all
patents, trademarks and licenses the Company and the Subsidiaries own or
possess or otherwise have rights to use and all patents, trademarks and
licenses that the Company and the Subsidiaries own or possess or otherwise have
rights to use, together with a brief description of the nature of such
ownership, possession or right to use. No licenses, sublicenses, covenants or
agreements have been granted or entered into by the Company or any Subsidiary
in respect of the items listed in Section 2.6(b) of the Disclosure Schedule
except as noted thereon. Neither the Company nor any Subsidiary has received
any notice of infringement, misappropriation or conflict from any other Person
with respect to such Proprietary Rights and, to the knowledge of the Seller,
the conduct of the Business has not infringed, misappropriated or otherwise
conflicted with any Proprietary Rights of any such Person. All of the
Proprietary Rights that are owned by the Company and the Subsidiaries are owned
free and clear of all Liens. All Proprietary Rights that are licensed by the
Company or any Subsidiary from third parties are licensed pursuant to valid and
existing license agreements and such interests are not subject to any Liens
other than those under the applicable license agreements. The consummation of
the transactions contemplated by this Agreement will not result in the loss of
any Proprietary Rights and will not conflict with, constitute a breach,
violation or termination of, any agreement or understanding, whether written or
otherwise, relating to any Proprietary Rights necessary for the conduct of the
Business as currently conducted.
2.7 Contracts and Commitments.
(a) Neither the Company nor any Subsidiary is a party to
or bound by:
(i) any agreement, contract or commitment
requiring the expenditure or series of related expenditures
of funds by the Company and the Subsidiaries in excess of
$50,000 (other than purchase orders in the ordinary course of
business for goods necessary for the Company or the
Subsidiaries to complete then existing contracts or purchase
orders);
(ii) any loan or advance to, or investment in, any
Person by the Company or any Subsidiary or any agreement,
contract, commitment or
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<PAGE> 13
understanding relating to the making by the Company or any
Subsidiary of any such loan, advance or investment;
(iii) any material Debt Obligations;
(iv) any management service, employment,
consulting or other similar type contract or agreement;
(v) any sales, distributorship or similar
agreement relating to the products sold or services provided
by the Company or the Subsidiaries;
(vi) any license, royalty or similar agreement
relating to any Proprietary Information of the Company or any
Subsidiary; or
(vii) any collective bargaining or other labor
union agreement.
(b) Set forth in Section 2.7(b) of the Disclosure
Schedule is a list of guarantees of, and performance bonds acquired by,
Weatherford or any of its Affiliates relating to the Business.
(c) Neither the Company nor any Subsidiary is in breach
of any provision of, or in default (nor does the Seller have knowledge of any
event or circumstance that with notice, or lapse of time or both, would
constitute an event of default) under the terms of any of the Contracts and
Other Agreements except for breaches or defaults that would not have a Material
Adverse Effect. All of the Contracts and Other Agreements are in full force
and effect. There are no pending or, to the knowledge of the Seller,
threatened disputes with respect to any of the Contracts and Other Agreements.
(d) The enforceability of the Contracts and Other
Agreements will not be affected in any manner by the execution and delivery of
this Agreement by the Seller or the performance of its obligations hereunder,
including consummation of the transactions contemplated hereby.
2.8 Litigation. There is no action, suit, claim, investigation
or legal, administrative, arbitration or other proceeding, or governmental
investigation or examination, or any change in any zoning or building ordinance
pending or, to the knowledge of the Seller, threatened against or affecting the
Company or any Subsidiary, at law or in equity, before or by any Governmental
Entity.
2.9 No Adverse Changes or Events. Since December 31, 1996, the
Business has been consistently operated only in the ordinary course, and there
has not been:
(a) any Material Adverse Effect;
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<PAGE> 14
(b) any damage, destruction or loss, whether or not
covered by insurance, materially adversely affecting the Company and the
Subsidiaries, taken as a whole; or
(c) any event the occurrence of which between the date
hereof and the Closing Date is prohibited by Section 4.8 hereof.
2.10 Environmental Matters. The sole representations of the
Seller with respect to environmental matters are set forth in this Section
2.10. To the extent representations in other sections of this Agreement also
could apply to environmental matters, including matters related to, arising
under or concerning Environmental Laws, such representations shall be construed
to exclude all environmental matters and to apply to matters other than
environmental matters. Except for matters that, individually or in the
aggregate, would not have a Material Adverse Effect, (a) the properties,
operations and activities of the Company and the Subsidiaries are in compliance
with all applicable Environmental Laws and Environmental Permits; (b) the
Company and the Subsidiaries and the properties and operations of the Company
and the Subsidiaries are not subject to any pending or, to the knowledge of the
Seller, threatened action, suit, investigation, inquiry or proceeding by or
before any court or Governmental Entity under any Environmental Law; (c) there
has been no release of any Hazardous Material or any other pollutant or
contaminant into the environment by the Company or the Subsidiaries or in
connection with their properties or operations; (d) there has been no exposure
of any Person or property to any Hazardous Material or any other pollutant or
contaminant in connection with the properties, operations and activities of the
Company and the Subsidiaries; and (e) the Company and the Subsidiaries have
made available to the Buyer all internal and external environmental audits and
studies and significant correspondence on substantial environmental matters (in
each case relevant to the Company or any of the Subsidiaries) in the possession
of the Company, the Subsidiaries or the Seller.
2.11 Warranties and Product Liability. Except for (i) warranties
implied by law and (ii) warranties disclosed in Section 2.11 of the Disclosure
Schedule, neither the Company nor any Subsidiary has given or made any
warranties in connection with the sale or rental of goods or services on or
prior to the Closing Date, including warranties covering the customer's
consequential damages. There is no pending or, to the knowledge of the Seller,
threatened claim, and, to the knowledge of the Seller, no state of facts exists
and no event has occurred that would form the basis of a claim, against the
Company or the Subsidiaries with respect to warranties relating to products
manufactured, sold or distributed by, or services performed by or on behalf of,
the Company or the Subsidiaries on or prior to the Closing Date except any
claim that would not individually or in the aggregate have a Material Adverse
Effect.
2.12 Inventories. The inventories reflected in the Company's
Financial Statements in excess of the reserve, if any, for excess and obsolete
inventories, will be in all material respects saleable or usable in the
ordinary course of business and consistent with past practice.
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<PAGE> 15
2.13 Insurance. Section 2.13 of the Disclosure Schedule sets
forth all insurance policies held by the Company and the Subsidiaries that are
material to the Company and the Subsidiaries, taken as a whole. All such
policies are in full force and effect and all premiums due thereon have been
paid. To the knowledge of the Seller, the Company and the Subsidiaries have
provided claims notification to the underwriters under the applicable insurance
policies with respect to all claims that have been asserted against the Company
or any Subsidiary that, if supported, would be covered by such policies.
2.14 Minute Books. The minute books of the Company and each
Subsidiary that have been made available to the Buyer for review constitute all
of the minute books of the Company and each Subsidiary and contain a complete
and accurate record of all resolutions and formal actions of the stockholders
and directors (and any committees thereof) of the Company and each Subsidiary,
in each case, in their respective capacities as such.
2.15 Powers of Attorney. Except as set forth in Section 2.15 of
the Disclosure Schedule, no Persons hold powers of attorney for the Company or
any Subsidiary except for revocable limited powers of attorney granted in
connection with ad valorem, franchise and other state and local taxes or other
routine business matters.
2.16 Finder's Fees. Except for fees payable to Merrill Lynch &
Co. and Simmons & Company International, neither the Seller nor any Affiliate
of the Seller has employed or retained any investment banker, broker, agent,
finder or other Person, or incurred any obligation for brokerage fees, finder's
fees or commissions, with respect to the sale by the Seller of the Shares or
with respect to the transactions contemplated by this Agreement, or otherwise
dealt with anyone purporting to act in the capacity of a finder or broker with
respect thereto whereby any party hereto may be obligated to pay such a fee or
commission. The Seller agrees to indemnify and hold the Buyer and its
Affiliates harmless from and against any and all claims, liabilities or
obligations with respect to all fees, commissions or expenses asserted by any
Person (including Merrill Lynch & Co. and Simmons & Company International) on
the basis of any act, statement, agreement or commitment alleged to have been
made by the Seller or any Affiliate of the Seller with respect to any such fee,
commission or expense.
2.17 Tax Matters.
(a) All returns and reports of or with respect to any
Taxes that are required to be filed on or before the Closing Date by or with
respect to the Company or any Subsidiary ("Tax Returns") have been or will be
duly and timely filed.
(b) All Taxes that are due with respect to the periods
covered by such Tax Returns have been or will be timely paid in full.
(c) All Tax withholding requirements imposed on or with
respect to the Company or any Subsidiary have been satisfied in full in all
respects.
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<PAGE> 16
(d) No assessment, deficiency or adjustment has been
asserted in writing or, to the knowledge of the Seller, otherwise with respect
to any such Tax Return.
(e) There is not in force any extension of time with
respect to the due date for the filing of any such Tax Return or any waiver or
agreement for or consent to any extension of time for the assessment or payment
of any Tax due with respect to the period covered by any such Tax Return.
2.18 Employee Matters.
(a) Each Benefit Plan is listed in Section 2.18(a) of
the Disclosure Schedule. True and correct copies of each of the following, to
the extent applicable, have been made available to the Buyer with respect to
each Benefit Plan: the most recent annual report (Form 5500) filed with the
IRS, the plan document, the trust agreement, the most recent summary plan
description and the most recent determination letter, if any, issued by the IRS
with respect to any Benefit Plan intended to be qualified under Section 401 of
the Code.
(b) With respect to the Benefit Plans, to the knowledge
of the Seller, no event has occurred and there exists no condition or set of
circumstances in connection with which the Company or any Subsidiary could be
subject to any liability under the terms of such Benefit Plans, ERISA, the Code
or any other applicable Law, except as would not have a Material Adverse
Effect.
(c) As to any Benefit Plan intended to be qualified under
Section 401 of the Code, to the knowledge of the Seller such Benefit Plan
satisfies in form the requirements of Section 401 of the Code, except as would
not have a Material Adverse Effect.
(d) Any Terminated Benefit Plan intended to have been
qualified under Section 401 of the Code received a favorable determination
letter from the IRS with respect to its termination, and no Terminated Benefit
Plan was subject to Title IV of ERISA.
(e) To the knowledge of the Seller, there are no actions,
suits or claims pending (other than routine claims for benefits) or threatened
against, or with respect to, any of the Benefit Plans or their assets, except
as would not have a Material Adverse Effect.
(f) There is no matter pending (other than routine
qualification determination filings) with respect to any Benefit Plans before
the IRS or the Department of Labor.
(g) All contributions required to be made to the Benefit
Plans pursuant to their terms and provisions have been made timely.
(h) No Benefit Plan is subject to Title IV of ERISA.
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(i) In connection with the consummation of the
transactions contemplated by this Agreement, no payments have been or will be
made under any Benefit Plans or any of the programs, agreements, policies or
other arrangements described in Section 2.18(k) of the Disclosure Schedule
that, in the aggregate, would be nondeductible under Section 280G of the Code.
(j) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i) require the
Company or any Subsidiary to make a larger contribution to, or pay greater
benefits under, any Benefit Plan or any of the programs, agreements, policies
or other arrangements described in Section 2.18(k) of the Disclosure Schedule
than it otherwise would or (ii) create or give rise to any additional vested
rights or service credits under any Benefit Plan or any of such programs,
agreements, policies or other arrangements.
(k) Except as set forth in Section 2.18(k) of the
Disclosure Schedule, neither the Company nor any Subsidiary is a party to or is
bound by any severance agreement, program or policy. True and correct copies
of all employment agreements with officers of the Company and the
Subsidiaries, and all vacation, overtime and other compensation policies of the
Company and the Subsidiaries relating to their employees, have been made
available to the Buyer.
(l) No Benefit Plan provides retiree medical or retiree
life insurance benefits to any Person and neither the Company nor any
Subsidiary is contractually or otherwise obligated (whether or not in writing)
to provide any Person with life insurance or medical benefits upon retirement
or termination of employment, other than as required by the provisions of
Sections 601 through 608 of ERISA and Section 4980B of the Code. Each Benefit
Plan or other arrangement described in Section 2.18(l) of the Disclosure
Schedule may be unilaterally amended or terminated in its entirety without
liability except as to benefits accrued thereunder prior to such amendment or
termination.
(m) With respect to any employee benefit plan, within the
meaning of Section 3(3) of ERISA, that is not listed in Section 2.18(a) of the
Disclosure Schedule but that is sponsored, maintained or contributed to, or has
been sponsored, maintained or contributed to within six years prior to the
Closing Date, by any corporation, trade, business or entity under common
control with the Company, within the meaning of Section 414(b), (c) or (m) of
the Code or Section 4001 of ERISA ("Commonly Controlled Entity"), (i) no
withdrawal liability, within the meaning of Section 4201 of ERISA, has been
incurred, which withdrawal liability has not been satisfied, (ii) no liability
to the Pension Benefit Guaranty Corporation has been incurred by any Commonly
Controlled Entity, which liability has not been satisfied, (iii) no accumulated
funding deficiency, whether or not waived, within the meaning of Section 302 of
ERISA or Section 412 of the Code, has been incurred and (iv) all contributions
(including installments) to such plan required by Section 302 of ERISA and
Section 412 of the Code have been timely made.
(n) Neither the Company nor the Subsidiaries contributes
to or has an obligation to contribute to, and has not at any time within six
years prior to the Closing
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Date contributed to or had an obligation to contribute to, a multiemployer plan
within the meaning of Section 3(37) of ERISA.
(o) To the knowledge of the Seller, neither the Company
nor the Subsidiaries have encountered any labor union organizing activity or
had any actual or threatened employee strikes, work stoppages, slowdowns or
walkouts.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
3.1 Corporate Matters. The Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. The Buyer has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations under this Agreement.
This Agreement, and all transactions contemplated hereby, have been duly
authorized and approved by all necessary corporate action on the part of the
Buyer. No further corporate action is necessary on the part of the Buyer to
execute and deliver this Agreement or to perform its obligations hereunder,
including consummation of the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Buyer and is a legal, valid and
binding obligation of the Buyer, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect that affect creditors' rights generally and by legal and equitable
limitations on the availability of specific remedies. The execution, delivery
and performance of this Agreement, the consummation of the transactions
contemplated hereby and the compliance with the provisions hereof by the Buyer
will not violate any provision of, or constitute a default under, any contract
or other agreement to which the Buyer is a party or by which it is bound, or
conflict with its Certificate of Incorporation or Bylaws, other than
violations, defaults or conflicts that would not materially and adversely
affect the ability of the Buyer to consummate the transactions provided for in
this Agreement.
3.2 Approvals and Authorizations. Other than notices given
pursuant to the HSR Act, no Order or Authorization of, or exemption by, or the
giving of notice to, or the registration with, or the taking of any other
action in respect of, any Person not a party to this Agreement, including any
Governmental Entity, and no filing, recording, publication or registration in
any public office or any other place is now, or under existing law in the
future will be, necessary on behalf of the Buyer to authorize the execution,
delivery and performance of this Agreement by the Buyer or any other agreement
contemplated hereby to be executed and delivered by the Buyer and the
consummation of the transactions contemplated hereby or thereby or to effect
the legality, validity, binding effect or enforceability thereof.
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3.3 Financing Commitments. The Buyer has delivered to the Seller
true and complete copies of the Financing Commitments. The Financing
Commitments have not been amended or modified and are in full force and effect.
3.4 Finder's Fees. Neither the Buyer nor any Affiliate of the
Buyer has employed or retained any investment banker, broker, agent, finder or
other Person, or incurred any obligation for brokerage fees, finder's fees or
commissions, with respect to the transactions contemplated by this Agreement,
or otherwise dealt with anyone purporting to act in the capacity of a finder or
broker with respect thereto whereby any party hereto may be obligated to pay
such a fee or a commission. The Buyer agrees to indemnify and hold the Seller
and its Affiliates harmless from and against any and all claims, liabilities or
obligations with respect to all fees, commissions or expenses asserted by any
Person on the basis of any act, statement, agreement or commitment alleged to
have been made by the Buyer or any Affiliate of the Buyer with respect to any
such fee, commission or expense.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Cooperation; Record Retention.
(a) In the event of, and for so long as any party is
contesting or defending against, any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand asserted by a third Person
(including any Governmental Entity) against or involving a party hereto in
connection with (i) any transaction contemplated by this Agreement or (ii) any
fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or prior
to the Closing Date involving the Company and the Subsidiaries, the other party
will to the extent reasonably practicable cooperate with the contesting or
defending party and its counsel in the contest or defense, and provide such
testimony and access to its books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending party (except to the extent the contesting or defending
party is entitled to indemnification therefor under Article 8 hereof).
(b) The Seller will cooperate with the Buyer, the Company
and the Subsidiaries in making claims under insurance policies relating to
automobile and general liability maintained prior to the Closing by the Seller
or Affiliates of the Seller (other than the Company or any Subsidiary) for the
benefit, in whole or in part, of the Company and the Subsidiaries with respect
to claims asserted against the Company or any Subsidiary after the Closing that
are based, in whole or in part, on events that occurred prior to the Closing.
(c) Except when a longer period is required by Law, each
party hereto shall retain and shall ensure that its Affiliates retain, for a
period of at least seven years following the Closing Date, all material
information (including all material books
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and records) relating to the Business prior to the Closing Date.
Notwithstanding the foregoing, either party hereto may offer in writing to
deliver to the other party all or a portion of such information in its
possession or that of its Affiliates and, if such offer is accepted in writing
within 90 days after receipt thereof, the offering party shall promptly arrange
for the delivery of such information to the accepting party (at the expense of
the offering party). If such offer is not so accepted, the offered information
may be destroyed or otherwise disposed of by the offering party at any time
following such 90 day period.
4.2 Employee Matters.
(a) The parties agree that the participation by the
Company and the Subsidiaries in all employee benefit plans maintained by any
other corporation, trade, business or entity under common control with the
Company or the Subsidiaries, within the meaning of Section 414(b), (c) or (m)
of the Code or Section 4001 of ERISA, shall terminate as of the Closing Date.
(b) Any employees of the Company or any Subsidiary that
remain employed with the Company, a Subsidiary or the Buyer or one of its
Affiliates immediately after the Closing Date shall be referred herein as the
"Transferred Employees".
(c) As a matter solely between the Seller and the Buyer,
the Buyer agrees that (i) the employment of all employees of the Company and
the Subsidiaries shall not be terminated by virtue of the consummation of the
transactions contemplated hereby, (ii) the rate of base salary or wages of each
Transferred Employee (other than any Transferred Employee subject to clause
(iii) of this Section 4.2(c)) will not be reduced by action of the Company or
any Subsidiary for a period of six months following the Closing Date and (iii)
if the employment of any Transferred Employee is terminated by the Company or
any such Subsidiary within six months following Closing, other than for cause,
the Company or such Subsidiary will provide to such terminated Transferred
Employee, in lieu of any severance benefit that otherwise would be available
under the severance policies of the Buyer and its Affiliates, the severance
that such Transferred Employee would have received if the Transferred Employee
had been entitled to receive severance from the Seller or any of its
Affiliates, the Company or any Subsidiary in accordance with the severance
policies (including, as applicable, the Weatherford Enterra Special Severance
Payment Plan) of the Seller, the Company and the Subsidiaries previously
provided to the Buyer, without giving effect to any provisions that eliminate
the severance payment obligations as a result of a purchaser of the Company and
the Subsidiaries offering the Transferred Employee employment. With respect to
any Transferred Employee, the Buyer shall have no obligations to cause the
Company or any Subsidiary to provide such employee with any benefits other than
those that are currently provided by the Company or such Subsidiary or that are
provided by the Buyer to similarly situated employees or any combination
thereof. As of the Closing Date, the Buyer shall have no obligation hereunder
to cause the Company or any Subsidiary to continue the employment of any
Transferred Employee for a definite term or to continue or to pay any
compensation pursuant to any bonus
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or incentive plan in effect at the Company or any Subsidiary on or before the
Closing Date.
(d) In determining eligibility for and entitlement to
vacation and other normal employee benefits (excluding stock-based plans and
incentive programs) based on length of service by Transferred Employees under
the Buyer's or its Affiliates' normal policies, service with the Company or an
Affiliate of the Company shall be considered by the Buyer and its Affiliates as
service with the Buyer and its Affiliates. In determining eligibility for and
the amount of severance benefits to which the Transferred Employees may become
entitled (other than with respect to termination of employment within six
months following the Closing Date) upon termination of employment with the
Company, a Subsidiary, the Buyer or one of its Affiliates after the Closing
Date under the Buyer's (or other Affiliate that employs the Transferred
Employees) normal severance policies, service with the Company or an Affiliate
of the Company shall be considered as service with the Buyer and its
Affiliates.
(e) The Buyer agrees to provide to all Transferred
Employees the opportunity to participate in group health and other benefit
plans maintained by it or its Affiliates for similarly situated employees. The
Buyer agrees to waive all waiting periods and any pre-existing condition
limitation for all Transferred Employees under the group health plan maintained
by it or its Affiliates.
(f) The Buyer shall be fully responsible for all
liabilities related to the termination by the Buyer of the employment of any of
the Transferred Employees within 90 days after the Closing Date or such other
period that would expose the Seller to liabilities under the Worker Adjustment
and Retraining Notification Act, 29 U.S.C. Sections 2101-2109, as a result of
the premature termination by the Buyer of the employment of any of the
Transferred Employees.
(g) The Seller shall be responsible for the severance
obligations, if any, with respect to any employees who do not remain employed
with the Company, a Subsidiary or the Buyer or one of its Affiliates
immediately after the Closing Date.
(h) The Buyer and the Seller shall use their best efforts
to agree on a procedure whereby the Seller and its Affiliates will continue to
provide certain employee benefits to the Transferred Employees for a period of
time immediately following the Closing and the Buyer will reimburse and
indemnify the Seller and its Affiliates for their costs and liabilities related
thereto.
4.3 Repurchase of Uncollected Accounts Receivable.
(a) The Buyer shall cause the Company and the
Subsidiaries to use commercially reasonable efforts to collect in full,
consistent with the past practices of the Business, all accounts receivable of
the Company and the Subsidiaries outstanding as of the Closing Date (the
"Accounts Receivable"). If any Accounts Receivable shall not have been fully
collected within 150 days following the Closing Date in an amount equal to the
aggregate outstanding unpaid amounts thereof at the Closing, the Buyer shall
have the option to cause the Company or the appropriate Subsidiary for a period
of 30
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days following the expiration of such 150 day period to tender to the Seller,
and if tendered the Seller shall purchase, the unpaid portion of the Accounts
Receivable, at a purchase price equal to the aggregate original outstanding
amount of the Accounts Receivable less (i) net collections thereon from the
Closing Date to the repurchase date and (ii) the Company's consolidated reserve
for bad debts included in the Company's Closing Financial Statements; provided,
however, the Buyer may not settle or compromise any of the Accounts Receivable
without the prior written consent of the Seller.
(b) As a condition to any such repurchase, the Buyer
shall cause the Company or the appropriate Subsidiary to convey to the Seller
the unpaid Accounts Receivable to be repurchased, shall provide the Seller with
sufficient detail regarding the unpaid Accounts Receivable and shall cause the
Company or the appropriate Subsidiary to subrogate the rights to collection of
the Company or any Subsidiary. The Buyer shall represent and warrant that (i)
neither the Buyer nor the Company or any Subsidiary has transferred or conveyed
the unpaid Accounts Receivable to any other Person, (ii) the unpaid Accounts
Receivable are free and clear of any Liens and (iii) the Company or the
appropriate Subsidiary has, with respect to any funds received from the
customer that is a debtor with respect to an Account Receivable in partial
payment of any Accounts Receivable owed to the Company or such Subsidiary,
applied such funds to such Accounts Receivable in the order of age (i.e., with
the oldest being paid first), except (A) for any Disputed Account Receivable,
unless the customer directs that such funds be applied to a Disputed Account
Receivable, and (B) for any payment that is directed by the customer to be
applied to a specific Account Receivable. For purposes of this Section 4.3, a
"Disputed Account Receivable" (I) shall mean an Account Receivable as to which
the customer that is the debtor with respect thereto has communicated to the
Company or such Subsidiary, in writing, that the customer disputes the
propriety of payment of such Account Receivable, in whole or in part and (II)
shall include the Account Receivable from Aker Gulf Marine.
(c) The Seller shall provide to the Buyer at Closing a
list of the Disputed Accounts Receivable as of such date. If, following the
Closing, the Company or any Subsidiary shall receive written evidence of a
Disputed Account Receivable from the customer that is the debtor with respect
thereto, the Company shall provide to the Seller a copy of such written
evidence within 45 days of the Company's or such Subsidiary's receipt thereof.
(d) The Buyer agrees to act in good faith with respect to
the Seller and this Section 4.3 in communicating with the customers that are
obligated with respect to Accounts Receivable and will not encourage any such
customers to dispute any Accounts Receivable that are outstanding as of the
Closing Date or to direct payments to Accounts Receivable that become
outstanding following the Closing Date.
(e) The assignment of the unpaid Accounts Receivable
contemplated by this Section 4.3 shall be effected on the fifth Business Day
following the date of tender thereof to the Seller against payment therefor as
provided herein in immediately available funds. The Buyer shall provide to the
Seller any documents or information
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reasonably requested by the Seller in connection with the Seller's collection
of any unpaid Accounts Receivable repurchased from the Buyer.
4.4 Cooperation. The Seller and the Buyer shall each use all
commercially reasonable efforts (i) to take, or to cause to be taken, all
appropriate action, and to do, or to cause to be done, all things necessary,
proper or advisable under applicable Law or otherwise to consummate and make
effective the transactions contemplated by this Agreement, (ii) to obtain from
any Governmental Entities any Authorizations or Orders required to be obtained
by the Buyer or the Seller or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the performance of
their obligations hereunder, (iii) to make all necessary filings, and
thereafter to make promptly any other required submissions, with respect to
this Agreement required under (A) the HSR Act or (B) any other applicable Law,
Regulation or Order; provided, however, that the Buyer and the Seller shall
cooperate with each other in connection with the making of all such filings and
in supplying any information requested supplementally or by second request from
any Governmental Entity. The Buyer and the Seller shall request early
termination of the waiting period under the HSR Act with respect to the
transactions contemplated hereby.
4.5 Proprietary Information. The Seller shall retain the
Proprietary Information in strict confidence and shall not, from and after the
Closing, use or disclose the same for any purpose whatsoever, except as may be
required by Law.
4.6 Use of Corporate Names. All right, title and interest in and
to the corporate names set forth in Section 2.6(b) of the Disclosure Schedule,
or any derivations thereof, are vested in the Company or a Subsidiary. The
Seller agrees that it will not take or cause to be taken any action that could
reasonably be expected to adversely affect the right of the Company and the
Subsidiaries to the use of such names or cause confusion with respect to the
use of such names by the Company or any Subsidiary. All goodwill with respect
to the use of the names will remain with the Company and the Subsidiaries, and
the Seller will not have any rights to sue or recover against any Person with
respect to the use of such names.
4.7 Conduct of the Business. The Seller covenants and agrees
with the Buyer that from and after the date hereof until the Closing, except as
expressly authorized by this Agreement or as expressly consented to in writing
by the Buyer, the Seller shall cause the Company and each of the Subsidiaries:
(a) to operate the Business only in the usual, regular
and ordinary course with a view to maintaining the goodwill that the Company
and the Subsidiaries now enjoy and, to the extent consistent with such
operation, will use all reasonable efforts to preserve intact their present
business organizations, keep available the services of their employees and
preserve their relationships with their customers, suppliers, jobbers,
distributors and other Persons having business relations with them;
(b) to maintain books of account and records of the
Company and each of the Subsidiaries in the usual, regular and ordinary course
and in accordance with the
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Company's and the Subsidiaries' usual accounting practices applied on a
consistent basis;
(c) to comply in all material respects with all Laws,
Orders and Regulations applicable to the Company and the Subsidiaries and to
the conduct of the Business;
(d) to preserve and maintain all Proprietary Rights and
not to sell, assign, transfer, lease or otherwise dispose of any Proprietary
Rights; and
(e) to maintain and keep the properties and assets that
are material to the Company and the Subsidiaries, taken as a whole, in as good
repair and condition as on the date of this Agreement, ordinary wear and tear
excepted, and to maintain supplies and inventories in quantities consistent
with their customary business practices.
4.8 Negative Covenants. The Seller covenants and agrees with the
Buyer that, from and after the date of this Agreement until the Closing, except
as expressly authorized by this Agreement or as expressly consented to in
writing by the Buyer, the Seller shall not permit the Company or any
Subsidiary:
(a) (i) to increase in any material respect the
compensation payable to or to become payable to any employee of the Company or
any Subsidiary, except for increases in salary or wages payable or to become
payable in the ordinary course of business and consistent with past practice;
(ii) to grant in any material respect any severance or termination pay (other
than pursuant to the normal severance policy of the Company and the
Subsidiaries as in effect on the date of this Agreement) to, or to enter into
or to amend any employment or severance agreement with, any director, officer
or employee of the Company or any Subsidiary; (iii) to establish, adopt or
enter into any new Benefit Plan; or (iv) except as required by applicable Law,
to amend any Benefit Plan or accelerate vesting with respect to any Benefit
Plan;
(b) to declare or to pay any dividend on, or to make any
other distribution in respect of, outstanding shares of capital stock or other
equity interests of the Company or any Subsidiary, except for dividends or any
other distributions by a Subsidiary to the Company;
(c) (i) to redeem, purchase or acquire, or to offer
to purchase or acquire, any outstanding shares of capital stock of, or other
equity interests in, or any securities that are convertible into or
exchangeable for any shares of capital stock of, or other equity interests in
(other than any such acquisition by the Company or any Subsidiary directly from
any other Subsidiary in exchange for funds paid to such other Subsidiary), or
any outstanding options, warrants or rights of any kind to acquire any shares
of capital stock of, or other equity interests in, the Company or any
Subsidiary; (ii) to effect any recapitalization of the Company or any
Subsidiary; or (iii) to split, combine or reclassify any of the capital stock
of, or other equity interests in, the Company or any Subsidiary or issue or
authorize or propose the issuance of any other
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securities in respect of, in lieu of or in substitution for, shares of such
capital stock or such equity interests;
(d) (i) to offer, sell, issue or grant, or authorize
the offering, sale, issuance or grant, of any shares of capital stock of, or
other equity interests in, any securities convertible into or exchangeable for
any shares of capital stock of, or other equity interests in, or any options,
warrants or rights of any kind to acquire any shares of capital stock of, or
other equity interests in, the Company or any Subsidiary; or (ii) to grant any
Lien with respect to any shares of capital stock of, or other equity interests
in, a Subsidiary held by the Company;
(e) to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or in any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise to acquire any assets
of any other Person (other than the purchase of assets from suppliers or
vendors in the ordinary course of business and consistent with past practice),
in each case, that are material to the Company and the Subsidiaries, taken as a
whole;
(f) to sell, lease, exchange or otherwise dispose of, or
to grant any Lien (other than a Permitted Lien) with respect to, any of the
assets of the Company or any Subsidiary that are material to the Company and
the Subsidiaries, taken as a whole, except for dispositions of inventories and
of assets in the ordinary course of business and consistent with past practice;
(g) (i) to change any of its methods of accounting in
effect at December 31, 1996, (ii) to make or rescind any election relating to
Taxes, (iii) to settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to Taxes
(except where the cost to the Company and the Subsidiaries of such settlements
or compromises, individually or in the aggregate, does not exceed $250,000), or
(iv) to change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ended December 31, 1995, except, in
each case, as may be required by applicable Law or generally accepted
accounting principles;
(h) to incur any material Debt Obligations, other than
undiscounted, noninterest bearing, demand obligations or indebtedness to
Weatherford or an Affiliate of Weatherford;
(i) other than Permitted Liens, to pledge or otherwise
create, or suffer to exist, a security interest in any of the Shares; or
(j) to permit any insurance policy naming the Company or
a Subsidiary as a beneficiary or a loss payee to be canceled or terminated or
any of the coverage thereunder to lapse unless simultaneously with such
termination or cancellation replacement policies providing substantially the
same coverage are in full force and effect.
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4.9 Governmental Filings. As promptly as practicable after the
execution of this Agreement, the Buyer and the Seller shall, in cooperation
with the other, file any reports or notifications that may be required to be
filed by it under applicable law, including filings under the HSR Act with the
Federal Trade Commission and the Antitrust Division of the Department of
Justice, and shall furnish to the other all such information in its possession
as may be necessary for the completion of the reports or notifications to be
filed by the other.
4.10 Access to Information.
(a) Prior to the Closing, the Buyer may make such
investigation of the business and properties of the Company and the
Subsidiaries as the Buyer may desire and, upon reasonable prior notice, the
Seller shall give, or shall cause to be given, to the Buyer and its counsel,
accountants and other representatives reasonable access, during normal business
hours throughout the period prior to the Closing, to the property, books,
commitments, agreements, records, files and personnel of the Company and the
Subsidiaries, and the Seller shall furnish, or shall cause to be furnished, to
the Buyer during that period all copies of documents and information concerning
the Company and the Subsidiaries as the Buyer may reasonably request, subject
to applicable Law. The Buyer shall not disclose, and shall cause its counsel,
accountants and other agents and representatives not to disclose, such
information and documents unless such information or documents (i) already are
in the possession of the Buyer, provided that such information or documents are
not subject to a confidentiality agreement with or other obligation of secrecy
to the Company or any of its Affiliates, or (ii) become generally available to
the public through no fault of the Buyer or any of its representatives. The
Seller shall use reasonable efforts to cause the Company's auditors to make
available to the Buyer and to its authorized accountants and other
representatives access during normal business hours to the work papers prepared
by such auditors relating to the Company's Financial Statements.
(b) From and after the Closing Date, each party hereto
shall afford, and shall ensure that its Affiliates afford, to the other party
and to its authorized accountants, attorneys and other representatives
reasonable access and duplicating rights (all such duplication costs to be
borne by the requesting party) during normal business hours to all material
books and records relating to the Business as conducted prior to the Closing
Date that are within the possession or control of the officers or employees of
the former to the extent that such access is reasonably required for audit,
accounting, third party claims and litigation and tax purposes, as well as for
the purposes of fulfilling disclosure and reporting obligations; provided,
however, that such purposes shall not include competitive purposes or claims or
litigation between the parties. Notwithstanding the foregoing, the providing
party need not provide access to books and records if such access may be
reasonably deemed to result in a waiver of privilege by the providing party.
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ARTICLE 5
JOINT CONDITIONS TO THE CLOSING
The obligations of each party to this Agreement to effect the
transactions contemplated hereby to occur at the Closing shall be subject to
the satisfaction or, to the extent permitted by Law, waiver of each of the
following conditions:
5.1 Laws, Regulations and Orders. All requirements of any
applicable Law, Regulation or Order necessary for the valid consummation of the
transactions contemplated herein to occur at the Closing shall have been
fulfilled (including the termination or expiration of the applicable waiting
period under the HSR Act), and all filings required to be made with any
Governmental Entity under any applicable Law, Regulation or Order and all
Authorizations required to be obtained from any Governmental Entity under any
applicable Law, Regulation or Order, in each case, to permit the Seller or the
Buyer to consummate the transactions contemplated hereby to occur at the
Closing, shall have been made or obtained (other than any requirement the
nonfulfillment of which and any Authorization the nonreceipt of which would not
have a material adverse effect on the Seller, the Buyer or the Company and the
Subsidiaries, taken as a whole).
5.2 No Restraining Order; Absence of Certain Actions. No
temporary restraining Order, preliminary or permanent injunction or other Order
issued by any court of competent jurisdiction preventing the consummation of
the transactions contemplated hereby to occur at the Closing shall be in
effect.
5.3 Foreign Facilities Arrangements. The Buyer (or its
Affiliates) and the Seller (or its Affiliates) shall have entered into mutually
acceptable arrangements regarding the leasing on a month-to-month basis for a
period of up to six months of the facilities used by the Company or the
Subsidiaries in Djakarta, Singapore and Dubai.
ARTICLE 6
BUYER'S CONDITIONS TO CLOSING
The obligation of the Buyer to purchase the Shares as contemplated
hereby is, at the option of the Buyer, subject to the satisfaction on or before
the Closing Date of the conditions set forth below, any of which, to the extent
permitted by applicable Law, may be waived by the Buyer in writing; provided,
however, the Buyer's election to proceed with the Closing shall not be deemed a
waiver of any breach of any representation, warranty or covenant herein,
whether or not known to the Buyer or existing on the Closing Date, and such
action shall not prejudice the Buyer's right to recover damages for any such
breach.
6.1 Representations, Warranties and Covenants. The
representations and warranties of the Seller contained in this Agreement shall
be true, correct and complete in all respects on and as of the Closing Date
with the same force and effect as though
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such representations and warranties had been made or given on and as of such
date, except for any changes during the period from the date hereof until the
Closing Date required or permitted by this Agreement. Each and all of the
agreements and covenants of the Seller to be performed or complied with by it
on or before the Closing Date pursuant to this Agreement shall have been
performed or complied with in all material respects. The Seller shall have
delivered to the Buyer a certificate signed by one of the Seller's duly
authorized officers dated the Closing Date regarding the matters set forth in
this Section 6.1.
6.2 Good Standing. The Seller shall have delivered to the Buyer
certificates or other instruments, each dated as of a recent date, issued by
the Secretary of State or other appropriate authority of the jurisdictions of
incorporation of the Company and each Subsidiary incorporated in the United
States, as well as each State in which the Company or any Subsidiary
incorporated in the United States is qualified to do business as a foreign
corporation as provided in Section 2.1(a) of the Disclosure Schedule,
evidencing the good standing of each of the Company and the Subsidiaries in
each such state or jurisdiction.
6.3 Instruments of Transfer. The Seller shall have delivered to
the Buyer the certificates evidencing the Shares and shall have executed,
acknowledged and delivered to the Buyer such stock powers and other instruments
of transfer, assignment and conveyance, in form and substance mutually
agreeable, as shall be necessary to vest in the Buyer all the right, title and
interest in and to the Shares.
6.4 Financing. The Buyer shall have received such funds
contemplated by the Financing Commitments as at least equal the Closing
Payment.
6.5 Consents of Third Persons. A copy of all consents from third
Persons that are listed in Section 2.4(a) of the Disclosure Schedule shall have
been delivered to the Buyer.
6.6 Resolutions. The Buyer shall have received certified copies
of resolutions of the Board of Directors of the Seller approving this Agreement
and the transactions contemplated hereby.
6.7 Resignations. The Buyer shall have received written
resignations of each of the directors of the Company and of each wholly-owned
Subsidiary.
6.8 Corporate Records. The Seller shall have delivered, or
caused to be delivered, to the Buyer, possession of the stock registers, minute
books and corporate books and records for the Company and each of the
Subsidiaries.
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ARTICLE 7
SELLER'S CONDITIONS TO CLOSING
The obligation of the Seller to sell and deliver the Shares as
contemplated hereby is, at the option of the Seller, subject to the
satisfaction on or before the Closing Date of the conditions set forth below,
any of which, to the extent permitted by applicable Law, may be waived by the
Seller in writing; provided, however, the Seller's election to proceed with the
closing of the transactions contemplated hereby shall not be deemed a waiver of
any breach of any representation, warranty or covenant herein, whether or not
known to the Seller or existing on the Closing Date, and such action shall not
prejudice the Seller's right to recover damages for any breach.
7.1 Representations, Warranties and Covenants. The
representations and warranties of the Buyer contained in this Agreement shall
be true, correct and complete in all respects on and as of the Closing Date
with the same force and effect as though such representations and warranties
had been made or given on and as of such date. Each and all of the agreements
and covenants of the Buyer to be performed or complied with by it on or before
the Closing Date pursuant to this Agreement shall have been performed or
complied with in all material respects. The Buyer shall have delivered to the
Seller a certificate signed by one of the Buyer's duly authorized officers,
dated the Closing Date, regarding the matters set forth in this Section 7.1.
7.2 Good Standing. The Buyer shall have delivered to the Seller
a certificate, dated as of a recent date, issued by the Secretary of State of
Delaware, evidencing the good standing of the Buyer in Delaware.
7.3 Receipt of the Shares. The Seller shall have received the
Closing Payment from the Buyer and the Buyer shall have duly executed and
delivered to the Seller an instrument acknowledging receipt of the Shares in
form and substance mutually agreeable.
7.4 Resolutions. The Seller shall have received certified copies
of resolutions of the Board of Directors of the Buyer approving this Agreement
and the transactions contemplated hereby.
ARTICLE 8
INDEMNIFICATION
8.1 Survival Period. The several representations and warranties
of the parties to this Agreement shall survive the Closing Date and shall
remain in full force and effect for the period from the Closing Date through
June 30, 1999, except in the case of Section 2.10 hereof, as to which the
period of survival shall be from the Closing Date until June 30, 2000, and
except in the case of Section 2.17 hereof, as to which the period of survival
shall be from the Closing Date until one day after the expiration of the
statute of limitations (including extensions) applicable to the Taxes that are
the
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subject thereof. Each of the periods during which the representations and
warranties shall survive is referred to herein with respect to such
representations and warranties as the "Survival Period". Such representations
and warranties shall be effective with respect to any inaccuracy therein or
breach thereof (and a claim for indemnification under this Article 8 may be
made thereon) if a written notice asserting the claim shall have been duly
given in accordance with this Article 8 within the Survival Period with
respect to such matter. All covenants and agreements contained herein shall
survive without limitation. Any claim for indemnification made during the
Survival Period shall be valid and the representations and warranties relating
thereto shall remain in effect for purposes of such indemnification
notwithstanding that such claim may not be resolved within the Survival Period.
8.2 Indemnification by the Seller. Except as otherwise limited
by this Article 8, the Seller agrees to indemnify, defend and hold the Buyer,
the Company and the Subsidiaries and each of their officers, directors,
employees, agents, stockholders and controlling Persons and their respective
successors and assigns harmless from and against and in respect of Damages
actually suffered, incurred or realized by such party (collectively, "Buyer
Losses"), arising out of or resulting from or relating to any
misrepresentation, breach of warranty or breach of any covenant or agreement
made or undertaken by the Seller in this Agreement. Notwithstanding the
foregoing, the Seller shall not be liable under this Section 8.2 in respect to
a misrepresentation or breach of warranty unless and until the aggregate amount
of any Buyer Losses for which the Buyer is entitled to indemnification pursuant
to such clause from all such Persons exceeds $500,000 and then only for those
Buyer Losses that in the aggregate exceed $500,000; provided, however, that
liability for those Buyer Losses under this Section 8.2 shall not exceed the
Cash Purchase Price. For purposes of determining the Buyer's right to
indemnification for a misrepresentation or breach of warranty made by the
Seller in this Agreement, all such representations and warranties that have
been made subject to a materiality qualification, except to the extent the word
"material" is used to modify any income, asset, expense, liability, property,
obligation or insurance policy in Section 2.5, 2.6(a), 2.7(a)(iii) or 2.13,
shall be deemed to have been made without that qualification.
8.3 Indemnification by the Buyer. Except as otherwise limited by
this Article 8, the Buyer agrees to indemnify, defend and hold the Seller and
each of its officers, directors, employees, agents, stockholders and
controlling Persons and its successors and assigns harmless from and against
and in respect of Damages actually suffered, incurred or realized by such party
(collectively, "Seller Losses"), arising out of or resulting from any
misrepresentation, breach of warranty or breach of any covenant or agreement
made or undertaken by the Buyer in this Agreement.
8.4 Procedure. All claims for indemnification under this Article
8 shall be asserted and resolved as follows:
(a) An Indemnitee shall promptly give the Indemnitor
notice of any matter that an Indemnitee has determined has given or could give
rise to a right of indemnification under this Agreement, stating the amount of
the Losses, if known, and method of computation thereof, all with reasonable
particularity, and stating with
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particularity the nature of such matter. Failure to provide such notice shall
not relieve the Indemnitor from any liability that it may have under this
Article 8 except to the extent it has been materially prejudiced by such
failure or from any liability that it may have to an Indemnitee otherwise than
under this Article 8.
(b) The obligations and liabilities of an Indemnitor
under this Article 8 with respect to Losses arising from claims of any third
party that are subject to the indemnification provided for in this Article 8
("Third Party Claims") shall be governed by and contingent upon the following
additional terms and conditions: if an Indemnitee shall receive notice of any
Third Party Claim, the Indemnitee shall give the Indemnitor prompt notice of
such Third Party Claim and the Indemnitor may, at its option, assume and
control the defense of such Third Party Claim at the Indemnitor's expense and
through counsel of the Indemnitor's choice reasonably acceptable to Indemnitee.
If the Indemnitor assumes the defense against any such Third Party Claim as
provided above, the Indemnitee shall have the right to participate at its own
expense in the defense of such asserted liability, shall cooperate with the
Indemnitor in such defense and will use reasonable efforts to make available to
the Indemnitor, at the Indemnitor's expense, all witnesses, pertinent records,
materials and information in its possession or under its control relating
thereto as may be reasonably required by the Indemnitor. If the Indemnitor
does not elect to conduct the defense against any such Third Party Claim, the
Indemnitor shall pay all reasonable costs and expenses of such defense as
incurred and shall cooperate with the Indemnitee (and be entitled to
participate) in such defense and use reasonable efforts to make available to it
all such witnesses, records, materials and information in its possession or
under its control relating thereto as may be reasonably required by the
Indemnitee. No Third Party Claim may be settled without the written consent of
the Indemnitee unless such settlement includes an unconditional release of the
Indemnitee from all liability arising out of such Third Party Claim.
(c) With respect to any Buyer Loss for which the Seller
is required to indemnify and defend the Buyer pursuant to the terms of this
Agreement and that requires any removal, remedial, response, clean-up or other
corrective action on property that is owned by or under the control of the
Company or a Subsidiary ("Remedial Action") to address conditions that cause,
contribute to or are associated with such Buyer Loss, the Seller may elect to
satisfy such Buyer Loss by implementing and completing such Remedial Action.
Any Remedial Action implemented and completed by the Seller shall achieve
cleanup standards appropriate for industrial facilities, as such standards
exist under Environmental Laws at the time the Remedial Action is conducted.
However, the Seller's obligation to indemnify and defend the Buyer shall be
limited to the cost of the Remedial Action necessary to achieve cleanup
standards appropriate for industrial facilities, as such standards exist under
Environmental Laws as of the Closing Date, and the Buyer shall pay the portion
of the cost of the Remedial Action that is in excess of the cost of the
Remedial Action that would have been necessary to achieve cleanup standards
appropriate for industrial facilities, as such standards exist under
Environmental Laws as of the Closing Date. The Seller shall endeavor to plan,
design, implement and perform such Remedial Action without undue delay and in a
manner that does not unreasonably interfere with the operations and
requirements of the Business. At the request of the Company, the Seller shall
use commercially reasonable efforts to cause the Company and the Buyer
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to be listed as additional insureds under an insurance policy of either the
Seller or the remediation contractor or contractors retained by the Seller that
may provide coverage with respect to such Remedial Action, but only with
respect to liability for bodily injury or property damage arising out of the
performance of the Remedial Action. The Seller also shall provide the Buyer
with copies of all reports, plans and correspondence submitted to any
Governmental Entity with respect to such Remedial Action.
8.5 Limitation. No claim for indemnification under this Article
8 may be asserted subsequent to the applicable Survival Period; provided,
however, that any claim for indemnification under this Article 8 made during
the applicable Survival Period shall be valid notwithstanding that such claim
may not be resolved within the applicable Survival Period.
8.6 Payment. Payment of any amounts due pursuant to this Article
8 shall be due and payable within ten Business Days after notice is received by
the Indemnitor.
8.7 Failure to Pay Indemnification. If and to the extent the
Indemnitee shall make written demand upon the Indemnitor for indemnification
pursuant to this Article 8 and the Indemnitor shall refuse or fail to pay in
full within ten Business Days of such written demand the amounts demanded
pursuant hereto and in accordance herewith, then the Indemnitee may utilize any
legal or equitable remedy to collect from the Indemnitor the amount of its
Losses and the Indemnitor shall pay, in addition to the Losses, the costs and
expenses of the Indemnitee in exercising its rights under this Section 8.7.
Nothing contained herein is intended to limit or constrain the Indemnitee's
rights against the Indemnitor for indemnity, the remedies herein being
cumulative and in addition to all other rights and remedies of the Indemnitee.
8.8 Adjustment of Liability. The amount which an Indemnitee
shall be entitled to receive from an Indemnitor with respect to any
indemnifiable Losses under this Article 8 shall be net of any insurance
recovery by the Indemnitee on account of such Losses from an unaffiliated party
and net of the amount of a tax benefit actually realized by the Indemnitee on
account of such Losses.
8.9 Release. In consideration for the agreement of the Seller to
indemnify and defend the Buyer in the manner provided in this Agreement, the
Buyer, the Company and the Subsidiaries hereby release, acquit and forever
discharge the Seller and Weatherford from any claim, demand or cause of action
the Buyer, the Company or any Subsidiary may have against the Seller or
Weatherford (including any right of contribution or reimbursement provided
under any Environmental Law), but only to the extent that (a) such claim,
demand or cause of action relates to matters that are the subject of
indemnification under Section 8.2 hereof and (b) all such indemnification
obligations of the Seller are performed in full in accordance with the terms of
this Agreement.
8.10 Express Negligence. THE FOREGOING INDEMNITIES SET FORTH IN
THIS ARTICLE 8 ARE INTENDED TO BE ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE
WITH THE EXPRESS TERMS AND SCOPE THEREOF NOTWITHSTANDING TEXAS' EXPRESS
NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE
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LIMIT INDEMNITIES BECAUSE OF THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE,
CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY OF ANY OF THE
INDEMNIFIED PARTIES.
8.11 Specific Claims. The Seller agrees that it will at the
Closing assume from the Company or the appropriate Subsidiary the specific
Third Party Claims and the potential claims referred to in Section 8.11 of the
Disclosure Schedule (the "Retained Claims") and will, at its own expense and
through counsel chosen by the Seller, have complete control of the defense of
the Retained Claims. The Buyer agrees to cause the Company and the
Subsidiaries to cooperate with the Seller in such defense and shall use
reasonable efforts to make available to the Seller, at the Seller's expense,
all witnesses, pertinent records, materials and information in their
possession, or under their control, following the Closing relating thereto as
may be reasonably required by the Seller. In addition, the Seller agrees to
indemnify, defend and hold the Buyer, the Company and the Subsidiaries and
their respective successors and assigns harmless, without regard to any of the
limitations imposed by the second sentence of Section 8.2 hereof, from and
against and in respect of Buyer Losses arising out of or resulting from or
relating to the Retained Claims.
ARTICLE 9
TERMINATION
9.1 Events of Termination. The obligation to close the
transactions contemplated by this Agreement may be terminated by:
(a) mutual agreement of the Buyer and the Seller;
(b) the Buyer, if a material default shall be made by the
Seller in the observance or in the due and timely performance by the Seller of
any agreements and covenants of the Seller herein contained, or if there shall
have been a breach by the Seller of any of the warranties and representations
of the Seller herein contained, and such default or breach has not been cured
or has not been waived within 10 days of written notice thereof;
(c) the Seller, if a material default shall be made by
the Buyer in the observance or in the due and timely performance by the Buyer
of any agreements and covenants of the Buyer herein contained, or if there
shall have been a breach by the Buyer of any of the warranties and
representations of the Buyer herein contained, and such default or breach has
not been cured or has not been waived within 10 days of written notice thereof;
or
(d) the Buyer or the Seller, provided the terminating
party has not materially breached any of its agreements, covenants,
representations or warranties, if the Closing shall not have occurred on or
before July 7, 1997.
9.2 Liability Upon Termination. If the obligation to close the
transactions contemplated by this Agreement is terminated pursuant to any
provision of this
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Article 9, then the provisions of the second sentence of Section 4.10(a) hereof
and the provisions of Section 12.2 hereof shall survive any such termination
and neither party hereto shall have any other obligations or liability to the
other party, except that nothing herein and no such termination shall relieve
(a) the Seller from liability if the Buyer terminates this Agreement pursuant
to Section 9.1(b) hereof or (b) the Buyer from liability if the Seller
terminates this Agreement pursuant to Section 9.1(c) hereof.
9.3 Notice of Termination. The parties hereto may exercise their
respective rights of termination under this Article 9 only by delivering
written notice to that effect to the other party or parties, provided, however,
that such notice must be received on or before the Closing Date.
ARTICLE 10
DEFINITIONS OF CERTAIN TERMS
In addition to terms defined elsewhere in this Agreement, the
following terms shall have the meanings assigned to them herein, unless the
context otherwise indicates, both for purposes of this Agreement and the
Disclosure Schedule:
10.1 "Accounts Receivable" shall have the meaning given such term
in Section 4.3(a) hereof.
10.2 "Affiliate" shall mean, with respect to any Person, an
individual or entity that, directly or indirectly, controls, is controlled by
or is under common control with such Person. For this purpose, "control" and
its variants shall mean the ability of a Person to control the management and
policies of another Person. In the case of the Seller, the term "Affiliate"
shall not include either the Company or any Subsidiary.
10.3 "Agreement" shall mean this Stock Purchase Agreement between
the Seller and the Buyer, joined herein by Weatherford for the limited purposes
set forth herein, as amended from time to time by such parties.
10.4 "Authorization" shall mean any license, permit, consent,
waiver, franchise, authorization or approval of any Person, including any
Governmental Entity.
10.5 "Benefit Plans" shall mean, any employee pension benefit plan
(whether or not insured), as defined in Section 3(2) of ERISA, any employee
welfare benefit plan (whether or not insured), as defined in Section 3(1) of
ERISA, any plans that would be employee pension benefit plans or employee
welfare benefit plans if they were subject to ERISA, such as foreign plans and
plans for directors, any stock bonus, stock ownership, stock option, stock
purchase, stock appreciation rights, phantom stock or other stock plan (whether
qualified or nonqualified) and any bonus or incentive compensation plan
currently sponsored, maintained or contributed to by the Company or any
Subsidiary for the benefit of any of the present or former directors, officers,
employees, agents, consultants or other similar representatives providing
services to or for the Company or any Subsidiary in connection with such
services; provided, however,
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that such term shall not include (a) routine employment policies and procedures
developed and applied in the ordinary course of business and consistent with
past practice, including wage, vacation, holiday and sick or other leave
policies, (b) workers compensation insurance and (c) directors and officers
liability insurance.
10.6 "Business" shall mean the businesses and operations of the
Company and the Subsidiaries relating to the design, assembly, installation and
commission of instrumentation and electrical control and safety systems and the
provision of engineering and technical services, including the testing,
maintenance and upgrade of existing instrumentation and electrical control and
safety systems.
10.7 "Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in Houston, Texas are authorized
by law to close.
10.8 "Buyer" shall have the meaning specified in the preamble.
10.9 "Buyer Losses" shall have the meaning given such term in
Section 8.2 hereof.
10.10 "Cash Purchase Price" shall mean the amount of the Closing
Payment plus the amount, if any, by which the total stockholder's equity
reflected in the Company's Closing Financial Statements (determined in
accordance with Section 1.4(a) hereof) shall exceed $17,991,000 or minus the
amount, if any, by which $17,991,000 exceeds such total stockholder's equity.
10.11 "CERCLA" shall mean the Comprehensive Environmental,
Response, Compensation and Liability Act of 1980.
10.12 "Closing" shall mean the closing of the transactions
contemplated by this Agreement.
10.13 "Closing Date" shall have the meaning given such term in
Section 1.3 hereof.
10.14 "Closing Payment" shall have the meaning given such term in
Section 1.2(a) hereof.
10.15 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or similar provisions of legislation replacing such
law from time to time.
10.16 "Commonly Controlled Entity" shall have the meaning given
such term in Section 2.18(m) hereof.
10.17 "Company" shall have the meaning given such term in the
recitals to this Agreement.
10.18 "Company's Closing Financial Statements" shall have the
meaning given such term in Section 1.4(a) hereof.
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10.19 "Company's Financial Statements" shall mean the unaudited
consolidated balance sheet of the Company and the Subsidiaries as of December
31, 1996, and the related consolidated statements of income, cash flows and
changes in stockholder's equity for the year ended December 31, 1996, together
with the notes thereto.
10.20 "Contracts and Other Agreements" shall mean all executory
contracts, agreements, understandings, indentures, notes, bonds, loans,
instruments, leases, mortgages, franchises, licenses, commitments or binding
arrangements, whether express or implied, oral or written, to which the Company
or any Subsidiary is a party or bound or to which their properties or assets
are subject.
10.21 "Damages" shall mean any and all liabilities, losses,
damages, demands, assessments, claims, costs and expenses (including interest,
awards, judgments, penalties, settlements, fines, costs of remediation,
diminutions in value, costs and expenses incurred in connection with
investigating and defending any claims or causes of action (including
attorneys' fees and expenses and all fees and expenses of consultants and other
professionals)).
10.22 "Debt Obligations" shall mean any note, bond, debenture,
purchase money obligation or capitalized lease obligation, any contract,
agreement, indenture or other instrument relating to the borrowing of money,
any obligation in support of any letter of credit, performance bond or similar
undertaking issued by a third party or any guarantee, suretyship agreement or
other contingent liability in respect of any indebtedness or obligation of any
Person (other than the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business). Such term shall not include
trade accounts payable incurred in the ordinary course of business conducted in
accordance with past practice.
10.23 "Disclosure Schedule" shall mean the disclosure schedule
delivered to the Buyer.
10.24 "Disputed Account Receivable" shall have the meaning given
such term in Section 4.3(b) hereof.
10.25 "Environmental Laws" shall mean any and all laws, statutes,
ordinances, rules, regulations or final and nonappealable orders of any
governmental authority pertaining to the environment in effect as of the
Closing Date and applicable to the Company or any of the Subsidiaries,
including the Clean Air Act, CERCLA, the Federal Water Pollution Control Act,
the Resource Conservation and Recovery Act of 1976, the Safe Drinking Water
Act, the Toxic Substances Control Act, the Hazardous & Solid Waste Amendments
Act of 1984, the Superfund Amendments and Reauthorization Act of 1986, the
Hazardous Materials Transportation Act, the Oil Pollution Act of 1990, any
state or local Laws implementing the foregoing federal Laws, and any state Laws
pertaining to the handling of oil and gas exploration and production wastes or
the use, maintenance and closure of pits and impoundments, and all other
environmental conservation or protection Laws. "Environmental Laws" does not
include the Occupational Safety and Health Act or any other federal, state or
local Law, statute, ordinance, regulation or order governing worker safety or
workplace conditions.
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10.26 "Environmental Permit" shall mean any permit, license,
approval, registration, identification number or other authorization with
respect to the Business under any applicable Environmental Law.
10.27 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
10.28 "Final Statement" shall have the meaning given such term in
Section 1.4(a) hereof.
10.29 "Financing Commitments" shall mean (i) that certain
commitment to lend the Company funds dated May 5, 1997 issued by Texas Commerce
Bank National Association and Chase Securities, Inc. for and on behalf of the
Company and (ii) that certain commitment dated May 7, 1997 issued by an
Affiliate of the Buyer to invest funds in the equity of the Buyer, which
commitments together will provide funds at least equal to the Closing Payment.
10.30 "Governmental Entity" shall mean any arbitrator, court,
administrative or regulatory agency, commission, department, board or bureau or
body or other government or authority or instrumentality or any entity or
Person exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
10.31 "Hazardous Materials" shall mean any (a) petroleum or
petroleum products, (b) hazardous substances as defined by Section 101(14) of
CERCLA and (c) any other chemical, substance or waste that is regulated by any
Governmental Entity under any Environmental Law.
10.32 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
10.33 The term "including" shall mean including without limitation.
10.34 "Indemnitee" shall mean the Person or Persons indemnified or
entitled, or claiming to be entitled to be indemnified, pursuant to the
provisions of Section 8.2 or Section 8.3 hereof, as the case may be.
10.35 "Indemnitor" shall mean the Person or Persons having the
obligation to indemnify pursuant to the provisions of Section 8.2 or Section
8.3 hereof, as the case may be.
10.36 "Intercompany Payable" shall have the meaning given such term
in Section 1.2(e) hereof.
10.37 "Intercompany Receivable" shall have the meaning given such
term in Section 1.2(e) hereof.
10.38 "IRS" shall mean the Internal Revenue Service.
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10.39 The term "knowledge" shall mean, when used with respect to
the Seller, the actual, present knowledge of Philip Rundle, David Volz and
Barbara Maique, after each such person has been involved in the due diligence
review described in Annex B.
10.40 "Law" shall mean any law, statute or ordinance of the United
States of America or any political subdivision thereof, any foreign country or
any domestic or foreign state, province, commonwealth, city, country,
municipality, territory, protectorate, possession or similar instrumentality.
10.41 "Lien" shall mean any lien, pledge, adverse claim, charge,
security interest, constructive trust or other encumbrance, option, defect or
other rights of any third Person of any nature whatsoever.
10.42 "Losses" shall mean Seller Losses or Buyer Losses, as the
case may be.
10.43 "Material Adverse Effect" shall mean a single event,
occurrence or fact that, together with all other events, occurrences and facts
that could reasonably be expected to result in a loss to the Business, would
have, or might reasonably be expected to have, a material adverse effect on the
assets, liabilities (absolute or contingent), results of operations, condition
(financial and other) or business of the Company and the Subsidiaries, taken as
a whole.
10.44 "Order" shall mean any judgment, order or decree of any
Governmental Entity, including any court or arbitration tribunal.
10.45 "Permitted Liens" shall mean (a) Liens securing or relating
to liabilities or obligations of the Company or any Subsidiary that are
disclosed in the Company's Financial Statements, (b) Liens for current taxes
and assessments not yet due, (c) inchoate mechanic and materialmen Liens for
construction in progress, (d) inchoate workmen, repairmen, warehousemen and
carriers' Liens arising in the ordinary course of business, (e) Liens created by
the Buyer and (f) such Liens and imperfections of title with respect to real
property owned in fee simple by the Company or any Subsidiary as would not have
a Material Adverse Effect.
10.46 "Person" shall mean a corporation, an association, a
partnership, an organization, a business, an individual or a Governmental
Entity.
10.47 "Proprietary Information" shall mean collectively (a)
Proprietary Rights and (b) any and all other information and material
proprietary to the Company and the Subsidiaries, owned, possessed or used by
the Company and the Subsidiaries, whether or not such information is embodied
in writing or other physical form, and which is not generally known to the
public, that (i) relate to financial information regarding the Company or any
of the Subsidiaries, including (A) business plans and (B) sales, financing,
pricing and marketing procedures or methods of the Company and the Subsidiaries
or (ii) relate to specific business matters concerning the Company and the
Subsidiaries, including the identity of or other information regarding sales
personnel or customers of the Company and the Subsidiaries.
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10.48 "Proprietary Rights" means all patents, inventions, shop
rights, know how, trade secrets, designs, plans, manuals, computer software,
specifications, confidentiality agreements, confidential information and other
proprietary technology and similar information; all registered and unregistered
trademarks, service marks, logos, trade and corporate names (including the
names "Total Engineering Services Team", "Test", "Test International" and
"Nana" and all derivations thereof) and all other trademark rights; all
registered and unregistered copyrights; and all registrations for, and
applications for registration of, any of the foregoing, that are used in the
conduct of the Business.
10.49 "Regulation" shall mean any rule or regulation of any
Governmental Entity having the effect of law in the jurisdiction in which such
Governmental Entity is located.
10.50 "Remedial Action" shall have the meaning given such term in
Section 8.4(c) hereof.
10.51 "Retained Claims" shall have the meaning given such term in
Section 8.11 hereof.
10.52 "Seller" shall have the meaning specified in the preamble.
10.53 "Seller Losses" shall have the meaning given such term in
Section 8.3 hereof.
10.54 "Seller's Portion" shall have the meaning given such term in
Section 11.2 hereof.
10.55 "Shares" shall have the meaning given such term in Section
1.1 hereof.
10.56 "Subsidiaries" shall mean Test International E.C., Nana Test,
Inc., Test International, TEST, Inc. and Test Saudi Arabia Ltd. and
"Subsidiary" shall mean any of them.
10.57 "Survival Period" shall have the meaning given such term in
Section 8.1 hereof.
10.58 "Taxes" shall mean all federal, state, local, foreign and
other taxes, charges, fees, duties, levies, imposts, customs or other
assessments, including all net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, profit share, license, lease,
service, service use, value added, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, premium, property, windfall profits,
or other taxes, fees, assessments, customs, duties, levies, imposts, or charges
of any kind whatsoever, together with any interest, penalties, additions to
tax, fines or other additional amounts imposed thereon or related thereto, and
the term "Tax" means any one of the foregoing Taxes.
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10.59 "Tax Items" shall have the meaning given such term in
Section 11.1(a) hereof.
10.60 "Tax Returns" shall have the meaning given such term in
Section 2.17 hereof.
10.61 "Terminated Benefit Plans" shall mean Benefit Plans that were
sponsored, maintained or contributed to by the Company or any Subsidiary within
six years prior to the date of this Agreement but that have been terminated
prior to the date of this Agreement.
10.62 "Third Party Claims" shall have the meaning given such term
in Section 8.4(b) hereof.
10.63 "Transferred Employees" shall have the meaning given such
term in Section 4.2(b) hereof.
10.64 "Weatherford" shall have the meaning specified in the
preamble.
ARTICLE 11
TAX MATTERS
11.1 Tax Returns for Pre-Closing Periods.
(a) The Seller shall cause to be included in the
consolidated federal income Tax Returns (and the state income Tax Returns of
any state that permits consolidated, combined or unitary income Tax Returns, if
any) of the affiliated group of corporations filing a consolidated income Tax
Return of which the Seller is a member for all periods ending on or before the
Closing Date, all items of income, gain, loss, deduction and credit and other
tax items ("Tax Items") of the Company and each Subsidiary that are required to
be included therein, shall cause such Tax Returns to be timely filed with the
appropriate taxing authorities and shall be responsible for the timely payment
(and entitled to any refund) of all Taxes due with respect to the periods
covered by such Tax Returns.
(b) With respect to any Tax Return covering a taxable
period ending on or before the Closing Date that is required to be filed after
the Closing Date with respect to the Company or any Subsidiary that is not
described in Section 11.1(a) hereof, the Seller shall cause such Tax Return to
be prepared, shall cause to be included in such Tax Return all Tax Items
required to be included therein, shall cause such Tax Return to be filed timely
with the appropriate taxing authority and shall be responsible for the timely
payment (and entitled to any refund) of all Taxes due with respect to the
period covered by such Tax Return.
11.2 Tax Returns for Post-Closing Periods. With respect to any
Tax Return covering a taxable period beginning on or before the Closing Date
and ending after the
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Closing Date that is required to be filed after the Closing Date with respect
to the Company or any Subsidiary, the Buyer shall cause such Tax Return to be
prepared, shall cause to be included in such Tax Return all Tax Items required
to be included therein, shall furnish a copy of such Tax Return to the Seller,
shall file timely such Tax Return with the appropriate taxing authority and
shall be responsible for the timely payment (and be entitled to any refund) of
all Taxes due with respect to the period covered by such Tax Return. The Buyer
shall determine (by an interim closing of the books as of the Closing Date
except for ad valorem Taxes, which shall be prorated on a daily basis) the
portion of the Tax due with respect to the period covered by such Tax Return
that is attributable to the portion of such taxable period ending on the
Closing Date (the "Seller's Portion") and shall notify the Seller in writing of
its determination of the Seller's Portion. The Buyer shall provide the Seller
access to copies of all work papers and other relevant documents to verify the
Seller's computations with regard to the determination of the Seller's Portion.
The Seller shall have a period of 15 calendar days after delivery to it of such
written notification to review it and make any objections the Seller may have
in writing to the Buyer. If written objections to the determination of the
Seller's Portion are delivered to the Buyer within such 15 day period, then the
Buyer and the Seller shall attempt to resolve the matter or matters in dispute.
If no written objections are made within the time period provided above, the
Seller shall pay to the Buyer an amount equal to the Seller's Portion not later
than five Business Days after the end of such 15 day period. If the Buyer and
the Seller cannot agree on the computation, the matter shall become subject to
the provisions of Section 1.4(b) hereof.
11.3 Allocation of Franchise Taxes. Notwithstanding anything to
the contrary herein, any franchise Tax paid or payable with respect to the
Company or any Subsidiary shall be allocated to the taxable period during which
the income, operations, assets or capital comprising the base of such Tax is
measured, regardless of whether the right to do business for another taxable
period is obtained by the payment of such Tax. With respect to any franchise
Tax so allocated to the taxable period in which the Closing Date occurs: (i)
the amount of such franchise Tax shall be prorated on a daily basis between the
portion of such taxable period ending on the Closing Date and the remaining
portion of such taxable period and (ii) if the amount of such franchise Tax
paid as of the Closing Date exceeds the amount so prorated to the portion of
such taxable period ending on the Closing Date, the excess shall constitute a
purchase price adjustment in favor of the Seller for purposes of determining
the purchase price adjustment pursuant to Section 1.4 hereof.
11.4 Preparation of Tax Returns. Any Tax Return to be prepared
pursuant to the provisions of this Article 11 shall be prepared in a manner
consistent with practices followed in prior years with respect to similar Tax
Returns, except for changes required by changes in Law or fact.
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ARTICLE 12
MISCELLANEOUS
12.1 Public Announcements. Subject to applicable securities law
or stock exchange requirements, neither the Buyer nor the Seller shall, without
the prior approval of the other party, issue, or permit any of their respective
partners, directors, officers, employees, agents or Affiliates to issue, any
press release or other public announcement with respect to this Agreement or
the transactions contemplated hereby.
12.2 Expenses. Except as otherwise set forth herein, and whether
or not the transactions contemplated by this Agreement shall be consummated,
each party agrees to pay, without right of reimbursement from any other party,
the costs incurred by such party incident to the preparation and execution of
this Agreement and performance of its obligations hereunder, including the fees
and disbursements of legal counsel, accountants and consultants employed by
such party in connection with the transactions contemplated by this Agreement.
12.3 Notices. All notices, requests, consents, directions and
other instruments and communications required or permitted to be given under
this Agreement shall be in writing and shall be deemed to have been duly given
if delivered in person, by courier, by overnight delivery service with proof of
delivery or by prepaid registered or certified United States first-class mail,
return receipt requested, addressed to the respective party at the address set
forth below, or if sent by facsimile or other similar form of communication
(with receipt confirmed) to the respective party at the facsimile number set
forth below:
If to the Seller, to:
Enterra Petroleum Equipment Group, Inc.
1360 Post Oak Boulevard, Suite 1000
Houston, Texas 77056
Attention: H. Suzanne Thomas
Facsimile: (713) 622-0913
Confirm: (713) 439-9400
Copies to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Charles L. Strauss
Facsimile: (713) 651-5246
Confirm: (713) 651-5151
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<PAGE> 43
If to the Buyer, to:
National Tank Company
2950 N. Loop W., Suite 750
Houston, Texas 77092
Attention: William Wiener
Facsimile: (713) 683-7841
Confirm: (713) 683-9292
Copies to:
Vinson & Elkins L.L.P.
First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: William E. Joor III
Facsimile: (713) 758-2346
Confirm: (713) 758-2481
or to such other address or facsimile number and to the attention of such other
Person(s) as either party may designate by written notice. Any notice mailed
shall be deemed to have been given and received on the third Business Day
following the day of mailing.
12.4 Successors. This Agreement shall inure to the benefit of and
be binding upon the Buyer and the Seller and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interest or
obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties hereto.
12.5 Entire Agreement. This Agreement and the annexes hereto and
the Disclosure Schedule constitute the entire agreement and understanding
between the parties relating to the subject matter hereof and thereof and
supersedes all prior representations, endorsements, promises, agreements,
memoranda, communications, negotiations, discussions, understandings and
arrangements, whether oral, written or inferred, between the parties relating
to the subject matter hereof. This Agreement may not be modified, amended,
rescinded, canceled, altered or supplemented, in whole or in part, except upon
the execution and delivery of a written instrument executed by a duly
authorized representative of each of the parties hereto.
12.6 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas
without giving effect to choice of law principles.
12.7 Waiver. The waiver of any breach of any term or condition of
this Agreement shall not be deemed to constitute the waiver of any other breach
of the same or any other term or condition.
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<PAGE> 44
12.8 Severability. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12.9 No Third Party Beneficiaries. Any agreement contained,
expressed or implied in this Agreement shall be only for the benefit of the
parties hereto and the Indemnitees and their respective legal representatives,
successors and assigns, and such agreements shall not inure to the benefit of
any employees of the Company or any Subsidiary (except in their capacity as
Indemnitees) or the obligees of any indebtedness of any party hereto, it being
the intention of the parties hereto that no Person shall be deemed a third
party beneficiary of this Agreement, except to the extent a third party is
expressly given rights herein.
12.10 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.11 Headings. The headings of the Articles and Sections of this
Agreement have been inserted for convenience of reference only and shall in no
way restrict or otherwise modify any of the terms or provisions hereof or
affect in any way the meaning or interpretation of this Agreement.
12.12 Negotiated Transaction. The provisions of this Agreement
were negotiated by the parties hereto, and this Agreement shall be deemed to
have been drafted by all of the parties hereto.
ARTICLE 13
JOINDER
Weatherford hereby joins in this Agreement for the limited purpose of
guaranteeing, and does hereby guarantee, the performance by the Seller in
accordance with its terms of each and every obligation of the Seller hereunder.
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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
SELLER:
ENTERRA PETROLEUM EQUIPMENT GROUP, INC.
By:
-------------------------------------
H. Suzanne Thomas
Senior Vice President and Secretary
BUYER:
NATIONAL TANK COMPANY
By:
-------------------------------------
William B. Wiener III
Senior Vice President
WEATHERFORD ENTERRA, INC.
(which joins in this Agreement for the
limited purposes set forth in
Article 13 hereof)
By:
-------------------------------------
H. Suzanne Thomas
Senior Vice President,
General Counsel and Secretary
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<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
NATCO GROUP INC.
FIRST: The name of the corporation is NATCO Group Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is The Corporation Trust Company, 1209 Orange Street in the
City of Wilmington, County of New Castle. The name of its registered agent at
that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code.
FOURTH: The aggregate number of shares of capital stock that the
Corporation shall have authority to issue is 55,000,000 shares, of which
5,000,000 shall be shares of Preferred Stock, par value $.01 per share
("Preferred Stock"), and 50,000,000 shall be shares of Common Stock, par value
of $.01 per share ("Common Stock").
The following is a statement fixing certain of the designations and
powers, voting powers, preferences, and relative, participating, optional or
other rights of the Preferred Stock and the Common Stock of the Corporation,
and the qualifications, limitations or restrictions thereof, and the authority
with respect thereto expressly granted to the Board of Directors of the
Corporation:
I. Preferred Stock
The Board of Directors is hereby expressly vested with the
authority to adopt a resolution or resolutions providing for the
issuance of authorized but unissued shares of Preferred Stock, which
shares may be issued from time to time in one or more series and in
such amounts as may be determined by the Board of Directors in such
resolution or resolutions. The voting powers, full or limited, or no
voting powers, and such designations, preferences, and relative,
participating, optional or other special rights, if any, of each
series of Preferred Stock and the qualifications, limitations or
restrictions, if any, of such preferences and/or rights (collectively
the "Series Terms"), shall be such as are stated and expressed in a
resolution or resolutions providing for the creation or revision of
such Series Terms (a "Preferred Stock Series Resolution") adopted by
the Board of Directors.
Any of the Series Terms, including voting rights, of any series
may be made dependent upon facts ascertainable outside this
Certificate of Incorporation and the Preferred Stock Series
Resolution, provided that the manner in which such facts shall operate
upon such Series Terms is clearly and expressly set forth in this
Certificate of Incorporation or in the Preferred Stock Series
Resolution.
<PAGE> 2
Except in respect of characteristics of a particular series
fixed by the Board of Directors, all shares of Preferred Stock shall
be of equal rank and shall be identical. All shares of any one series
of Preferred Stock so designated by the Board of Directors shall be
alike in every particular, except that shares of any one series issued
at different times may differ as to the dates from which dividends
thereon shall be cumulative,
II. Common Stock
1. Dividends. Subject to the provisions of any Preferred Stock
Series Resolution, the Board of Directors may, in its discretion, out
of funds legally available for the payment of dividends and at such
times and in such manner as determined by the Board of Directors,
declare and pay dividends on the Common Stock.
2. Liquidation. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other
liabilities of the Corporation and payment or setting aside for
payment of any preferential amount due to the holders of any other
class or series of stock, the holders of the Common Stock shall be
entitled to receive ratably any or all assets remaining to be paid or
distributed,
3. Voting Rights. Except as may otherwise be required by law,
this Certificate of Incorporation or the provisions of any Preferred
Stock Series Resolution, each holder of Common Stock shall have one
vote for each share of such stock held by such holder on each matter
voted upon by the stockholders.
III. No Preemptive Rights
No holder of shares of stock of the Corporation shall have any
preemptive or other rights, except as such rights are expressly
provided by contract, to purchase or subscribe for or receive any
shares of any class, or series thereof, of stock of the Corporation,
whether now or hereafter authorized, or any warrants, options, bonds,
debentures or other securities convertible into, exchangeable for or
carrying any right to purchase any shares of any class, or series
thereof, of stock.
FIFTH: The Board of Directors shall have the power to adopt, amend or
repeal the bylaws of the Corporation, except as may otherwise be provided in
the bylaws.
SIXTH: Meetings of stockholders may be held within or without the
State of Delaware, as the bylaws of the Corporation may provide. The books of
the Corporation may be kept (subject to any provision contained in applicable
law) outside the State of Delaware at such place as may be designated from time
to time by the Board of Directors or the bylaws of the Corporation,
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in the 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.
2
<PAGE> 3
EIGHTH: No action required or permitted by the Delaware General
Corporation Law to be taken at any annual or special meeting of the
stockholders of the Corporation may be taken without a meeting, pursuant to
Section 228 of the Delaware General Corporation Law or otherwise, unless a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of all the outstanding capital stock entitled to vote
with respect to such matter if the matter had been presented at an annual or
special meeting of stockholders of the Corporation duly called and convened.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
TENTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a director of
this Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
ELEVENTH: The Corporation may indemnify any director, officer,
employee or agent of the Corporation to the fullest extent permitted by the
Delaware General Corporation Law as the same exists or may hereafter be
amended.
TWELFTH: The number of directors which shall constitute the whole
board shall be such as from time to time shall be fixed in the manner provided
in the bylaws of the Corporation or, in the absence of any such provision, by
resolution of the Board of Directors, but in no case shall the number be less
than three.
The right to cumulate votes in the election of directors is expressly
prohibited.
The election of directors shall be by written ballot.
The directors shall be classified with respect to the time for which
they shall severally hold office by dividing them into three classes, which
classes shall consist of an equal, or as near to equal as possible, number of
directors. At the first election of directors following the effective time of
the
3
<PAGE> 4
certificate of amendment to the certificate of incorporation of the Corporation
reflecting this Article, the director or directors of the first class shall be
elected for a term expiring at the next succeeding annual meeting of
stockholders to be held in 1999; the director or directors of the second class
for a term expiring at the annual meeting to be held in 2000; and the director
or directors of the third class for a term expiring at the annual meeting to be
held in 2001. At each annual meeting, commencing with the annual meeting in
1999, the successor or successors to the class of directors whose term shall
expire in that year shall be elected to hold office for the term of three
years, so that the term of office for one class of directors shall expire in
each year. Any increase or decrease in the number of directors constituting the
Board shall be apportioned among the classes so as to maintain the number of
directors in each class as near as possible to one-third of the whole number of
directors as so adjusted. Any director elected or appointed to fill a vacancy
shall hold office for the remaining term of the class to which such
directorship is assigned. No decrease in the number of directors constituting
the Corporation's Board of Directors shall shorten the term of any incumbent
director. Any vacancy in the Board of Directors, whether arising through death,
resignation or removal of a director, or through an increase in the number of
directors of any class, shall be filled by the majority vote of the remaining
directors, although less than a quorum, or by a sole remaining director. The
bylaws may contain any provision regarding classification of the Corporation's
directors not inconsistent with the terms hereof.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Preferred Stock Series Resolutions applicable thereto, and such
directors so elected shall not be subject to the provisions of this Article
Twelfth unless expressly provided by such terms.
4
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
NATCO GROUP INC.
Pursuant to Section 151 of the
General Corporation Law
of the State of Delaware
NATCO Group Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation adopted at a meeting
duly called and held the following resolution as required by Section 151 of the
General Corporation Law:
RESOLVED, that, pursuant to the authority granted to and vested in the
Board of Directors of the Company in accordance with the provisions of the
Restated Certificate of Incorporation, as amended, of the Company, a series of
Series A Junior Participating Preferred Stock, par value $.01 per share, of the
Company (the "Preferred Shares") be, and hereby is, created, and that the
designation and amount thereof and the relative rights, preferences and
limitations thereof (in addition to the provisions set forth in the Restated
Certificate of Incorporation of the Company that are applicable to the Preferred
Stock of all series), shall be as follows:
1. Designation and Amount. There shall be a series of Preferred Stock
that shall be designated as "Series A Junior Participating Preferred Stock," and
the number of shares constituting such series shall be 500,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, however, that no decrease shall reduce the number of shares of Series
A Junior Participating Preferred Stock to less than the number of shares then
issued and outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock, in
preference to the holders of shares of any class or series of stock of the
Corporation ranking junior to the Series A Preferred Stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the 15th day
of March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00
or (b), subject to the provision for adjustment hereinafter set forth,
<PAGE> 2
the Adjustment Number (as defined below) times the aggregate per share amount
of all cash dividends, and the Adjustment Number times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, par value $0.01 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Junior Participating
Preferred Stock. The "Adjustment Number" shall initially be 100. If the
Corporation shall at any time after March 31, 1998 (the "Rights Declaration
Date") (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided, however,
that, if no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares saw be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof
3. Voting Rights. The holders of shares of Series A Junior Participating
Preferred Stock shall have the following voting rights:
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<PAGE> 3
(A) Each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to a number of votes equal to the Adjustment Number
on all matters submitted to a vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C)(i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") that shall extend until such time
when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A
Junior Participating Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default period, all holders of
Preferred Stock (including holders of the Series A Junior Participating
Preferred Stock) upon which these or like voting rights have been conferred and
are exercisable (the "Voting Preferred Stock") with dividends in arrears in an
amount equal to six quarterly dividends thereon, voting as a class, irrespective
of series, shall have the right to elect two Directors.
(ii) During any default period, such voting right of the holders of
Series A Junior Participating Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at
any annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting right nor the right of the
holders of any other series of Voting Preferred Stock to increase, in certain
cases, the authorized number of Directors shall be exercised unless the holders
of ten percent in number of shares of Voting Preferred Stock outstanding shall
be present in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of Voting Preferred
Stock of such voting right. At any meeting at which the holders of Voting
Preferred Stock shall exercise such voting right initially during an existing
default period, they shall have the right, voting as a class, to elect Directors
to fill such vacancies, if any, in the Board of Directors as may then exist up
to two Directors or, if such right is exercised at an annual meeting, to elect
two Directors. If the number that may be so elected at any special meeting does
not amount to the required number, the holders of the Voting Preferred Stock
shall have the right to make such increase in the number of Directors as shall
be necessary to permit the election by them of the required number. After the
holders of the Voting Preferred Stock shall have exercised their right to elect
Directors in any default period and during the continuance of such period, the
number of Directors shall not be increased or decreased except by vote of the
holders of Voting Preferred Stock as herein provided or pursuant to the rights
of any equity securities ranking senior to or pari passu with the Series A
Junior Participating Preferred Stock.
(iii) Unless the holders of Voting Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent of the total number of shares
of Voting Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Voting Preferred Stock, which
meeting shall thereupon be called by the Chairman of the Board, the President, a
Vice President or the Secretary of the Corporation.
-3-
<PAGE> 4
Notice of such meeting and of any annual meeting at which holders of Voting
Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall
be given to each holder of record of Voting Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than 20 days
and not later than 60 days after such order or request or, in default of the
calling of such meeting within 60 days after such order or request, such meeting
may be called on similar notice by any stockholder or stockholders owning in the
aggregate not less than ten percent of the total number of shares of Voting
Preferred Stock outstanding. Notwithstanding the provisions of this paragraph
(C)(iii), no such special meeting shall be called during the period within 60
days immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall continue to be entitled
to elect the whole number of Directors until the holders of Voting Preferred
Stock shall have exercised their right to elect two Directors voting as a class,
after the exercise of which right (x) the Directors so elected by the holders of
Voting Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided in
paragraph (C)(ii) of this Section 3) be filled by a vote of a majority of the
remaining Directors theretofore elected by the holders of the class of stock
which elected the Director whose office shall have become vacant. References in
this paragraph (C) to Directors elected by the holders of a particular class of
stock shall include Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Voting Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Voting Preferred
Stock as a class shall terminate and (z) the number of Directors shall be such
number as may be provided for in the Certificate of Incorporation or By-Laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any mariner provided by law or in the Certificate of Incorporation
or By-Laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
-4-
<PAGE> 5
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Participating Preferred
Stock, except dividends paid ratably on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Participating Preferred
Stock, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (both as to dividends and upon
dissolution, liquidation or winding up) to the Series A Junior Participating
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock or any shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Junior Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Series A Junior Participating Preferred Stock shall have received
$100 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of the full amount
-5-
<PAGE> 6
of the Series A Liquidation Preference, no additional distributions shall be
made to the holders of shares of Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall have received
an amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) the Adjustment Number.
Following the payment of the full amount of the Series A Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Series A
Junior Participating Preferred Stock and Common Stock, respectively, holders of
Series A Junior Participating Preferred Stock and holders of shares of Common
Stock shall receive their ratable and proportionate share of the remaining
assets to be distributed in the ratio of the Adjustment Number to 1 with respect
to such Preferred Stock and Common Stock, on a per share basis, respectively.
(B) If, however, there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, that rank on a
parity with the Series A Junior Participating Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. If, however,
there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
7. Consolidation, Merger, etc, In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash or any other property, then in any such case the shares of Series A Junior
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share equal to the Adjustment Number times the
aggregate amount of stock, securities, cash or any other property (payable in
kind), as the case may be, into which or for which each share of Common Stock is
changed or exchanged.
8. Redemption. (A) The Corporation, at its option, may redeem shares of
the Series A Junior Participating Preferred Stock in whole at any time and in
part from time to time, at a redemption price equal to the Adjustment Number
times the current per share market price (as such term is hereinafter defined)
of the Common Stock on the date of the mailing of the notice of redemption,
together with unpaid accumulated dividends to the date of such redemption. The
"current per share market price" on any date shall be deemed to be the average
of the closing prices per share of such Common Stock for the ten consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date; provided, however, that if the current per share market price of the
Common Stock is determined during a period following the announcement of (A) a
dividend or distribution on the Common Stock other than a regular quarterly cash
dividend or (B) any subdivision, combination or reclassification of such Common
Stock and the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, shall not have
occurred prior to the commencement of such ten Trading Day period, then, and in
each such case, the current per share market price shall be properly adjusted to
take into account ex-dividend trading. The closing price for each day shall be
the last sales price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange, or, if the Common Stock is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal
-6-
<PAGE> 7
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last quoted sales price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other self-regulatory organization or registered
securities information processor (as such terms are used under the Securities
Exchange Act of 1934, as amended) that then reports information concerning the
Common Stock or, if on any such date the Common Stock is not quoted by any such
entity, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Corporation. If on any such date no such market maker
is making a market in the Common Stock, the fair value of the Common Stock on
such date as determined in good faith by the Board of Directors of the
Corporation shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions
in the State of Texas are not authorized or obligated by law or executive order
to close.
(B) If fewer than all the outstanding shares of the Series A Junior
Participating Preferred Stock are to be redeemed, the number of shares to be
redeemed shall be determined by the Board of Directors and the shares to be
redeemed shall be determined by lot or pro rata as may be determined by the
Board of Directors or by any other method that may be determined by the Board of
Directors in its sole discretion to be equitable.
(C) Notice of any such redemption shall be given by mailing to the
holders of the shares of Series A Junior Participating Preferred Stock to be
redeemed a notice of such redemption, first class postage prepaid, not later
than the fifteenth day and not earlier than the sixtieth day before the date
fixed for redemption, at their last address as the same shall appear upon the
books of the Corporation. Each such notice shall state: (i) the redemption
date; (ii) the number of shares to be redeemed and, if fewer than all the
shares held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder; (iii) the redemption price; (iv) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will
cease to accrue on the close of business on such redemption date. Any notice
that is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the stockholder received such notice, and
failure duly to give such notice by mail, or any defect in such notice, to any
holder of Series A Junior Participating Preferred Stock shall not affect
the validity of the proceedings for the redemption of any other shares of
Series A Junior Participating Preferred Stock that are to be redeemed. On or
after the date fixed for redemption as stated in such notice, each holder of
the shares called for redemption shall surrender the certificate evidencing
such shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the redemption price. If fewer than
all the shares represented by any such surrendered certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.
(D) The shares of Series A Junior Participating Preferred Stock shall
not be subject to the operation of any purchase, retirement or sinking fund.
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<PAGE> 8
9. Ranking. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise,
10. Amendment. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Certificate of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Junior Participating Preferred Stock, voting separately as a class.
11. Fractional Shares. Series A Junior Participating Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
-8-
<PAGE> 9
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chief Executive Officer this 5th day of March,
1998.
NATCO GROUP INC.
By: /s/ NATHANIEL A. GREGORY
---------------------------
Nathaniel A. Gregory
Chief Executive Officer
9
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
CUMMINGS POINT INDUSTRIES, INC.
A Delaware Corporation
Date of Adoption:
February 17, 1998
<PAGE> 2
CUMMINGS POINT INDUSTRIES, INC.
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
Article I Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . 1
Article II Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 2. Quorum; Adjournment of Meetings . . . . . . . . . . . . . 1
Section 3. Annual Meetings . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Special Meetings. . . . . . . . . . . . . . . . . . . . . 2
Section 5. Record Date . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Notice of Meetings. . . . . . . . . . . . . . . . . . . . 3
Section 7. Stock List. . . . . . . . . . . . . . . . . . . . . . . . 3
Section 8. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. Voting; Elections; Inspectors . . . . . . . . . . . . . . 3
Section 10. Conduct of Meetings. . . . . . . . . . . . . . . . . . . 4
Section 11. Treasury Stock . . . . . . . . . . . . . . . . . . . . . 5
Section 12. Action Without Meeting . . . . . . . . . . . . . . . . . 5
Article III Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1. Power; Number; Term of Office . . . . . . . . . . . . . . 5
Section 2. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. Place of Meetings; Order of Business. . . . . . . . . . . 5
Section 4. First Meeting . . . . . . . . . . . . . . . . . . . . . . 5
Section 5. Regular Meetings. . . . . . . . . . . . . . . . . . . . . 6
Section 6. Special Meetings. . . . . . . . . . . . . . . . . . . . . 6
Section 7. Removal . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 8. Vacancies; Increases in the Number of Directors . . . . . 6
Section 9. Compensation. . . . . . . . . . . . . . . . . . . . . . . 6
Section 10. Action Without a Meeting; Telephone Conference
Meeting . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 11. Approval or Ratification of Acts or Contracts by
Stockholders . . . . . . . . . . . . . . . . . . . . . . 7
Article IV Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1. Designation; Powers . . . . . . . . . . . . . . . . . . . 7
Section 2. Procedure; Meetings; Quorum . . . . . . . . . . . . . . . 8
Section 3. Substitution of Members . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Article V Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1. Number, Titles and Term of Office . . . . . . . . . . . . 8
Section 2. Salaries. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3. Removal . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. Powers and Duties of the Chief Executive Officer. . . . . 9
Section 6. Powers and Duties of the Chairman of the Board. . . . . . 9
Section 7. Powers and Duties of the President. . . . . . . . . . . . 9
Section 8. Vice Presidents . . . . . . . . . . . . . . . . . . . . . 9
Section 9. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. Assistant Treasurers . . . . . . . . . . . . . . . . . . 9
Section 11. Secretary. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 12. Assistant Secretaries. . . . . . . . . . . . . . . . . . 10
Section 13. Action with Respect to Securities of Other
Corporations . . . . . . . . . . . . . . . . . . . . . . 10
Article VI Indemnification of Directors, Officers, Employees and Agents . . . 10
Section 1. Right to Indemnification. . . . . . . . . . . . . . . . . 10
Section 2. Indemnification of Employees and Agents . . . . . . . . . 11
Section 3. Right of Claimant to Bring Suit . . . . . . . . . . . . . 11
Section 4. Nonexclusivity of Rights. . . . . . . . . . . . . . . . . 12
Section 5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6. Savings Clause. . . . . . . . . . . . . . . . . . . . . . 12
Section 7. Definitions . . . . . . . . . . . . . . . . . . . . . . . 12
Article VII Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. Certificates of Stock . . . . . . . . . . . . . . . . . . 12
Section 2. Transfer of Shares. . . . . . . . . . . . . . . . . . . . 13
Section 3. Ownership of Shares . . . . . . . . . . . . . . . . . . . 13
Section 4. Regulations Regarding Certificates. . . . . . . . . . . . 13
Section 5. Lost or Destroyed Certificates . . . . . . . . . . . . . 13
Article VIII Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . 14
Section 1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Corporate Seal. . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Notice and Waiver of Notice . . . . . . . . . . . . . . . 14
Section 4. Resignations. . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. Facsimile Signatures. . . . . . . . . . . . . . . . . . . 14
Section 6. Reliance upon Books, Reports and Records. . . . . . . . . 14
Article IX Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 4
BYLAWS
OF
CUMMINGS POINT INDUSTRIES, INC.
Article I
Offices
Section 1. Registered Office. The registered office of the Corporation
required by the General Corporation Law of the State of Delaware to be
maintained in the State of Delaware, shall be the registered office named in
the original Certificate of Incorporation of the Corporation as amended and
restated from time to time (the "Certificate of Incorporation"), or such other
office as may be designated from time to time by the Board of Directors in the
manner provided by law. Should the Corporation maintain a principal office
within the State of Delaware such registered office need not be identical to
such principal office of the Corporation.
Section 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 II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at the principal office of the Corporation, or at such other place
within or without the State of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise required
by law or provided in the Certificate of Incorporation or these bylaws, the
holders of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
at any meeting of stockholders for the transaction of business and the act of a
majority of such stock so represented at any meeting of stockholders at which a
quorum is present shall constitute the act of the meeting of stockholders. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Notwithstanding the other provisions of the Certificate of
Incorporation or these bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy, at any meeting of stockholders, whether or not a quorum is present,
shall have the power to adjourn such meeting from time to time, without any
notice other than announcement at the meeting of the time and place of the
holding of the adjourned meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed
<PAGE> 5
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at such meeting. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
called.
Section 3. Annual Meetings. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Delaware, on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within fifteen (15) months
subsequent to the date of the last annual meeting of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board (if
any), by the President or by a majority of the Board of Directors, or by a
majority of the executive committee (if any), and shall be called by the
Chairman of the Board (if any), by the President or the Secretary upon the
written request therefor, stating the purpose or purposes of the meeting,
delivered to such officer, signed by the holder(s) of at least ten percent
(10%) of the issued and outstanding stock entitled to vote at such meeting.
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors of the Corporation
may fix, in advance, a date as the record date for any such determination of
stockholders, which date shall not be more than sixty (60) days nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the Board of Directors does not fix a record date for any meeting
of the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance with
Article VIII, Section 3 of these bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. If, in
accordance with Section 13 of this Article II, corporate action without a
meeting of stockholders is to be taken, the record date for determining
stockholders entitled to express consent to such corporate action in writing,
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 thereto.
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.
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Section 6. Notice of Meetings, Except as otherwise required by law or
the Certificate of Incorporation, written notice of the place, date and hour of
all meetings, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by or at the direction of the
Chairman of the Board (if any) or the President, the Secretary or the other
person(s) calling the meeting to each stockholder entitled to vote thereat not
less than ten (10) nor more than sixty (60) days before the date of the
meeting. Such notice may be delivered either personally or by mail. 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.
Section 7. Stock List. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, 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 ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The stock list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to
time determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed by the chairman of the meeting, in which event such inspector or
inspectors shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless
the proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of the
same portion of the shares as he is of the proxies representing such shares.
Section 9. Voting; Elections; Inspectors. Unless otherwise required by
law or provided in the Certificate of Incorporation, each stockholder shall
have one vote for each share of stock entitled to vote which is registered in
his name on the record date for the meeting. Shares registered in the name of
another corporation, domestic or foreign, may be voted by such officer, agent
or proxy as
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the bylaw (or comparable instrument) of such corporation may prescribe, or in
the absence of such provision, as the Board of Directors (or comparable body)
of such corporation may determine. Shares registered in the name of a deceased
person may be voted by his executor or administrator, either in person or by
proxy.
All voting shall be by stock vote. Every stock vote shall be taken by
written ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. All elections of directors shall be by ballot,
unless otherwise provided in the Certificate of Incorporation.
At any meeting at which a vote is taken by ballots, the chairman of
the meeting may appoint one or more inspectors, each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders
shall be presided over by the Chairman of the Board (if any), or if he is not
present, by the President, or if neither the Chairman of the Board (if any),
nor President is present, by a chairman elected at the meeting. The Secretary
of the Corporation, if present, shall act as secretary of such meetings, or if
he is not present, an Assistant Secretary shall so act; if neither the
Secretary nor an Assistant Secretary is present, then a secretary shall be
appointed by the chairman of the meeting. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order. Unless the chairman of the meeting of
stockholders shall otherwise determine, the order of business shall be as
follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of
a quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting, or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
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Section 11. Treasury Stock. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes.
Section 12. Action Without Meeting. Any action permitted or required
by law, the Certificate of Incorporation or these bylaws to be taken at a
meeting of stockholders, may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of all of the outstanding shares entitled to
vote thereon,
Article III
Board of Directors
Section 1. Power; Number; Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the Certificate of
Incorporation, they may exercise all the powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors shall be six. Each director shall hold office for the term for which
he is elected, and until his successor shall have been elected and qualified or
until his earlier death, resignation or removal.
Unless otherwise provided in the Certificate of Incorporation,
directors need not be stockholders nor residents of the State of Delaware.
Section 2. Quorum. Unless otherwise provided in the Certificate of
Incorporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business of the Board of Directors and the vote
of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from
time to time determine by resolution. At all meetings of the Board of Directors
business shall be transacted in such order as shall from time to time be
determined by the Chairman of the Board (if any), or in his absence by the
President, or by resolution of the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as
the annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which
a quorum shall be present, held next after the annual meeting of stockholders,
the Board of Directors shall proceed to the election of the officers of the
Corporation.
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Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board (if any), the President or, on the
written request of any two directors, by the Secretary, in each case on at
least twenty-four (24) hours personal, written, telegraphic, cable or wireless
notice to each director. Such notice, or any waiver thereof pursuant to Article
VIII, Section 3 hereof, need not state the purpose or purposes of such meeting,
except as may otherwise be required by law or provided for in the Certificate
of Incorporation or these bylaws.
Section 7. Removal. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors; provided that, unless the
Certificate of Incorporation otherwise provides, if the Board of Directors is
classified, then the stockholders may effect such removal only for cause; and
provided further that, if the Certificate of Incorporation expressly grants to
stockholders the right to cumulate votes for the election of directors and if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire Board of Directors, or, if
there be classes of directors, at an election of the class of directors of which
such director is a part.
Section 8. Vacancies. Increases in the Number of Directors. Unless
otherwise provided in the Certificate of Incorporation, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or a sole remaining director; and any director so chosen
shall hold office until the next annual election and until his successor shall
be duly elected and shall qualify, unless sooner displaced.
If the directors of the Corporation are divided into classes, any
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for which such directors shall have
been chosen, and until their successors shall be duly elected and shall
qualify.
Section 9. Compensation. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority
to fix the compensation of directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
any committee designated by the Board of Directors, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of Delaware.
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Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors,
may participate in a meeting of such Board of Directors or committee, as the
case may be, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 11. Approval or Ratification of Acts or Contracts by
Stockholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the
stockholders, or at any special meeting of the stockholders called for the
purpose of considering any such act or contract, and any act or contract that
shall be approved or be ratified by the vote of the stockholders holding a
majority of the issued and outstanding shares of stock of the Corporation
entitled to vote and present in person or by proxy at such meeting (provided
that a quorum is present), shall be as valid and as binding upon the
Corporation and upon all the stockholders as if it has been approved or
ratified by every stockholder of the Corporation. In addition, any such act or
contract may be approved or ratified by the written consent of stockholders
holding a majority of the issued and outstanding shares of capital stock of the
Corporation entitled to vote and such consent shall be as valid and as binding
upon the Corporation and upon all the stockholders as if it had been approved
or ratified by every stockholder of the Corporation.
Article IV
Committees
Section 1. Designation; Powers. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, each
such committee to consist of one or more of the directors of the Corporation.
Any such designated committee shall have and may exercise such of the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution, except that
no such committee shall have the power or authority of the Board of Directors
in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution of the Corporation, or amending,
altering or repealing the bylaws or adopting new bylaws for the Corporation
and, unless such resolution or the Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Any such designated committee
may authorize the seal of the Corporation to be affixed to all papers which may
require it. In addition to the above such committee or committees shall have
such other powers and limitations of authority as may be determined from time
to time by resolution adopted by the Board of Directors.
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Section 2. Procedure; Meetings; Quorum. Any committee designated
pursuant to Section 1 of this Article shall choose its own chairman, shall keep
regular minutes of its proceedings and report the same to the Board of
Directors when requested, shall fix its own rules or procedures, and shall meet
at such times and at such place or places as may be provided by such rules, or
by resolution of such committee or resolution of the Board of Directors. At
every meeting of any such committee, the presence of a majority of all the
members thereof shall constitute a quorum and the affirmative vote of a
majority of the members present shall be necessary for the adoption by it of
any resolution.
Section 3. Substitution of Members. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
Article V
Officers
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of
the Board and such other officers as the Board of Directors may from time to
time elect or appoint. Each officer shall hold office until his successor shall
be duly elected and shall qualify or until his death or until he shall resign
or shall have been removed in the manner hereinafter provided. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
provides otherwise. Except for the Chairman of the Board, if any, no officer
need be a director.
Section 2. Salaries. The salaries or other compensation of the
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed, either with or without cause, by the vote of
a majority of the whole Board of Directors at a special meeting called for the
purpose, or at any regular meeting of the Board of Directors, provided the
notice for such meeting shall specify that the matter of any such proposed
removal will be considered at the meeting but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights,
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
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Section 5. Powers and Duties of the Chief Executive Officer. The
President shall be the chief executive officer of the Corporation unless the
Board of Directors designates the Chairman of the Board as chief executive
officer. Subject to the control of the Board of Directors and the executive
committee (if any), the chief executive officer shall have general executive
charge, management and control of the properties, business and operations of
the Corporation with all such powers as may be reasonably incident to such
responsibilities; he may agree upon and execute all leases, contracts,
evidences of indebtedness and other obligations in the name of the Corporation
and may sign all certificates for shares of capital stock of the Corporation;
and shall have such other powers and duties as designated in accordance with
these bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 6. Powers and Duties of The Chairman of the Board. If elected,
the Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors; and he shall have such other powers and duties as
designated in these bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board or
if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 8. Vice Presidents. In the absence of the President, or in the
event of his inability or refusal to act, a Vice President designated by the
Board of Directors shall perform the duties of the President, and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President. In the absence of a designation by the Board of Directors of a
Vice President to perform the duties of the President or in the event of his
absence or inability or refusal to act, the Vice President who is present and
who is senior in terms of time as a Vice President of the Corporation shall so
act. The Vice Presidents shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and he
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors. He shall
perform all acts incident to the position of Treasurer, subject to the control
of the chief executive officer and the Board of Directors; and he shall, if
required by the Board of Directors, give such bond for the faithful discharge
of his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers, Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board
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of Directors. The Assistant Treasurers shall exercise the powers of the
Treasurer during that officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of directors and the
stockholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the
seal of the Corporation to all contracts of the Corporation and attest the
affixation of the seal of the Corporation thereto; he may sign with the other
appointed officers all certificates for shares of capital stock of the
Corporation; he shall have charge of the certificate books, transfer books and
stock ledgers, and such other books and papers as the Board of Directors may
direct, all of which shall at all reasonable times be open to inspection of any
director upon application at the office of the Corporation during business
hours; he shall have such other powers and duties as designated in these bylaws
and as from time to time may be assigned to him by the Board of Directors; and
he shall in general perform all acts incident to the office of Secretary,
subject to the control of the chief executive officer and the Board of
Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Secretaries shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the chief executive
officer shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of security holders of or
with respect to any action of security holders of any other corporation in
which this Corporation may hold securities and otherwise to exercise any and
all rights and powers which this Corporation may possess by reason of its
ownership of securities in such other corporation.
Article VI
Indemnification of Directors,
Officers, Employees and Agents
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative, is or was or has agreed to
become a director or officer of the Corporation or is or was serving or has
agreed to serve at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director or officer or in any other capacity while serving or
having agreed to serve as a director or officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended, (but,
in the case of any
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such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) against all expense, liability
and loss (including without limitation, attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity hereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Corporation. The right to indemnification conferred
in this Article VI shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
current, former or proposed director or officer in his or her capacity as a
director or officer or proposed director or officer (and not in any other
capacity in which service was or is or has been agreed to be rendered by such
person while a director or officer, including, without limitation, service to
an employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnified person, to repay all amounts so advanced if it shall
ultimately be determined that such indemnified person is not entitled to be
indemnified under this Section or otherwise.
Section 2. Indemnification of Employees and Agents. The Corporation
may, by action of its Board of Directors, provide indemnification to employees
and agents of the Corporation, individually or as a group, with the same scope
and effect as the indemnification of directors and officers provided for in
this Article.
Section 3. Right of Claimant to Bring Suit. If a written claim
received by the Corporation from or on behalf of an indemnified party under
this Article VI is not paid in full by the Corporation within ninety days after
such receipt, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
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Section 4. Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article VI shall not
be exclusive of any other right which any person may have or hereafter acquire
under any law (common or statutory), provision of the Certificate of
Incorporation of the Corporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Savings Clause. If this Article VI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each director
and officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated and to the fullest extent
permitted by applicable law.
Section 7. Definitions. For purposes of this Article, reference to the
"Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger prior to (or, in the case of an entity specifically
designated in a resolution of the Board of Directors, after) the adoption
hereof and which, if its separate existence had continued, would have had the
power and authority to indemnify its directors, officers and employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
Article VII
Capital Stock
Section 1. Certificates of Stock. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation, as shall be approved
by the Board of Directors, The Chairman of the Board (if any), President or a
Vice President shall cause to be issued to each stockholder one or more
certificates, under the seal of the Corporation or a facsimile thereof if the
Board of Directors shall have provided for such seal, and signed by the
Chairman of the Board (if any), President or a Vice President and the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer certifying
the number of shares (and, if the stock of the Corporation shall be divided
into classes or series, the class
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and series of such shares) owned by such stockholder in the Corporation;
provided, however, that any of or all the signatures on the certificate may be
facsimile. The stock record books and the blank stock certificate books shall
be kept by the Secretary, or at the office of such transfer agent or transfer
agents as the Board of Directors may from time to time by resolution determine.
In case any officer, transfer agent or registrar who shall have signed or whose
facsimile signature or signatures shall have been placed upon any such
certificate or certificates shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued by the Corporation, such
certificate may nevertheless be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue. The stock certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit
the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
Section 4. Regulations Regarding Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors may
determine the conditions upon which a new certificate of stock may be issued in
place of a certificate which is alleged to have been lost, stolen or destroyed;
and may, in their discretion, require the owner of such certificate or his
legal representative to give bond, with sufficient surety, to indemnify the
Corporation and each transfer agent and registrar against any and all losses or
claims which may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
-13-
<PAGE> 17
Article VIII
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation. The Secretary shall have
charge of the seal (if any). If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is
required to be given by law, the Certificate of Incorporation or under the
provisions of these bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission or (ii) by deposit of
the same in a post office box in a sealed prepaid wrapper addressed to the
person entitled thereto at his post office address, as it appears on the
records of the Corporation, and such notice shall be deemed to have been given
on the day of such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or the bylaws.
Section 4. Resignations. Any director, member of a committee or
officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the chief executive officer or Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. Each director and
each member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
-14-
<PAGE> 18
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
Article IX
Amendments
Unless otherwise restricted by the Certificate of Incorporation, the
Board of Directors shall have the power to adopt, amend and repeal from time to
time bylaws of the Corporation at any regular or special meeting of the Board
of Directors upon the affirmative vote of a majority of the directors then in
office, subject to the right of the stockholders entitled to vote with respect
thereto to amend or repeal such bylaws as adopted or amended by the Board of
Directors.
-15-
<PAGE> 1
EXHIBIT 10.1
NATCO GROUP INC.
DIRECTORS COMPENSATION PLAN
Effective January 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C> <C>
I - Definitions and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
II - Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
III - Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
IV - Designation of Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
V - Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
VI - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
</TABLE>
(ii)
<PAGE> 3
NATCO GROUP INC.
DIRECTORS COMPENSATION PLAN
W I T N E S S E T H :
WHEREAS, NATCO GROUP INC. (the "Company") desires to establish a
compensation and benefits plan with respect to directors who are not employees
of the Company, which includes cash remuneration, stock, and stock-based
remuneration;
NOW, THEREFORE, the NATCO GROUP INC. DIRECTORS COMPENSATION PLAN is
hereby adopted in its entirety as follows, effective as of January 1, 1998:
(iii)
<PAGE> 4
I.
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. Where the following words and phrases appear in
the Plan, they shall have the respective meanings set forth below, unless their
context clearly indicates to the contrary.
(1) BOARD: The Board of Directors of the Company.
(2) CAUSE: A Nonemployee Director's gross negligence or willful misconduct
in performance of his duties as a Director, or the Nonemployee
Director's final conviction of a felony or of a misdemeanor involving
moral turpitude.
(3) CODE: The Internal Revenue Code of 1986, as amended.
(4) COMPANY: NATCO Group Inc. or any successor thereto.
(5) CORPORATE CHANGE: One of the following events: (i) the merger,
consolidation, or other reorganization of the Company in which the
outstanding Stock is converted into or exchanged for a different class
of securities of the Company, a class of securities of any other
issuer (except a direct or indirect wholly owned subsidiary of the
Company), cash or other property; (ii) the sale, lease, or exchange of
all or substantially all of the assets of the Company to any other
corporation or entity (except a direct or indirect wholly owned
subsidiary of the Company); (iii) the adoption by the stockholders of
the Company of a plan of liquidation and dissolution; (iv) the
acquisition (other than any acquisition pursuant to any other clause
of this definition) by any person or entity, including without
limitation a "group" as contemplated by Section 13(d)(3) of the 1934
Act, of beneficial ownership, as contemplated by such Section, of more
than twenty percent (based on voting power) of the Company's
outstanding capital stock; or (v) as a result of or in connection with
a contested election of directors, the persons who were directors of
the Company before such election shall cease to constitute a majority
of the Board.
(6) DIRECTOR: A member of the Board.
(7) FAIR MARKET VALUE: For all purposes under the Plan, the fair market
value of a share of Stock on a particular date shall be equal to the
average of the high and low sales prices of the Stock reported on the
stock exchange composite tape on that date or, if no prices are
reported on that date, on the last preceding date on which such prices
of the Stock are so reported or, if the Stock is not then listed or
admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System or such other system then in use, or, if on any such date, the
Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market
maker making a market in the Stock selected by the Board. In the event
the Stock is not publicly traded at the time a determination of its
value
I-1
<PAGE> 5
is required to be made hereunder, the determination of its fair market
value shall be made by the Board in such manner as it deems
appropriate.
(8) 1934 ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
(9) NONEMPLOYEE DIRECTOR: Each Director who is not an employee of the
Company.
(10) OPTION: An option to purchase shares of Stock granted under Article
III of the Plan, which shall not constitute an incentive stock option
within the meaning of section 422(b) of the Code.
(11) OPTION AGREEMENT: A written agreement between the Company and a
Nonemployee Director evidencing an Option.
(12) PLAN: The NATCO Group Inc. Directors Compensation Plan, as amended
from time to time, originally effective January 1, 1998.
(13) PLAN YEAR: The twelve-consecutive month period commencing January 1 of
each year.
(14) RULE 16B-3: SEC Rule 16b-3 promulgated under the 1934 Act, as such may
be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(15) SERVICE: The period of an individual's service as a Nonemployee
Director.
(16) STOCK: The common stock, $0.01 par value, of the Company.
1.2 NUMBER AND GENDER. Wherever appropriate herein, words used in
the singular shall be considered to include the plural and words used in the
plural shall be considered to include the singular. The masculine gender, where
appearing in the Plan, shall be deemed to include the feminine gender.
1.3 HEADINGS. The headings of Articles and Sections herein are
included solely for convenience, and if there is any conflict between such
headings and the text of the Plan, the text shall control.
I-2
<PAGE> 6
II.
DIRECTOR COMPENSATION
2.1 ANNUAL RETAINER. Each Nonemployee Director shall be paid an
annual retainer consisting of an amount determined by the Directors and listed
on Exhibit A, the most current version of which shall be attached hereto, which
shall be paid in four quarterly cash and/or Stock payments. No more than 50% of
a Nonemployee Director's Annual retainer shall be paid in Stock. The amount of
any such Stock payment shall be based on the Fair Market Value of the Stock at
the time of payment. Notwithstanding the foregoing, a Nonemployee Director
shall receive payments only with respect to Service during the Plan Year.
2.2 MEETING FEES. Each Nonemployee Director shall be paid a cash
meeting fee in an amount determined by the Directors and listed on Exhibit A,
the most current version of which shall be attached hereto, for board meetings
attended by such Nonemployee Director in person. Except as otherwise determined
by the Directors, a Nonemployee Director shall not be paid a cash meeting fee
for board meetings in which such Nonemployee Director participates by
telephone. A Nonemployee Director shall be reimbursed for the reasonable
expenses incurred to attend board meetings.
2.3 SUBSCRIPTION RIGHTS. Each Nonemployee Director shall have the
right to subscribe to the Stock of the Company at such time, in such amount and
at such price as may be determined by the Directors.
II-1
<PAGE> 7
III.
STOCK OPTIONS
3.1 GENERAL. Subject to the express provisions of the Plan, the
Board shall have authority, in its discretion, to determine which Nonemployee
Directors shall receive an Option and the time or times when such Option shall
be granted. In making such determinations, the Board may take into account the
nature of the services rendered by the respective Nonemployee Directors, their
present and potential contribution to the Company's success and such other
factors as the Board in its discretion shall deem relevant. Further, subject to
the express provisions of the Plan, the Board shall determine the form, terms,
restrictions and provisions of each Option Agreement to be entered into between
the Company and the Nonemployee Director. The terms and conditions of each
Option Agreement need not be identical. The determinations of the Board on the
matters referred to in this Section 3.1 shall be conclusive.
3.2 FORMULA OPTION GRANTS. Following the completion of the initial
public offering of the Company's Stock, each Nonemployee Director who is
reelected as a Director after completing at least one year of Service as a
Director shall be granted an Option to purchase 2,667 shares of Stock (subject
to adjustments in the same manner as provided in Section 6.2 hereof with
respect to shares of Stock subject to Options then outstanding) on the date of
such reelection. If, as of any date that the Plan is in effect, there are not
sufficient shares of Stock available under the Plan to allow for the grant to
each Nonemployee Director of an Option for the number of shares provided
herein, the Plan shall terminate as provided in Section 6.7 hereof.
3.3 OPTION PERIOD. The term of each Option shall be ten years.
3.4 LIMITATIONS ON EXERCISE OF OPTION.
(a) Each Option granted to a Nonemployee Director
pursuant to Section 3.1 of the Plan shall be exercisable at the time
and in the manner determined by the Board. Each Option granted to a
Nonemployee Director pursuant to Section 3.2 of the Plan shall be
fully exercisable on the first anniversary of the date of grant
thereof, provided that the Nonemployee Director has continued his
Service during the one-year period ending on such date.
(b) No Option granted under the Plan to a person subject
to Rule 16b-3 shall be exercisable prior to six months after the date
of grant. Except as provided under Rule 16b-3, the Board, in its sole
discretion, shall have the right to accelerate the exercisability of
an Option granted pursuant to Section 3.1 of the Plan; provided,
however, that upon the occurrence of a Corporate Change, all
outstanding Options shall automatically become fully exercisable
without the necessity of any action on the part of the Board.
3.5 TERMINATION OF MEMBERSHIP ON THE BOARD. Subject to the
limitation on the term of an Option under Section 3.3, if a Nonemployee
Director's membership on the board terminates for any reason other than Cause,
such Nonemployee Director's Options may be exercised at any time
III-1
<PAGE> 8
during the period of three years following such termination by such Nonemployee
Director, or by his designated beneficiary or beneficiaries, but in each case
only as to the number of shares the Nonemployee Director was entitled to
purchase hereunder upon exercise of his Options as of the date the Nonemployee
Director's membership on the Board so terminates. If a Nonemployee Director's
membership on the Board terminates for Cause, such Nonemployee Director's
Options shall terminate and cease to be exercisable as of the date the
Nonemployee Director's membership on the Board so terminates.
3.6 OPTION PRICE AND PAYMENT. Subject to adjustment as provided in
Section 6.2, the price at which a share of Stock may be purchased upon exercise
of an Option granted pursuant to Section 3.1 shall be determined by the Board,
and the price at which a share of Stock may be purchased upon exercise of an
Option granted pursuant to Section 3.2 shall be the Fair Market Value of a
share of Stock on the date such Option is granted. The Option or portion
thereof may be exercised by delivery of an irrevocable notice of exercise to
the Company in a manner specified by the Board. The purchase price of the
Option or portion thereof shall be paid, in whole or in part, (a) in cash or
(b) by the delivery of a number of shares of Stock (plus cash if necessary)
valued at their Fair Market Value, or (c) in a broker-financed "cashless
exercise" of the Option pursuant to procedures established by the Board (as the
same may be amended from time to time).
3.7 RESTRICTIONS ON TRANSFER. An Option shall not be transferable
otherwise than (a) by will or the laws of descent and distribution, (b)
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder, or (c) with the consent of the Board.
3.8 SHAREHOLDER RIGHTS AND PRIVILEGES. A Nonemployee Director
shall be entitled to all the privileges and rights of a shareholder only with
respect to such shares of Stock as have been purchased under the Option and for
which certificates of stock have been registered in the Nonemployee Director's
name.
III-2
<PAGE> 9
IV.
DESIGNATION OF BENEFICIARIES
Each Nonemployee Director shall have the right to designate the
beneficiary or beneficiaries to receive benefits under the Plan in the event of
such Nonemployee Director's death. Each such designation shall be made by
executing the beneficiary designation form prescribed by the Board and filing
it with the Board. Any such designation may be changed at any time by execution
of a new designation in accordance with this Article. If no such designation is
on file with the Board at the time of the death of the Nonemployee Director or
such designation is not effective for any reason as determined by the Board,
then the designated beneficiary or beneficiaries to receive the distribution
shall be as follows:
(1) If a Nonemployee Director leaves a surviving spouse,
such Nonemployee Director's benefits shall be paid to such surviving
spouse;
(2) If a Nonemployee Director leaves no surviving spouse,
such Nonemployee Director's benefits shall be paid to such Nonemployee
Director's executor or administrator, or to such Nonemployee
Director's heirs at law if there is no administration of such
Nonemployee Director's estate.
IV-1
<PAGE> 10
V.
ADMINISTRATION OF THE PLAN
5.1 ADMINISTRATION BY THE BOARD; DELEGATION OF POWERS AND DUTIES.
The general administration of the Plan shall be vested in the Board. The Board
may delegate any or all of the powers and duties of the Board set forth in
Section 5.3 hereof. Such delegation must be in writing, specifying the powers
and duties delegated, and must be accepted in writing by the delegatee. The
Board may rescind any such delegation at any time, in its sole discretion,
provided that such rescission be in writing. Nothing in Section 5.1 shall be
construed to permit the delegation by the Board of its power to authorize the
issuance of an Option.
5.2 SELF-INTEREST OF PARTICIPANTS. No Director shall have any
right to vote or decide upon any matter relating solely to such Director under
the Plan or to vote in any case in which the Director's individual right to
claim any benefit under the Plan is particularly involved. In any case in which
a Director is so disqualified to act and the remaining members of the Board
cannot agree, the Board shall appoint a temporary substitute member to exercise
all the powers of the disqualified Director concerning the matter in which the
Director is disqualified.
5.3 BOARD'S POWERS AND DUTIES. The Board shall supervise the
administration and enforcement of the Plan according to the terms and
provisions hereof and shall have all powers necessary to accomplish these
purposes, including, but not limited to the right, power, authority, and duty:
(a) To make rules, regulations, and bylaws for the
administration of the Plan that are not inconsistent with the terms
and provisions hereof, and to enforce the terms of the Plan and the
rules and regulations promulgated thereunder by the Board;
(b) To construe in the Board's discretion all terms,
provisions, conditions, and limitations of the Plan;
(c) To correct any defect, supply any omission, or
reconcile any inconsistency that may appear in the Plan in such manner
and to such extent as they shall deem in the Board's discretion
expedient to effectuate the purposes of the Plan;
(d) To employ and compensate such accountants, attorneys,
investment advisors, and other agents, employees, and independent
contractors as the Board may deem necessary or advisable for the
proper and efficient administration of the Plan;
(e) To determine in the Board's discretion all questions
relating to eligibility;
(f) To determine whether and when there has been a
termination of a Nonemployee Director's Service;
(g) To determine a Nonemployee Director's period of
Service;
V-1
<PAGE> 11
(h) To make a determination in the Board's discretion as
to the right of any person to benefits under the Plan and to prescribe
procedures to be followed by distributees in obtaining benefits
hereunder; and
(i) To make the determinations specified in Article III.
5.4 INDEMNITY. To the extent permitted by applicable law, the
Company shall indemnify and save harmless each member of the Board against any
and all expenses, liabilities and claims (including legal fees incurred to
defend against such liabilities and claims) arising out of the Board's
discharge in good faith of responsibilities under or incident to the Plan,
including any expenses, liabilities and claims that are caused by or result
from an act or omission constituting the negligence of such individual in the
performance of such responsibilities, but excluding expenses and liabilities
that are caused by or result from such individual's own gross negligence or
willful misconduct. This indemnity shall not preclude such further indemnities
as may be available under insurance purchased by the Company or provided by the
Company under any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise, as such indemnities are permitted under applicable
law.
V-2
<PAGE> 12
VI.
MISCELLANEOUS
6.1 SHARES SUBJECT TO THE PLAN. Subject to adjustment in the same
manner as provided in Section 6.2 with respect to shares of Stock subject to
Options then outstanding, the aggregate number of shares of Stock that may be
issued under the Plan shall not exceed 60,000 shares. Shares shall be deemed to
have been issued under the Plan to the extent subject to an Option granted
under the Plan. To the extent that an Option lapses or is forfeited, any shares
of Stock subject to such Option shall again be available for use under the
Plan. The Stock to be offered pursuant to the grant of an Option may, at the
discretion of the Company, be authorized but unissued Stock or Stock previously
issued and outstanding and reacquired by the Company.
6.2 RECAPITALIZATION OR REORGANIZATION.
(a) The existence of the Plan and the Options granted hereunder
shall not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding.
(b) If the Company shall effect a subdivision or consolidation of
shares of Stock or the payment of a stock dividend on Stock without receipt of
consideration by the Company, the number of Options which may thereafter be
granted and the number of Options that are outstanding shall be adjusted as
determined in the sole discretion of the Board.
(c) Except as hereinbefore expressly provided, no adjustment to
the number of Options outstanding or to be granted shall be made in the event
of issuance by the Company of shares of stock of any class or securities
convertible into shares of stock of any class for any purpose; upon direct
sale; upon the exercise of rights or warrants to subscribe therefor; upon
conversion of shares or obligations of the Company convertible into such shares
or other securities or otherwise.
6.3 APPLICATION OF RULE 16b-3. It is intended that the Plan and
any grant of an Option made to a person subject to Section 16 the 1934 Act meet
all of the requirements of Rule 16b-3. If any provision of the Plan or any such
Option would disqualify the Plan, such Option under, or would otherwise not
comply with, Rule 16b-3, such provision or Option shall be construed or deemed
amended to conform to Rule 16b-3.
6.4 PAYMENT OF EXPENSES. All expenses incident to the
administration of the Plan, including, but not limited to, legal and accounting
expenses and expenses of the Board, shall be paid by the Company.
6.5 NOT CONTRACT FOR SERVICES. The adoption and maintenance of the
Plan shall not be deemed to be a contract between the Company and any person or
to be consideration for the services
VI-1
<PAGE> 13
of any person. Nothing herein contained shall be deemed to give any person the
right to be retained in the service of the Company or to restrict the right of
the Company to discharge any person at any time nor shall the Plan be deemed to
give the Company the right to require any person to remain in the service of
the Company or to restrict any person's right to terminate such person's
service at any time.
6.6 OTHER LAWS; WITHHOLDING. The Company shall not be obligated to
issue any Stock pursuant to any Option granted under the Plan at any time when
the shares covered by such Option have not been registered under the Securities
Act of 1933 and such other state and federal laws, rules or regulations as the
Company or the Board deems applicable and, in the opinion of legal counsel for
the Company, there is no exemption from the registration requirements of such
laws, rules or regulations available for the issuance and sale of such shares.
No fractional shares of Stock shall be delivered. All compensation and payments
provided for hereunder shall be subject to applicable withholding and other
deductions as shall be required of the Company under any applicable, local,
state or federal law.
6.7 AMENDMENT AND TERMINATION. The Directors may from time to
time, in their discretion, amend, in whole or in part, any or all of the
provisions of the Plan; provided, however, that no amendment may be made that
would impair the rights of a Nonemployee Director with respect to Options
previously granted to such Nonemployee Director. The Directors may terminate
the Plan at any time; provided, however, that the termination of the Plan shall
not affect Options previously granted and outstanding under the Plan. Further,
except with respect to Options then outstanding, if not sooner terminated by
the Directors pursuant to the preceding sentence, the Plan shall terminate upon
and no further Options shall be granted as of the date that the remaining
number of shares of Stock which may be issued under the Plan pursuant to
Section 6.1 is not sufficient to cover the Options required to be granted under
Section 3.2.
6.8 SEVERABILITY. If any provision of this Plan shall be held
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining provisions hereof; instead, each provision shall be fully
severable and the Plan shall be construed and enforced as if said illegal or
invalid provision had never been included herein.
6.9 GOVERNING LAWS. ALL PROVISIONS OF THE PLAN SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF TEXAS.
VI-2
<PAGE> 14
EXECUTED this ______ day of ______________, 1998.
NATCO GROUP INC.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
(iv)
<PAGE> 15
NATCO GROUP INC.
DIRECTORS COMPENSATION PLAN
EXHIBIT A - ANNUAL RETAINER AND MEETING FEES
Directors' Retainer
o Cash Payments $6,500 per calendar quarter
o Stock Payments 0 shares per year
Board Meeting Fees $500 per meeting
<PAGE> 1
EXHIBIT 10.2
NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT
AGREEMENT made as of the ______ day of ________________, 1998, between
NATCO GROUP INC., a Delaware corporation (the "COMPANY") and
_________________________ ("DIRECTOR").
To carry out the purposes of the NATCO GROUP INC. DIRECTORS
COMPENSATION PLAN (the "PLAN"), a copy of which is attached hereto as Exhibit
A, by affording Director the opportunity to purchase shares of common stock,
$0.01 par value, of the Company ("STOCK"), and in consideration of the mutual
agreements and other matters set forth herein and in the Plan, the Company and
Director hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Director the right and option ("OPTION") to purchase all or any part of an
aggregate of 6,667 shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. This Option shall not be treated as an incentive stock
option within the meaning of section 422(b) of the Code.
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $8.81 per share.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Chief Executive Officer, at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the calendar quarters ending after the
date of grant hereof and before the date of such exercise, in accordance with
the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
CALENDAR QUARTER ENDING THAT MAY BE PURCHASED
----------------------- ---------------------
<S> <C>
MARCH 31, 1998 10%
JUNE 30, 1998 20%
SEPTEMBER 30, 1998 30%
DECEMBER 31, 1998 40%
MARCH 31, 1999 50%
JUNE 30, 1999 60%
SEPTEMBER 30, 1999 70%
DECEMBER 31, 1999 80%
MARCH 31, 2000 90%
JUNE 30, 2000 100%
</TABLE>
This Option is not transferable by Director otherwise than (a) by will
or the laws of descent and distribution, (b) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or (c) with the consent of
<PAGE> 2
the Board. If a Director's membership on the Board terminates for any reason
other than Cause, this Option may be exercised at any time during the period of
three years following such termination by Director, by Director's designated
beneficiary or beneficiaries under the Plan, by the person who acquires this
Option pursuant to the terms of the Plan, or, in the event of Director's
disability, by Director's guardian or legal representative, but in each case
only as to the number of shares Director was entitled to purchase hereunder
upon exercise of this Option as of the date Director's membership on the Board
so terminates. If Director's membership on the Board terminates for Cause,
this Option shall terminate and cease to be exercisable as of the date
Director's membership on the Board so terminates. For purposes of this
paragraph, "Cause" shall mean Director's gross negligence or willful misconduct
in performance of his duties as a director of the Company, or Director's final
conviction of a felony or of a misdemeanor involving moral turpitude. This
Option shall not be exercisable in any event after the expiration of ten years
from the date of grant hereof.
The purchase price of shares as to which this Option is exercised
shall be paid in full at the time of exercise (1) in cash (including check,
bank draft or money order payable to the order of the Company), (2) by
delivering to the Company shares of Stock having a fair market value equal to
the purchase price, (3) any combination of cash or Stock, or (4) in a
broker-financed "cashless exercise" pursuant to the procedures established by
the Board. No fraction of a share of Stock shall be issued by the Company upon
exercise of an Option or accepted by the Company in payment of the purchase
price thereof; rather, Director shall provide a cash payment for such amount as
is necessary to effect the issuance and acceptance of only whole shares of
Stock. Unless and until a certificate or certificates representing such shares
shall have been issued by the Company to Director, Director (or the person
permitted to exercise this Option pursuant to the terms hereof) shall not be or
have any of the rights or privileges of a stockholder of the Company with
respect to shares acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Director for federal or state income
tax purposes, Director shall deliver to the Company at the time of such
exercise or disposition such amount of money or shares of Stock as the Company
may require to meet its obligation, if any, under applicable tax laws or
regulations, and, if Director fails to do so, the Company is authorized to
withhold from any cash or Stock remuneration then or thereafter payable to
Director any tax required to be withheld by reason of such resulting
compensation income. Upon an exercise of this Option, the Company is further
authorized in its discretion to satisfy any such withholding requirement out of
any cash or shares of Stock distributable to Director upon such exercise.
5. STATUS OF STOCK. Director understands that at the time of the
execution of this Agreement the shares of Stock to be issued upon exercise of
this Option have not been registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities law, and that the Company does not
currently intend to effect any such registration. Until the shares of Stock
acquirable upon the exercise of this Option have been registered for issuance
under the Act, the Company will not issue such shares unless the holder of this
Option provides the Company with a written opinion of legal counsel, who shall
be satisfactory to the Company, addressed to the Company and satisfactory in
form and substance to the Company's counsel, to the effect that the
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proposed issuance of such shares to such Option holder may be made without
registration under the Act. In the event exemption from registration under the
Act is available upon an exercise of this Option, Director (or the person
permitted to exercise this Option in the event of Director's death), if
requested by the Company to do so, will execute and deliver to the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.
Director agrees that the shares of Stock which Director may acquire by
exercising this Option shall be acquired for investment without a view to
distribution, within the meaning of the Act, and shall not be sold,
transferred, assigned, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Act and applicable state
securities laws or an applicable exemption from the registration requirements
of the Act and any applicable state securities laws. Director also agrees that
the shares of Stock which Director may acquire by exercising this Option will
not be sold or otherwise disposed of in any manner which would constitute a
violation of any applicable securities laws, whether federal or state.
In addition, Director agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Company deems appropriate in order to assure compliance with applicable
securities laws, (ii) that the Company may refuse to register the transfer of
the shares of Stock purchased under this Option on the stock transfer records
of the Company if such proposed transfer would in the opinion of counsel
satisfactory to the Company constitute a violation of any applicable securities
law and (iii) that the Company may give related instructions to its transfer
agent, if any, to stop registration of the transfer of the shares of Stock
purchased under this Option.
6. STOCKHOLDERS AGREEMENT. In the event Director exercises this
Option and purchases shares of Stock prior to the initial public offering of
the Stock, Director shall be subject to the terms of the Stockholders Agreement
dated the 30th day of June, 1997, by and among Capricorn Investors, L.P.,
Capricorn Investors II, L.P. and Cummings Point Industries, Inc., a copy of
which is attached hereto. Further, Director shall not sell any of the shares
purchased under this Option within six months after the initial public offering
of the Stock.
7. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Director.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Director has executed
this Agreement, all as of the day and year first above written.
NATCO GROUP, INC.
By:
-----------------------------------
Title:
-----------------------------------
Director
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EXHIBIT 10.3
NATCO GROUP INC.
EMPLOYEE STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the NATCO GROUP INC. EMPLOYEE STOCK INCENTIVE PLAN (the
"Plan") is to provide a means through which NATCO GROUP INC., a Delaware
corporation (the "Company"), and its subsidiaries may attract able persons to
serve as consultants or advisors or to enter the employ of the Company and to
provide a means whereby those individuals upon whom the responsibilities of the
successful administration and management of the Company rest, and whose present
and potential contributions to the welfare of the Company are of importance,
can acquire and maintain stock ownership, thereby strengthening their concern
for the welfare of the Company. A further purpose of the Plan is to provide
such individuals with additional incentive and reward opportunities designed to
enhance the profitable growth of the Company. Accordingly, the Plan provides
for granting Incentive Stock Options (subject to the provisions of paragraph
VII(c)), options that do not constitute Incentive Stock Options, Restricted
Stock Awards, Stock Appreciation Rights, or any combination of the foregoing,
as is best suited to the circumstances of the particular employee, consultant,
or advisor.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
(a) "AWARD" means, individually or collectively, any Option,
Restricted Stock Award, or Stock Appreciation Right.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
(d) "COMMITTEE" means a committee of the Board that is selected by
the Board as provided in Paragraph IV(a).
(e) "COMMON STOCK" means the common stock, par value $0.01 per
share, of the Company.
(f) "COMPANY" means NATCO Group Inc., a Delaware corporation, or
any successor thereto.
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(g) "CONSULTANT" means any person who is not an employee and who
is providing advisory or consulting services to the Company or any parent or
subsidiary corporation (as defined in section 424 of the Code).
(h) "CORPORATE CHANGE" means one of the following events: (i) the
merger, consolidation, or other reorganization of the Company in which the
outstanding Common Stock is converted into or exchanged for a different class
of securities of the Company, a class of securities of any other issuer (except
a direct or indirect wholly owned subsidiary of the Company), cash or other
property; (ii) the sale, lease, or exchange of all or substantially all of the
assets of the Company to any other corporation or entity (except a direct or
indirect wholly owned subsidiary of the Company); (iii) the adoption by the
stockholders of the Company of a plan of liquidation and dissolution; (iv) the
acquisition (other than any acquisition pursuant to any other clause of this
definition) by any person or entity, including without limitation a "group" as
contemplated by Section 13(d)(3) of the 1934 Act, of beneficial ownership, as
contemplated by such Section, of more than twenty percent (based on voting
power) of the Company's outstanding capital stock; or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board.
(i) "EMPLOYEE" means any person (including a director) in an
employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).
(j) "FAIR MARKET VALUE" means, as of any specified date, the
average of the high and low sales prices of the Common Stock reported on the
stock exchange composite tape on that date or, if no prices are reported on
that date, on the last preceding date on which such prices of the Common Stock
are so reported or, if the Common Stock is not then listed or admitted to
trading on any national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or such other system then in use,
or, if on any such date, the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Committee. In the event Common Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the determination
of its fair market value shall be made by the Committee in such manner as it
deems appropriate. Notwithstanding the foregoing, the Fair Market Value of a
share of Common Stock on the date of an initial public offering of Common Stock
shall be the offering price under such initial public offering.
(k) "HOLDER" means an employee or Consultant who has been granted
an Award.
(l) "INCENTIVE STOCK OPTION" means an incentive stock option
within the meaning of section 422 of the Code.
(m) "1934 ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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(n) "OPTION" means an Award granted under Paragraph VII of the
Plan and includes both Incentive Stock Options to purchase Common Stock and
Options that do not constitute Incentive Stock Options to purchase Common
Stock.
(o) "OPTION AGREEMENT" means a written agreement between the
Company and a Holder with respect to an Option.
(p) "PLAN" means the NATCO Group Inc. Employee Stock Incentive
Plan, as amended from time to time.
(q) "RESTRICTED STOCK AGREEMENT" means a written agreement between
the Company and a Holder with respect to a Restricted Stock Award.
(r) "RESTRICTED STOCK AWARD" means an Award granted under
Paragraph VIII of the Plan.
(s) "RULE 16b-3" means SEC Rule 16b-3 promulgated under the 1934
Act, as such may be amended from time to time, and any successor rule,
regulation or statute fulfilling the same or a similar function.
(t) "SPREAD" means, in the case of a Stock Appreciation Right, an
amount equal to the excess, if any, of the Fair Market Value of a share of
Common Stock on the date such right is exercised over the exercise price of
such Stock Appreciation Right.
(u) "STOCK APPRECIATION RIGHT" means an Award granted under
Paragraph IX of the Plan.
(v) "STOCK APPRECIATION RIGHTS AGREEMENT" means a written
agreement between the Company and a Holder with respect to a Stock Appreciation
Right.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the Company within
twelve months thereafter. Notwithstanding any provision in the Plan, in any
Option Agreement, Restricted Stock Agreement, or Stock Appreciation Rights
Agreement, no Option or Stock Appreciation Right granted on or after the
effective date of the Plan shall be exercisable and no Restricted Stock Award
shall be made prior to such shareholder approval. No further Awards may be
granted under the Plan after February 17, 2008. The Plan shall remain in
effect until all Awards granted under the Plan have been satisfied or expired.
IV. ADMINISTRATION
(a) COMPOSITION OF COMMITTEE. The Plan shall be administered by a
committee of, and appointed by, the Board, and such committee shall be (i)
comprised solely of two or more outside
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directors (within the meaning of section 162(m) of the Code and applicable
interpretive authority thereunder) and (ii) constituted so as to permit the
Plan to comply with Rule 16b-3.
(b) POWERS. Subject to the express provisions of the Plan, the
Committee shall have authority, in its discretion, to determine which employees
or Consultants shall receive an Award, the time or times when such Award shall
be made, whether an Incentive Stock Option, an Option that does not constitute
an Incentive Stock Option, a Stock Appreciation Right, or a Restricted Stock
Award shall be granted, and the number of shares to be subject to each Option,
Restricted Stock Award, or Stock Appreciation Right. In making such
determinations, the Committee shall take into account the nature of the
services rendered by the respective employees or Consultants, their present and
potential contribution to the Company's success and such other factors as the
Committee in its discretion shall deem relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional
powers as are delegated to it by the other provisions of the Plan. Subject to
the express provisions of the Plan, this shall include the power to construe
the Plan and the respective agreements executed hereunder, to prescribe rules
and regulations relating to the Plan, and to determine the terms, restrictions
and provisions of the agreement relating to each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating to an
Award in the manner and to the extent it shall deem expedient to carry it into
effect. The determinations of the Committee on the matters referred to in this
Paragraph IV shall be conclusive.
V. GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN
(a) STOCK GRANT AND AWARD LIMITS. The Committee may from time to
time grant Awards to one or more employees or Consultants determined by it to
be eligible for participation in the Plan in accordance with the provisions of
Paragraph VI. Subject to adjustment in the same manner as provided in
Paragraph X with respect to shares of Common Stock subject to Options then
outstanding, the aggregate number of shares of Common Stock that may be issued
under the Plan shall not exceed 700,000 shares. Shares shall be deemed to have
been issued under the Plan only (i) to the extent actually issued and delivered
pursuant to an Award or (ii) to the extent an Award is settled in cash. To the
extent that an Award lapses or the rights of its Holder terminate, any shares
of Common Stock subject to such Award shall again be available for the grant of
an Award. Notwithstanding any provision in the Plan to the contrary, the
maximum number of shares of Common Stock that may be subject to Awards granted
to any one individual during any calendar year may not exceed 100,000 shares of
Common Stock (subject to adjustment in the same manner as provided in Paragraph
X with respect to shares of Common Stock subject to Options then outstanding).
The limitation set forth in the preceding sentence shall be applied in a manner
which will permit compensation generated under the Plan to constitute
"performance-based" compensation for purposes of section 162(m) of the Code,
including, without limitation, counting against such maximum number of shares,
to the extent required under section 162(m) of the Code and applicable
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<PAGE> 5
interpretive authority thereunder, any shares subject to Options and Stock
Appreciation Rights that are canceled or repriced.
(b) STOCK OFFERED. The stock to be offered pursuant to the grant
of an Award may, at the discretion of the Company, be authorized but unissued
Common Stock or Common Stock previously issued and outstanding and reacquired
by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees or Consultants. An Award may be granted on more than one occasion to
the same person, and, subject to the limitations set forth in the Plan, such
Award may include an Incentive Stock Option, an Option that is not an Incentive
Stock Option, a Restricted Stock Award, a Stock Appreciation Right, or any
combination thereof.
VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified
by the Committee at the date of grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be
exercisable in whole or in such installments and at such times as determined by
the Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. An Incentive
Stock Option may be granted only to an individual who is an employee at the
time the Option is granted. To the extent that the aggregate Fair Market Value
(determined at the time the respective Incentive Stock Option is granted) of
Common Stock with respect to which Incentive Stock Options granted after 1986
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the
Code, Treasury Regulations and other administrative pronouncements, which of a
Holder's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Holder of such determination as
soon as practicable after such determination. No Incentive Stock Option shall
be granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at
the time such Option is granted the option price is at least 110% of the Fair
Market Value of the Common Stock subject to the Option and (ii) such Option by
its terms is not exercisable after the expiration of five years from the date
of grant. An Incentive Stock Option shall not be transferable otherwise than
by will or the laws of descent and distribution, and shall be exercisable
during the Holder's lifetime only by such Holder or the Holder's guardian or
legal representative. Notwithstanding any provision in the Plan or in any
Option Agreement, (1) no Incentive Stock Option shall be granted after the
expiration of 12 months from the date of the adoption of the Plan by the Board
unless the Plan has been approved by the stockholders of the Company within
such 12-
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month period in a manner that satisfies the requirements of section 422 of the
Code and (2) any Option granted prior to the expiration of such 12-month period
that was intended to constitute an Incentive Stock Option shall constitute an
Option that is not an Incentive Stock Option if the Plan has not been approved
by the stockholders of the Company within such 12-month period in a manner that
satisfies the requirements of section 422 of the Code.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. Each Option Agreement shall specify the effect
of termination of (i) employment or (ii) the consulting or advisory
relationship, as applicable, on the exercisability of the Option. An Option
Agreement may provide for the payment of the option price, in whole or in part,
(1) in cash or (2) by the delivery of a number of shares of Common Stock (plus
cash if necessary) valued at their Fair Market Value. Moreover, an Option
Agreement may provide for a "cashless exercise" of the Option pursuant to
procedures established by the Committee (as the same may be amended from time
to time). The terms and conditions of the respective Option Agreements need
not be identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of
Common Stock may be purchased upon exercise of an Option shall be determined by
the Committee but, subject to adjustment as provided in Paragraph X, such
purchase price shall not be less than the Fair Market Value of a share of
Common Stock on the date such Option is granted. The Option or portion thereof
may be exercised by delivery of an irrevocable notice of exercise to the
Company in a manner specified by the Committee. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee. Separate stock certificates shall be issued by the Company for
those shares acquired pursuant to the exercise of an Incentive Stock Option and
for those shares acquired pursuant to the exercise of any Option that does not
constitute an Incentive Stock Option.
(f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be
entitled to all the privileges and rights of a stockholder only with respect to
such shares of Common Stock as have been purchased under the Option and for
which certificates of stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED
BY OTHER CORPORATIONS. Options and Stock Appreciation Rights may be granted
under the Plan from time to time in substitution for stock options held by
individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company or any
subsidiary, or the acquisition by the Company or a subsidiary of the assets of
the employing corporation, or the acquisition by the Company or a subsidiary of
stock of the employing corporation with the result that such employing
corporation becomes a subsidiary.
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VIII. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE.
Shares of Common Stock that are the subject of a Restricted Stock Award shall
be subject to restrictions on disposition by the Holder and an obligation of
the Holder to forfeit and surrender the shares to the Company under certain
circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions
shall be determined by the Committee in its sole discretion, and the Committee
may provide that the Forfeiture Restrictions shall lapse upon (i) the
attainment of one or more performance targets established by the Committee that
are based on (1) the price of a share of Common Stock, (2) the Company's
earnings before interest, taxes, depreciation, and amortization, (3) the
Company's earnings per share, (4) the total return to holders of Common Stock
based upon price appreciation and dividends paid, (5) the Company's market
share, (6) the market share of a business unit of the Company designated by the
Committee, (7) the Company's sales, (8) the sales of a business unit of the
Company designated by the Committee, (9) the Company's cash flow, or (10) the
return on stockholders' equity achieved by the Company, (ii) the Holder's
continued employment with the Company or continued service as a Consultant for
a specified period of time, (iii) the occurrence of any event or the
satisfaction of any other condition specified by the Committee in its sole
discretion, or (iv) a combination of any of the foregoing. Each Restricted
Stock Award may have different Forfeiture Restrictions, in the discretion of
the Committee. The Forfeiture Restrictions applicable to a particular
Restricted Stock Award shall not be changed except as permitted by Paragraph
VIII(b) or Paragraph X.
(b) OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to
a Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Holder of such Restricted Stock Award. The Holder shall
have the right to receive dividends with respect to Common Stock subject to a
Restricted Stock Award, to vote Common Stock subject thereto and to enjoy all
other stockholder rights, except that (i) the Holder shall not be entitled to
delivery of the stock certificate until the Forfeiture Restrictions have
expired, (ii) the Company shall retain custody of the stock until the
Forfeiture Restrictions have expired, (iii) the Holder may not sell, transfer,
pledge, exchange, hypothecate or otherwise dispose of the stock until the
Forfeiture Restrictions have expired, and (iv) a breach of the terms and
conditions established by the Committee pursuant to the Restricted Stock
Agreement, shall cause a forfeiture of the Restricted Stock Award. At the time
of such Award, the Committee may, in its sole discretion, prescribe additional
terms, conditions or restrictions relating to Restricted Stock Awards,
including, but not limited to, rules pertaining to the termination of
employment or service as a Consultant (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Forfeitures Restrictions.
Such additional terms, conditions or restrictions shall be set forth in a
Restricted Stock Agreement made in conjunction with the Award.
(c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine
the amount and form of any payment for Common Stock received pursuant to a
Restricted Stock Award, provided that in the absence of such a determination, a
Holder shall not be required to make any payment for Common Stock received
pursuant to a Restricted Stock Award, except to the extent otherwise required
by law.
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(d) AGREEMENTS. At the time any Award is made under this
Paragraph VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
IX. STOCK APPRECIATION RIGHTS
(a) STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is the
right to receive an amount equal to the Spread with respect to a share of
Common Stock upon the exercise of such Stock Appreciation Right. Stock
Appreciation Rights may be granted in connection with the grant of an Option,
in which case the Option Agreement will provide that exercise of Stock
Appreciation Rights will result in the surrender of the right to purchase the
shares under the Option as to which the Stock Appreciation Rights were
exercised. Alternatively, Stock Appreciation Rights may be granted
independently of Options in which case each Award of Stock Appreciation Rights
shall be evidenced by a Stock Appreciation Rights Agreement which shall contain
such terms and conditions as may be approved by the Committee. The terms and
conditions of the respective Stock Appreciation Rights Agreements need not be
identical. The Spread with respect to a Stock Appreciation Right may be
payable either in cash, shares of Common Stock with a Fair Market Value equal
to the Spread or in a combination of cash and shares of Common Stock. With
respect to Stock Appreciation Rights that are granted to employees who are
subject to Section 16 of the 1934 Act, however, the Committee shall, except as
provided in Paragraph X hereof, retain final authority (i) to determine whether
a Holder shall be permitted to receive cash in full or partial settlement of
Stock Appreciation Rights, or (ii) to approve an election by a Holder to
receive cash in full or partial settlement of Stock Appreciation Rights. Each
Stock Appreciation Rights Agreement shall specify the effect of termination of
(1) employment or (2) the consulting or advisory relationship, as applicable,
on the exercisability of the Stock Appreciation Rights.
(b) EXERCISE PRICE. The exercise price of each Stock Appreciation
Right shall be determined by the Committee, but such exercise price (i) shall
not be less than the Fair Market Value of a share of Common Stock on the date
the Stock Appreciation Right is granted (or such greater exercise price as may
be required if such Stock Appreciation Right is granted in connection with an
Incentive Stock Option that must have an exercise price equal to 110% of the
Fair Market Value of the Common Stock on the date of grant pursuant to
Paragraph VII(c)), and (ii) shall be subject to adjustment as provided in
Paragraph X.
(c) EXERCISE PERIOD. The term of each Stock Appreciation Right
shall be as specified by the Committee at the date of grant.
(d) LIMITATIONS ON EXERCISE OF STOCK APPRECIATION RIGHT. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee. In the case of any Stock
Appreciation Right that is granted in connection with an Incentive Stock
Option, such right shall be exercisable only when the Fair Market Value of the
Common Stock exceeds the price specified therefor in the Option or the portion
thereof to be surrendered.
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X. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Common Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are
shares of Common Stock as presently constituted, but if, and whenever, prior to
the expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the Company,
the number of shares of Common Stock with respect to which such Option may
thereafter be exercised (i) in the event of an increase in the number of
outstanding shares shall be proportionately increased, and the purchase price
per share shall be proportionately reduced, and (ii) in the event of a
reduction in the number of outstanding shares shall be proportionately reduced,
and the purchase price per share shall be proportionately increased. Any
fractional share resulting from such adjustment shall be rounded up to the next
whole share.
(c) If the Company recapitalizes, reclassifies its capital stock,
or otherwise changes its capital structure (a "recapitalization"), the number
and class of shares of Common Stock covered by an Option theretofore granted
shall be adjusted so that such Option shall thereafter cover the number and
class of shares of stock and securities to which the Holder would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
the recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Option.
(d) In the event of a Corporate Change, the Committee, acting in
its sole discretion without the consent or approval of any Holder, shall effect
one or more of the following alternatives, which alternatives may vary among
individual Holders and which may vary among Options held by any individual
Holder: (i) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Corporate Change)
fixed by the Committee, after which specified date all unexercised Options and
all rights of Holders thereunder shall terminate, (ii) require the mandatory
surrender to the Company by selected Holders of some or all of the outstanding
Options held by such Holders (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date, before or after
such Corporate Change, specified by the Committee, in which event the Committee
shall thereupon cancel such Options and pay to each Holder an amount of cash
per share equal to the excess, if any, of the amount calculated in Subparagraph
(e) below (the "Corporate Change Value") of the shares subject to such Option
over the exercise price(s) under such Options for such shares, (iii) make such
adjustments to Options then outstanding as the Committee deems appropriate to
reflect such Corporate Change (provided, however, that the Committee may
determine in its sole discretion that no adjustment is necessary to Options
then outstanding), or (iv) provide that the number and class of shares of
Common Stock covered by an Option theretofore granted shall be
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adjusted so that such Option shall thereafter cover the number and class of
shares of stock or other securities or property (including, without limitation,
cash) to which the Holder would have been entitled pursuant to the terms of the
agreement of merger, consolidation or sale of assets and dissolution if,
immediately prior to such merger, consolidation or sale of assets and
dissolution, the Holder had been the holder of record of the number of shares
of Common Stock then covered by such Option.
(e) For the purposes of clause (ii) in Subparagraph (d) above, the
"Corporate Change Value" shall equal the amount determined in clause (i), (ii)
or (iii), whichever is applicable, as follows: (i) the per share price offered
to stockholders of the Company in any such merger, consolidation, sale of
assets or dissolution transaction, (ii) the price per share offered to
stockholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Committee as of the date determined by the Committee to be
the date of cancellation and surrender of such Options. In the event that the
consideration offered to stockholders of the Company in any transaction
described in this Subparagraph (e) or Subparagraph (d) above consists of
anything other than cash, the Committee shall determine the fair cash
equivalent of the portion of the consideration offered which is other than
cash.
(f) In the event of changes in the outstanding Common Stock by
reason of recapitalization, reorganizations, mergers, consolidations,
combinations, split-ups, split-offs, spin-offs, exchanges, a Corporate Change,
or other relevant changes in capitalization or distributions to the holders of
Common Stock occurring after the date of the grant of any Award and not
otherwise provided for by this Paragraph X, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, the
aggregate number of shares available under the Plan (and the aggregate number
of shares that may be granted to any one individual) may be appropriately
adjusted by the Committee, whose determination shall be conclusive.
(g) Any adjustment provided for in the above Subparagraphs shall
be subject to any required stockholder action.
(h) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to Awards theretofore granted or the
purchase price per share, if applicable.
(i) Plan provisions to the contrary notwithstanding, with respect
to any Restricted Stock Awards outstanding at the time a Corporate Change
occurs, the Committee may, in its discretion and
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as of a date determined by the Committee, fully vest any or all Common Stock
awarded to the Holder pursuant to such Restricted Stock Award and then
outstanding and, upon such vesting, all restrictions applicable to such
Restricted Stock Award shall terminate as of such date. Any action by the
Committee pursuant to this Subparagraph may vary among individual Holders and
may vary among the Restricted Stock Awards held by any individual Holder.
XI. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares of Common Stock for which Awards have not theretofore
been granted. The Board shall have the right to alter or amend the Plan or any
part thereof from time to time; provided that no change in any Award
theretofore granted may be made which would materially impair the rights of the
Holder without the consent of the Holder, and provided, further, that the Board
may not, without approval of the stockholders, amend the Plan to (a) increase
the maximum aggregate number of shares that may be issued under the Plan or (b)
change the class of individuals eligible to receive Awards under the Plan.
XII. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan nor
any action of the Board or of the Committee shall be deemed to give an employee
or Consultant any right to be granted an Award or any other rights hereunder
except as may be evidenced by an Option Agreement, a Restricted Stock
Agreement, or a Stock Appreciation Rights Agreement duly executed on behalf of
the Company, and then only to the extent and on the terms and conditions
expressly set forth therein. The Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of funds or assets to assure the payment of any Award.
(b) NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan
shall (i) confer upon any employee or Consultant any right with respect to
continuation of employment or of a consulting or advisory relationship with the
Company or any subsidiary or (ii) interfere in any way with the right of the
Company or any subsidiary to terminate his or her employment or consulting or
advisory relationship at any time.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated
to issue any Common Stock pursuant to any Award granted under the Plan at any
time when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules or regulations available for the
issuance and sale of such shares. No fractional shares of Common Stock shall
be delivered. The Company shall have the right to deduct in connection with
all Awards any taxes required by law to be withheld and to require any payments
required to enable it to satisfy its withholding obligations.
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(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the
Plan shall be construed to prevent the Company or any subsidiary from taking
any corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
Consultant, beneficiary or other person shall have any claim against the
Company or any subsidiary as a result of any such action.
(e) RESTRICTIONS ON TRANSFER. An Award (other than an Incentive
Stock Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with
the consent of the Committee.
(f) RULE 16B-3. It is intended that the Plan and any grant of an
Award made to a person subject to Section 16 of the 1934 Act meet the
requirements of Rule 16b-3 so that any transaction under the Plan involving a
grant, award, or other acquisition from the Company or disposition to the
Company is exempt from Section 16(b) of the 1934 Act. If any provision of the
Plan or any such Award would result in any such transaction not being exempt
from Section 16(b) of the 1934 Act, such provision or Award shall be construed
or deemed amended so that such transaction will be exempt from Section 16(b) of
the 1934 Act.
(g) GOVERNING LAW. THE PLAN SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS.
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EXHIBIT 10.4
U.S. $3,000,000.00
INTERNATIONAL REVOLVING LOAN AGREEMENT
DATED AS OF
JUNE 30, 1997
BY AND BETWEEN
NATIONAL TANK COMPANY
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
<PAGE> 2
TABLE OF CONTENTS
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1. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE LOANS AND LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. International Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3. Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4. Letter of Credit Requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5. Agreement to Repay Letter of Credit Drawings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6. Conflict between Applications and Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7. Increased Costs; Unavailable LIBOR; Increased Capital . . . . . . . . . . . . . . . . . . . . . . . 6
2.8. Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9. Voluntary Conversion/Continuation of Loans; Past Due Rate . . . . . . . . . . . . . . . . . . . . . 7
2.10. Illegality, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. PREPAYMENTS AND OTHER PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1. Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2. Optional Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3. Place of Payment or Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4. Prepayment Premium or Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6. Reduction or Termination of the Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1. Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2. Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. Fees Not Interest; Nonpayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. APPLICATION OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1. Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2. Financial Statements; Positive Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.4. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.5. Title to Assets; Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.6. Authorization, Validity, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.7. Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.9. Conflicting or Adverse Agreements or Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 12
6.10. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.11. No Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.12. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.13. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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7. CONDITIONS . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1. Representations True and No Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2. Terms of Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3. Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.4. Borrowing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.5. Letter of Credit Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.6. Required Initial Documents and Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.7. Eximbank Acknowledgment, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.8. Post-Closing Lien Search. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.9. Approval of Authorized Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.1. Financial Statements and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.2. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.4. Inspection of Property and Records; Audits of Collateral . . . . . . . . . . . . . . . . . . . . 17
8.5. Notice of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6. Security and Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.7. Export Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.8. Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.9. Existence, Laws and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.10. Assignment of International Letter of Credit Proceeds . . . . . . . . . . . . . . . . . . . . . . 19
8.11. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.12. Controlling Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.1. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.2. Merger, Consolidation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.3. Nature of Business; Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.4. Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.5. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.6. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.7. Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.8. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.9. Change in Accounting Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.10. Export Orders and Indirect Export Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.11. Copyrights, Patents and Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.12. Eximbank Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.1. Failure to Pay Principal or Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.2. Failure to Pay Other Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.3. Misrepresentation or Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.4. Violation of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.5. Bankruptcy and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.6. Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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10.7. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.8. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.9. International Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.10. Cross-Default to Export Orders, Indirect Export Orders and
Direct Export Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.11. Cross-Default to Domestic Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.12. Cross-Default to Non-Eximbank Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.13. Cross-Acceleration to Other Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.14. Undischarged Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.15. Cross-Default to Borrower Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.16. Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.17. Controlling Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.18. Impairment of Eximbank Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.19. Impairment of International Loan Documents, Export Orders,
Indirect Export Orders and Direct Export Contracts. . . . . . . . . . . . . . . . . . . . . . . . 25
10.20. Negative Pledge on Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.21. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.22. Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.23. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.24. Distributions in Violation of the Eximbank Guaranty . . . . . . . . . . . . . . . . . . . . . . . 26
10.25. Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.1. Representation by the Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.2. Waivers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.3. Reimbursement of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.4. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.6. Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . 28
11.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.8. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.9. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.10. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.11. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.12. Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.13. Sale or Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.14. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.15. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.16. Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.17. Loan Agreement Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.18. FINAL AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.19. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
Exhibit A - Definitions
Exhibit B - Form of International Revolving Note
Exhibit C - Form of Request for Borrowing
Exhibit D - Form of International Borrowing Base Certificate,
together with Annex I and II
Exhibit E - Form of Compliance Certificate
Exhibit F - Form of Letter of Credit Request
Exhibit G - Notice of Rate Change/Continuation
Schedule 6.1 - Subsidiaries
Schedule 6.3 - Litigation
Schedule 6.5 - Ownership
Schedule 6.13 - Existing Indebtedness
Schedule 8.3 - Insurance
Schedule 9.1 - Existing Liens
</TABLE>
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<PAGE> 6
INTERNATIONAL REVOLVING
LOAN AGREEMENT
NATIONAL TANK COMPANY, a Delaware corporation (hereinafter
called the "Borrower"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association (together with its successors and assigns,
hereinafter called the "Bank"), hereby agree as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used in this Agreement
and not otherwise defined herein shall have the meanings given to them in
Exhibit A to this Agreement.
2. THE LOANS AND LETTERS OF CREDIT.
2.1. THE LOANS.
(a) Upon the terms and conditions and relying upon the
representations and warranties herein set forth, the Bank agrees to
make Loans to the Borrower on any one or more Business Days prior to
the Maturity Date, up to an aggregate principal amount of Loans not
exceeding at any one time outstanding the lesser of (i) $3,000,000.00
(such amount, as it may be reduced from time to time pursuant to
Section 3.6, being the Bank's "Commitment") or (ii) the International
Borrowing Base. Subject to the terms and conditions of this
Agreement, the Borrower may borrow, repay and reborrow hereunder.
(b) The Borrower shall execute and deliver to the Bank to
evidence the Loans made by the Bank under the Bank's Commitment, a
Note which shall be (i) dated of even date herewith; (ii) in the
principal amount of the Commitment; and (iii) in substantially the
form attached hereto as Exhibit B, with the blanks appropriately
filled. The outstanding principal balance of the Note shall be
payable on or before the Maturity Date. The Note shall bear interest
on the unpaid principal amount thereof from time to time outstanding,
payable on the last Business Day of each month, commencing on July 31,
1997, and at maturity, at a rate per annum (calculated based on a year
of 360 days) which (A) in the case of a Base Rate Loan shall be equal
to the lesser of (i) the Base Rate, such interest rate to change
automatically from time to time effective as of the date of each
change in the Base Rate, or (ii) the Highest Lawful Rate, and (B) in
the case of a LIBOR Rate Loan shall be equal to the lesser of (i) the
LIBOR Rate plus 2.25%, such interest rate to change automatically from
time to time effective as of the date of each change in the LIBOR
Rate, or (ii) the Highest Lawful Rate. Any amount of principal which
is not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest at the Past Due Rate.
(c) Each Loan (other than a Loan made pursuant to Section
2.5(a) to repay a reimbursement obligation) made hereunder shall be in
$100,000 increments and in a principal amount of not less
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<PAGE> 7
than $500,000 or the balance of the Commitment, if such balance is
less than $500,000, and shall be made on prior written notice from the
Borrower to the Bank in the form of Exhibit C attached hereto (the
"Request for Borrowing") delivered to the Bank not later than 12:00
noon (Houston time) (i) in the case of a LIBOR Rate Loan on the third
Business Day prior to the date of the proposed Loan (the "Borrowing
Date"), and (ii) in the case of a Base Rate Loan at least one Business
Day prior to the proposed Borrowing Date. Each Request for Borrowing
shall specify (i) the amount of the proposed borrowing and of each
Loan comprising a part thereof; (ii) the Borrowing Date; (iii) the
Type of Loan requested; (iv) with respect to any LIBOR Rate Loan, the
Interest Period with respect to each such Loan and the Expiration Date
of each such Interest Period (provided, that there shall not be more
than three (3) Interest Periods in effect at any one time under this
Agreement). The Borrower may give the Bank telephonic notice,
including by telephonic facsimile, by the required time of any
proposed borrowing under this Section 2.1(c); provided, however, that
such telephonic notice shall be confirmed in original writing by
delivery to the Bank promptly (but in no event later than the
Borrowing Date relating to any such borrowing) of a Request for
Borrowing. The Bank shall not incur any liability to the Borrower in
acting upon any telephonic notice referred to above which the Bank
believes to have been given by the Borrower, or for otherwise acting
in good faith under this Section 2.1(c). Upon fulfillment of the
applicable conditions set forth in Section 7, on the Borrowing Date,
the Bank shall make the borrowing available to the Borrower. The Bank
shall pay or deliver the proceeds of each borrowing to or upon the
order of the Borrower; provided that in the case of the first Loan,
such payment or delivery shall be made only against delivery to the
Bank of the Note payable to the order of the Bank. The Bank's records
as to the date and principal amount of each Loan and each payment of
principal thereon shall be controlling. Any deposit to or for the
Borrower's account by the Bank pursuant to a request (whether written
or oral) believed by the Bank to be an authorized request by the
Borrower for a Loan hereunder shall be deemed to be a Loan hereunder
for all purposes with the same effect as if the Borrower had in fact
requested the Bank to make such Loan.
(d) Each Request for Borrowing shall be irrevocable and
binding on the Borrower. In the case of any request for a LIBOR Rate
Loan, the Borrower shall indemnify the Bank against any loss, cost or
expense incurred by the Bank as a result of any failure to fulfill on
or before the Borrowing Date specified in such Request for Borrowing
for such Loan the applicable conditions set forth in Section 7,
including, without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Bank to fund
the Loan when the Loan, as a result of such failure, is not made on
such date.
2.2. INTERNATIONAL BORROWING BASE.
(a) From the date hereof to the date of the first
determination of the International Borrowing Base as hereinafter provided, the
amount of the International Borrowing Base shall be $0.
(b) As soon as available, and in any event within twenty
(20) Business Days after the end of each calendar month, the Borrower shall
furnish the Bank an international borrowing base detailed scheduled report (the
"International Borrowing Base Certificate") in the form of Exhibit D, which is
dated as of the end of each calendar month and which includes a list of the
Eligible Accounts
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<PAGE> 8
Receivable and Eligible Inventory of the Borrower as at the end of the
preceding month, such list to be in such form and containing such information
and detail as the Bank may reasonably request, and as is satisfactory to the
Bank, to comply with the requirements of the Eximbank Guaranty, including,
without limiting the generality of the foregoing, as to Eligible Accounts
Receivable, aging thereof in the customary manner. The inclusion of any
receivable or inventory in the International Borrowing Base Certificate shall
constitute a representation and warranty by the Borrower that such receivable
is an Eligible Accounts Receivable or Eligible Inventory, as the case may be.
The Bank may, on demand, inspect the documentation supporting any International
Borrowing Base Certificate.
(c) Two (2) Business Days after the receipt of any such
International Borrowing Base Certificate (unless the Bank prior to such date
has notified the Borrower of its determination of a different International
Borrowing Base) the International Borrowing Base amount stated in any such
International Borrowing Base Certificate shall automatically be deemed the
International Borrowing Base amount until the earlier of (i) the date of the
next determination or (ii) the date the Bank notifies the Borrower of its
determination of a different International Borrowing Base. The date of any
such notification (if any) by the Bank is herein called a "Determination Date"
and any increase or reduction in the International Borrowing Base by the Bank
shall be effective as of such date. Each determination of the International
Borrowing Base shall be made by the Bank in its reasonable business judgment,
based on the most recent International Borrowing Base Certificate furnished by
the Borrower and other information available to the Bank.
2.3. LETTERS OF CREDIT.
(a) Subject to and upon the terms and conditions herein
set forth, including, without limitation, the applicable terms and conditions
set forth in Section 7 hereof, the Bank agrees that it will, following its
receipt of a Letter of Credit Request, issue for the account of the Borrower
and in support of the obligations of the Borrower, one or more irrevocable
letters of credit which either (i) can be drawn down by a Buyer only if the
Borrower fails to perform all of its obligations under an Export Order or
Indirect Export Order, or (ii) can be drawn down by a United States supplier if
the Borrower fails to pay for goods or services purchased from said supplier by
the Borrower in support of export sales to be made pursuant to an Export Order
or Indirect Export Order (all such letters of credit collectively, the "Letters
of Credit"); provided that the Bank shall be under no obligation to issue any
Letter of Credit if at the time of such issuance:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall purport by its terms to enjoin or
restrain the Bank from issuing such Letter of Credit or any
requirement of law applicable to the Bank or any request or directive
(whether or not having the force of law) from any Governmental
Authority with jurisdiction over the Bank shall prohibit, or request
that the Bank refrain from, the issuance of letters of credit
generally; or
(ii) the Stated Amount of such Letter of Credit plus the
Letter of Credit Outstandings at such time (subject to any adjustment
pursuant to Section 2.3(c), if any) and the aggregate principal amount
of all Loans then outstanding (after giving effect to the principal
amount of all Loans repaid and all Unpaid Drawings reimbursed prior to
or concurrently with the issuance of such Letter of Credit) exceeds
the lesser of (A) the Commitment (after giving effect to any
reductions to the Commitment on such date) and (B) the International
Borrowing Base then in effect; or
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<PAGE> 9
(iii) unless the Bank shall give its prior written consent
in its sole discretion, the expiry date, or, in the case of any Letter
of Credit containing an expiry date that is extendible at the option
of the Bank, the initial expiry date of such Letter of Credit, is a
date that is later than the scheduled Maturity Date; or
(iv) the expiry date is not later than twelve (12) months
from the date of issuance of such letter of credit.
(b) Notwithstanding the foregoing, the Bank may not issue
during the final sixty (60) days of the term of this Agreement any Letters of
Credit which expire after the Maturity Date unless the Bank either has decided
to renew this Agreement or has obtained the prior written approval of Eximbank.
(c) The Bank may from time to time, in its sole and
absolute discretion, allow the issuance of Letters of Credit that are less than
100% collateralized.
2.4. LETTER OF CREDIT REQUESTS.
(a) Whenever the Borrower desires that a Letter of Credit
be issued for its account or that an existing expiry date shall be extended, it
shall deliver to the Bank its prior written request therefore not later than
12:00 noon (Houston time) on at least the second (2nd) Business Day prior to
the requested issuance or extension date, as the case may be. Each such
request shall be executed by the Borrower and shall be in the form of Exhibit F
attached hereto (each a "Letter of Credit Request") and, in the case of the
issuance of any Letter of Credit, shall be accompanied by an Application
therefor, completed to the satisfaction of the Bank, and such other
certificates, documents and other papers and information as the Bank may
reasonably request. Each Letter of Credit shall be denominated in Dollars,
shall expire no later than the date specified in Section 2.3, shall not be in
an amount greater than is permitted under Section 2.3(a) and shall be in such
form as may be approved from time to time by the Bank and the Borrower.
(b) The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the Borrower that such Letter of
Credit may be issued in accordance with, and will not violate the requirements
of Section 2.3(a) and Section 7 of this Agreement. Upon its issuance of any
Letter of Credit or the extension of the existing expiry date of any Letter of
Credit, as the case may be, the Bank shall promptly notify the Borrower of such
issuance or extension, which notice shall be accompanied by a copy of the
Letter of Credit actually issued or a copy of any amendment extending the
existing expiry date of any Letter of Credit, as the case may be.
2.5. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS.
(a) Upon the receipt by the Bank of any Drawing from a
beneficiary under a Letter of Credit, the Bank promptly will provide the
Borrower with telecopy notice thereof. The Borrower hereby agrees to reimburse
the Bank by making payment to the Bank in immediately available funds
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<PAGE> 10
at the office, for any payment made by the Bank under any Letter of Credit
issued by it (each such amount so paid until reimbursed, an "Unpaid Drawing")
immediately after, and in any event on the date of, such payment, with interest
on the amount so paid by the Bank, to the extent not reimbursed prior to 2:00
p.m. (Houston time) on the date of such payment, from and including the date
paid but excluding the date reimbursement is made as provided above, at a rate
per annum equal to the Highest Lawful Rate, such interest to be payable on
demand. Unless otherwise paid by the Borrower, such Unpaid Drawing may (and,
if the Bank so desires, shall automatically, provided that the Bank give notice
thereof to Borrower promptly thereafter), subject to satisfaction of the
conditions precedent set forth in Sections 2.3 and 7, be paid with the proceeds
of Loans which shall bear interest at an annual rate equal to the Base Rate.
(b) The Borrower's obligations under this Section 2.5 to
reimburse the Bank with respect to Unpaid Drawings (including, in each case,
interest thereon) shall be absolute and unconditional under any and all
circumstances (except as provided below with respect to the gross negligence or
willful misconduct of the Bank) and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against the Bank,
including any defense based upon the failure of any drawing under a Letter of
Credit (each a "Drawing") to conform to the terms of the Letter of Credit
(other than a defense based upon the gross negligence or willful misconduct of
the Bank in determining whether such Drawing conforms to the terms of the
Letter of Credit) or any non-application or misapplication by the beneficiary
of the proceeds of such Drawing, including any of the following circumstances:
(i) any lack of validity or enforceability of this
Agreement or any of the other International Loan Documents;
(ii) the existence of any claim, setoff, defense or other
right which the Borrower may have at any time against a beneficiary
named in a Letter of Credit, any transferee of any Letter of Credit
(or any Person for whom any such transferee may be acting), the Bank,
or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any
unrelated transactions (including any underlying transaction between
the Borrower or any other Person and the beneficiary named in any such
Letter of Credit);
(iii) any draft, certificate or any other document
presented under the Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the
International Loan Documents;
(v) the occurrence of any Default or Event of Default; or
(vi) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Borrower;
provided that none of the foregoing is attributable to the gross
negligence or willful misconduct of the Bank.
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<PAGE> 11
(c) The Borrower also agrees with the Bank that, in the
absence of gross negligence or willful misconduct of the Bank, the Bank shall
not be responsible for, and the Borrower's reimbursement obligations under
Section 2.6(a) shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even though such
documents shall in fact prove to be invalid, fraudulent or forged or any
dispute between or among the Borrower or any other Person and the beneficiary
of any Letter of Credit or any other party to which such Letter of Credit may
be transferred or any claims whatsoever of the Borrower or any other Person
against any beneficiary of such Letter of Credit or any such transferee.
(d) The Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except
for errors or omissions caused by the Bank's gross negligence or willful
misconduct. The Borrower agrees that any action taken or omitted by the Bank
under or in connection with any Letter of Credit or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the Uniform Customs and
Practice for Documentary Credits (1994 Revision), International Chamber of
Commerce, Publication No. 500 (and any subsequent revisions thereof approved by
a Congress of the International Chamber of Commerce and adhered to by such
Bank) and, to the extent not inconsistent therewith, the Uniform Commercial
Code of the State of Texas, shall not result in any liability of the Bank to
the Borrower or any other Person. IT IS THE INTENT OF THE PARTIES HERETO THAT
THE BANK SHALL NOT HAVE ANY LIABILITY UNDER THIS SECTION 2.5 FOR THE ORDINARY
SOLE OR CONTRIBUTORY NEGLIGENCE OF THE BANK.
2.6. CONFLICT BETWEEN APPLICATIONS AND AGREEMENT. To the
extent that any provision of any Application related to any Letter of Credit is
inconsistent with the provisions of this Agreement, the provisions of this
Agreement shall control.
2.7. INCREASED COSTS; UNAVAILABLE LIBOR; INCREASED CAPITAL.
(a) If, due to either (i) the introduction of or any
change in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to the Bank of agreeing to make or making, funding or
maintaining LIBOR Rate Loans, then the Borrower shall from time to time, upon
demand by the Bank, pay to the Bank additional amounts sufficient to compensate
the Bank for such increased cost. A certificate as to the amount of such
increased cost, submitted to the Borrower by the Bank, shall be conclusive and
binding for all purposes, absent manifest error.
(b) If the Borrower shall have chosen the LIBOR Rate in a
Request for Borrowing or a Notice of Rate Change/Continuation and not later
than 11:00 a.m. (Houston, Texas time) one Business Day prior to the Borrowing
Date or Conversion/Continuation Date, as the case may be, the Bank notifies the
Borrower that (i) deposits in Dollars in the principal amount of such LIBOR
Rate Loan are not being offered to the Bank in the interbank market selected by
the Bank for the Interest
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<PAGE> 12
Period applicable thereto or (ii) adequate and reasonable means do not exist
for ascertaining the chosen LIBOR Rate in respect of such LIBOR Rate Loan or
(iii) the LIBOR Rate for any Interest Period for such LIBOR Rate Loan will not
adequately reflect the cost to the Bank of making such LIBOR Rate Loan for such
Interest Period, then such LIBOR Rate shall not become effective as to such
LIBOR Rate Loan on such Borrowing Date or the Conversion/Continuation Date, as
the case may be, or at any time thereafter until such time thereafter as the
Borrower receives notice from the Bank that the circumstances giving rise to
such determination no longer apply and such Loan shall bear interest at the
lesser of (i) the Base Rate or (ii) the Highest Lawful Rate.
(c) If the Bank determines that compliance with any law
or regulation or any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by the
Bank or any corporation controlling the Bank and that the amount of such
capital is increased by or based upon the existence of the Bank's Commitment
hereunder and other commitments of this type, then, within fifteen (15)
Business Days after demand by the Bank, the Borrower shall pay to the Bank,
from time to time as specified by the Bank, additional amounts sufficient to
compensate the Bank or such corporation in the light of such circumstances. A
certificate as to such amounts submitted to the Borrower by the Bank shall be
conclusive and binding for all purposes, absent manifest error.
(d) Anything in this Section notwithstanding: (i) the
Borrower shall not be required to pay to the Bank reimbursement or
indemnification with regard to any costs or expenses described in this Section,
unless the Bank notifies the Borrower of such costs or expenses within 90 days
after the date paid or incurred; and (ii) the Bank shall not be permitted to
pass through to the Borrower charges and costs under this Section on a
discriminatory basis (i.e., which are not also passed through by the Bank to
other customers of the Bank similarly situated where such customer is subject
to documents providing for such pass through).
2.8. INTEREST RATE PROTECTION. If the Borrower shall fail
to select the duration of any Interest Period for any LIBOR Rate Loan in
accordance with the provisions hereof, such Loan will automatically, on the
last day of the then existing Interest Period therefor, convert into a Base
Rate Loan.
2.9. VOLUNTARY CONVERSION/CONTINUATION OF LOANS; PAST DUE
RATE.
(a) So long as no Default or Event of Default has
occurred and is continuing, the Borrower may (i) change the interest rates to
apply to any Loan or (ii) elect to continue all or any part of the outstanding
principal balance of any LIBOR Rate Loan as an Loan of such Type by giving the
Bank an irrevocable written notice (the "Notice of Rate Change/Continuation")
in the form of Exhibit G hereto, specifying (A) the date on which such Loan was
made; (B) the interest rate then applicable to such Loan; (C) with respect to
any LIBOR Rate Loan, the Interest Period then applicable to each such Loan; (D)
the principal amount of such Loan to remain outstanding; (E) the Type of Loan
and, with respect to any LIBOR Rate Loan, the Interest Period to become
applicable to such Loan on the effective date of the rate change or
continuation; and (F) the requested effective date of the rate change or
continuation (the "Conversion/Continuation Date"). In the case of the
conversion of all or any part of any Base Rate Loan into a LIBOR Rate Loan or
the continuation of
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<PAGE> 13
any LIBOR Rate Loan as an Loan of such Type, such notice must be received by
the Bank not later than 11:00 A.M. (Houston time) at least three (3) full
Business Days prior to the Conversion/Continuation Date, and otherwise at least
one (1) full Business Day prior thereto. Each rate so specified shall become
effective on the Conversion/Continuation Date and remain in effect until the
expiration of the applicable Interest Period specified in such Notice of Rate
Change/ Continuation.
(b) Nothing contained herein shall authorize the Borrower
(i) to convert any Loan into or continue any Loan as a LIBOR Rate Loan unless
the Expiration Date of the Interest Period for such Loan occurs on or before
the Maturity Date or (ii) to continue or change the interest rates applicable
to any LIBOR Rate Loan prior to the Expiration Date of the Interest Period with
respect thereto.
(c) Notwithstanding anything set forth herein to the
contrary, any Loan which is not paid when due shall bear interest at a rate per
annum which shall be equal to the lesser of (i) 3% above the interest rate
otherwise applicable thereto or (ii) the Highest Lawful Rate, which interest
shall be due and payable on demand.
2.10. ILLEGALITY, ETC. Notwithstanding any other provision
of this Agreement, if the Bank shall notify the Borrower that the introduction
of or any change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other Governmental Authority asserts that it
is unlawful, for the Bank to perform its obligations hereunder to make LIBOR
Rate Loans or to fund or maintain LIBOR Rate Loans hereunder, (i) the
obligation of the Bank to make, or to convert Loans into, LIBOR Rate Loans
shall be suspended until the Bank shall notify the Borrower that the
circumstances causing such suspension no longer exist and (ii) the Borrower
shall forthwith prepay in full all LIBOR Rate Loans of the Bank then
outstanding, together with interest accrued thereon, unless the Borrower,
within five (5) Business Days of notice from the Bank, converts all LIBOR Rate
Loans of the Bank then outstanding into a Base Rate Loan.
3. PREPAYMENTS AND OTHER PAYMENTS.
3.1. REQUIRED PREPAYMENTS.
(a) The Borrower agrees that if at any time it or the
Bank determines that the aggregate principal amount of Loans outstanding plus
the Letter of Credit Outstandings (subject to any adjustment pursuant to
Section 2.3(c), if any) exceeds the International Borrowing Base, the Borrower
will, within five (5) Business Days, either (i) make a prepayment of principal
in an amount at least equal to such excess, or (ii) furnish additional security
to the Bank, in form and amount satisfactory to the Bank and the Eximbank.
(b) The Borrower agrees that if at any time the aggregate
principal amount of Loans outstanding plus the Letter of Credit Outstandings
exceeds the amount of the Commitment, the Borrower shall immediately make a
prepayment of principal in an amount at least equal to such excess.
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<PAGE> 14
3.2. OPTIONAL PREPAYMENTS. The Borrower shall have the
right at any time and from time to time to prepay the Note, in whole or in
part, provided that each partial prepayment shall be in an aggregate principal
amount of at least $50,000 or such lesser amount as may be due and owing. In
the event of such prepayment of a LIBOR Rate Loan, the Borrower shall be
obligated to reimburse the Bank in respect thereof pursuant to Section 3.4.
3.3. PLACE OF PAYMENT OR PREPAYMENT. All payments and
prepayments of the International Obligations made in accordance with the
provisions of this Agreement or of the Note, including, without limitation,
fees, principal or interest, shall be made to the Bank no later than 2:00 p.m.
(Houston time) on the date when due, in immediately available funds.
3.4. PREPAYMENT PREMIUM OR PENALTY. Each prepayment
pursuant to Section 3.1 or 3.2 shall be without premium or penalty, provided,
if any payment of principal of any LIBOR Rate Loan is made other than on the
last day of the Interest Period for such Loan, as a result of a payment
pursuant to Sections 3.1 or 3.2 or acceleration of the maturity of the Loans
and the Notes pursuant to Section 10 or for any other reason, the Borrower
shall, within 15 Business Days after receipt of Bank's demand, pay to the Bank
any amounts required to compensate the Bank for additional losses, costs or
expenses which it may reasonably incur as a result of such payment, including,
without limitation, any loss (including loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by the Bank to fund or maintain such Loan.
3.5. TAXES. All payments (whether of principal, interest,
reimbursements or otherwise) under this Agreement or on the Note shall be made
by the Borrower without set-off or counterclaim and shall be made free and
clear of and without deduction for any present or future tax, levy, impost or
any other charge, if any, of any nature whatsoever now or hereafter imposed by
any taxing authority, but excluding taxes imposed on or measured by the Bank's
net income and franchise taxes imposed on the Bank. If the making of such
payments is prohibited by law unless such a tax, levy, impost or other charge
is deducted or withheld therefrom, the Borrower shall pay to the Bank, on the
date of each such payment, such additional amounts as may be necessary in order
that the net amounts received by the Bank after such deduction or withholding
shall equal the amounts which would have been received if such deduction or
withholding were not required.
3.6. REDUCTION OR TERMINATION OF THE COMMITMENT. The
Borrower may at any time or from time to time reduce or terminate the
Commitment by giving written notice thereof no later than 2:00 p.m. (Houston
time) not less than two (2) Business Days' prior to such reduction or
termination. Any reduction in the Commitment shall be effective on the date
specified in the Borrower's notice with respect to such reduction. The
Commitment shall automatically terminate on the Maturity Date or in the event
of acceleration of the Maturity Date of the Note. Each reduction of the
Commitment hereunder shall be irrevocable.
4. FEES.
4.1. FACILITY FEE. The Borrower hereby irrevocably agrees
to pay $30,000 to the Bank on the Closing Date. In no event shall such amount
be refunded to the Borrower, whether or not the transactions contemplated
hereby are consummated. The required facility fee hereunder is 1.0% of the
Commitment.
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4.2. LETTER OF CREDIT FEES. The Borrower agrees to pay
the Bank a fee in respect of each Letter of Credit issued for the account of
the Borrower (the "Letter of Credit Fee"), computed at the rate of 1% per annum
on the initial Stated Amount of such Letter of Credit. Letter of Credit Fees
shall be due and payable quarterly, in advance. Fees due under this Section
4.2 shall be computed on the basis of a year of 360 days.
4.3. FEES NOT INTEREST; NONPAYMENT. The fees described in
this Agreement represent compensation for services rendered and to be rendered
separate and apart from the lending of money or the provision of credit and do
not constitute compensation for the use, detention or forbearance of money, and
the obligation of the Borrower to pay each fee described herein shall be in
addition to, and not in lieu of, the obligation of the Borrower to pay
interest, other fees described in this Agreement, and expenses otherwise
described in this Agreement. Fees shall be payable when due in Dollars and in
immediately available funds. All fees shall be non-refundable, and shall, to
the fullest extent permitted by law, bear interest, if not paid when due, at a
rate per annum equal to the Past Due Rate.
5. APPLICATION OF PROCEEDS. The Borrower agrees that (a) the
proceeds of the Loans shall be used exclusively for purposes permitted pursuant
to the Eximbank Guaranty and the Borrower Agreement and (b) the Letters of
Credit shall be issued solely to support the Borrower's obligations (i) under
an Export Order or Indirect Export Order, or (ii) to pay for goods or services
purchased from a United States supplier in support of export sales to be made,
pursuant to an Export Order or Indirect Export Order.
6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants that:
6.1. ORGANIZATION AND QUALIFICATION. The Borrower and
each Subsidiary (a) is duly organized, validly existing, and in good standing
under the laws of its state of formation; (b) has the power to own its
Properties and to carry on its business as now conducted; and (c) is duly
qualified to do business and is in good standing in every jurisdiction where
such qualification is necessary. The Borrower has no Subsidiaries other than
those listed on Schedule 6.1.
6.2. FINANCIAL STATEMENTS; POSITIVE TANGIBLE NET WORTH.
The Borrower and each Guarantor has furnished the Bank with the following
financial statements: (a) its year-end Annual Audited Financial Statements for
the fiscal periods ended 1994, 1995 and 1996; and (b) its balance sheet and
statement of operations and retained earnings as at and for the 12 month period
ended March 31, 1997. These statements have been prepared in conformity with
GAAP. Such statements present, in all material respects, the financial
condition of the Borrower or Guarantor and its Subsidiaries and the results of
its operations as at the dates and for the periods indicated. There has been
no material adverse change in the condition, financial or otherwise, of the
Borrower since March 31, 1997. During the period from March 31, 1997 to the
Closing Date, the Borrower has had a positive tangible net worth, as determined
in accordance with GAAP. For the purpose of this determination, net worth (as
determined in accordance with GAAP) must be (i) increased by any Indebtedness
of the Borrower and its Subsidiaries subordinated to the Loans and (ii)
decreased by all intangible assets (including, without limitation, all patents,
licenses, goodwill, subscription lists, capitalized software, organization
expenses, covenants not to compete, and investments in and monies due from
Affiliates, officers and directors of the Borrower and its Subsidiaries).
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<PAGE> 16
6.3. LITIGATION. Other than as set forth on Schedule 6.3,
there is no material action or proceeding pending or, to the knowledge of the
Borrower, threatened against or involving the Borrower or any Subsidiary
thereof before any court, administrative agency or arbitrator which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect. There is no outstanding judgment, order or decree binding upon the
Borrower or any Subsidiary before or by any administrative or governmental
authority.
6.4. DEFAULT. Neither the Borrower nor any Subsidiary is
in default under or in violation of the provisions of (i) any instrument
evidencing any Indebtedness or (ii) any agreement relating thereto or (iii) any
Governmental Requirement (except where such default or violation could not
reasonably be likely to have a Material Adverse Effect) or (iv) any Export
Order or Indirect Export Order (which is a material violation of such Export
Order or Indirect Export Order), which has not been waived by the applicable
lender or other party thereto.
6.5. TITLE TO ASSETS; OWNERSHIP. (a) The Borrower and
each Subsidiary has good and marketable title to its material Properties,
subject to no Liens except as permitted by Section 9.1 hereof.
(b) The Persons identified on Schedule 6.5 directly own,
free and clear of all Liens or restrictions on transferability or voting, one
hundred percent (100%) of the outstanding shares of the Borrower and all such
shares are validly issued, fully paid and non-assessable. There are no
outstanding warrants, options, contracts or commitments of any kind entitling
any Person to purchase or otherwise acquire (i) any shares of the capital stock
(or other equivalent interests) of the Borrower or (ii) any securities
convertible into or exchangeable for any shares (or other equivalent interests)
of such capital stock (or other equivalent interests). No securities are
outstanding which are convertible into or exchangeable for any shares of
capital stock (or other equivalent interests) of the Borrower. The Persons
identified on Schedule 6.5 as Controlling Affiliates are the only Controlling
Affiliates of the Borrower.
6.6. AUTHORIZATION, VALIDITY, ETC. The Borrower has the
power and authority to make, execute, deliver and carry out the International
Loan Documents to which it is a party and the transactions contemplated therein
and to perform its obligations thereunder and all such action has been duly
authorized by all necessary proceedings on its part. The International Loan
Documents have been duly and validly executed and delivered by the Borrower and
the Guarantors and constitute valid and legally binding agreements of the
Borrower and the Guarantors enforceable in accordance with their respective
terms, except as limited by Debtor Laws. The Liens created by the
International Security Documents will constitute valid and perfected Liens on
the International Collateral described therein subject in priority to no other
Liens whatsoever. The liens created by the International Security Documents
will constitute valid and perfected Liens on the Domestic Collateral, subject
in priority to no other Liens whatsoever, other than Permitted Liens and Liens
securing the Domestic Obligations.
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<PAGE> 17
6.7. LINE OF BUSINESS. The Borrower's line of business is
to design, distribute, install and service production processing equipment and
systems for the petroleum industry worldwide. The Borrower provides a wide
spectrum of equipment and systems for separating one substance from another in
a hydrocarbon fluid stream and removing contaminants from gases and liquids.
6.8. TAXES. (a) The Borrower and each Subsidiary has
filed, or has caused to be filed, all tax returns required to be filed and has
paid, or has caused to be paid, all taxes shown on said returns and all
assessments which are not yet delinquent. The Borrower is not aware of any
pending investigation by any taxing authority or of any claims by any
Governmental Authority for any unpaid taxes, except liabilities contested in
good faith.
(b) The Borrower and each Guarantor has furnished the
Bank a copy of its signed federal tax returns, including federal income tax
returns, for the years 1994, 1995 and 1996.
6.9. CONFLICTING OR ADVERSE AGREEMENTS OR RESTRICTIONS.
Neither the execution, delivery and performance of the International Loan
Documents to which the Borrower or any Subsidiary is a party, any Export Order,
or any Indirect Export Order, nor the consummation of the transactions
contemplated thereby nor fulfillment of and compliance with the respective
terms, conditions and provisions thereof, will conflict with or result in a
breach of any of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation or
imposition of any Lien on any of the Property of the Borrower or any Subsidiary
or Guarantor pursuant to, (a) the charter or bylaws of such Person; (b) any
Governmental Requirement; or (c) the terms, conditions or provisions of any
material contract to which such Person is a party or by which it is bound or to
which it is subject.
6.10. INFORMATION. Neither this Agreement nor any other
document, certificate or statement furnished to the Bank by or on behalf of the
Borrower or any Subsidiary or Guarantor in connection with this Agreement
(including, without limitation, any Export Order or any International Borrowing
Base Certificate) contains any statement of fact which is untrue or incorrect
in any material respect or omits to state a fact necessary in order to make the
statements contained herein and therein not misleading. There is no fact
peculiar to the Borrower which currently or (so far as the Borrower can now
reasonably foresee) in the future may result in the existence of a Material
Adverse Effect.
6.11. NO CONSENT. Except to the extent obtained, no
authorization or approval or other action by, and no notice to or filing with,
any Person or any Governmental Authority is required for the due execution,
delivery, and performance (a) by the Borrower or any Subsidiary or Guarantor of
any International Loan Document to which it is a party or the borrowings
hereunder, in each case as contemplated herein, or the effectuation of the
transactions contemplated under any International Loan Document to which it is
a party, or (b) of any Export Order or any Indirect Export Order by the parties
thereto or the effectuation of the transactions contemplated thereunder.
6.12. ENVIRONMENTAL MATTERS. The Borrower and each
Subsidiary (a) owns, possesses or otherwise holds, and is in compliance with
the terms and conditions of, all Governmental Approvals under Environmental
Laws necessary for the ownership or lease and operation of its
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<PAGE> 18
Property and the carrying on of its business as now conducted or proposed to be
conducted and except where the failure would not reasonably be expected to have
a Material Adverse Effect, and (b) is in compliance with all Governmental
Requirements relating to the environment except where the failure would not
reasonably be expected to have a Material Adverse Effect. There are no civil,
criminal or administrative actions, investigations or proceedings or claims
pending or, to the best knowledge of the Borrower, threatened against the
Borrower or any Subsidiary, for noncompliance with Environmental Laws or
arising out of the presence or release of hazardous materials at, on or under
any Property now owned, leased or operated by the Borrower or any Subsidiary
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect.
6.13. DEBT. Attached hereto as Schedule 6.13 is a complete
list, as of the Closing Date, of all agreements or instruments evidencing
Indebtedness of the Borrower, each Subsidiary and the Guarantors not reflected
in the Annual Audited Financial Statements previously furnished to the Bank
pursuant to Section 6.2 (other than the International Loan Documents, the
Domestic Loan Documents and agreements or instruments evidencing Indebtedness
arising from or with respect to current accounts payable and unsecured current
liabilities, not the result of borrowing, to vendors, suppliers and Persons
providing services, for expenditures and/or goods and services normally
required by it in the ordinary course of business and on ordinary trade terms).
6.14. NO UNTRUE OR MISLEADING STATEMENTS. No document,
instrument or other writing furnished to the Bank by or on behalf of the
Borrower, any Subsidiary or Guarantor in connection with the transactions
contemplated by the International Loan Documents contains any untrue material
statement of fact or omits to state any such fact necessary to make the
representations, warranties and other statements contained herein or in such
other document, instrument or writing not misleading in any material respect.
7. CONDITIONS. The obligation of the Bank to make each Loan, to
issue each Letter of Credit, is subject to the following conditions:
7.1. REPRESENTATIONS TRUE AND NO DEFAULTS. (a) The
representations and warranties of the Borrower contained in the International
Loan Documents shall be true and correct on and as of the particular Borrowing
Date or the date of the issuance of any Letter of Credit, as the case may be,
as though made on and as of such date unless otherwise limited to an earlier
date; (b) no event which could reasonably be expected to have a Material
Adverse Effect shall have occurred and be continuing; and (c) no Event of
Default or Default shall have occurred.
7.2. TERMS OF SALE. Loans and Letters of Credit shall be
made or issued, as the case may be, only against Export Orders and Indirect
Export Orders, copies of which have been delivered to the Bank and which are
maintained on file with the Borrower. With respect to Loans and Letters of
Credit to be made or issued, as the case may be, against Indirect Export
Orders, if requested by the Bank, a copy of each Direct Export Contract
pursuant to which the Items will be exported shall have been delivered to the
Bank. Unless waived by the Bank and the Eximbank, the Borrower must execute an
assignment of any contract and the proceeds thereof in favor of the Bank, for
the benefit of any Loan or Letter of Credit related thereto, such assignment to
be in form and substance satisfactory to the Bank. Each Loan and Letter of
Credit hereunder is subject to the condition precedent that the Bank shall have
reviewed and approved in its sole discretion the terms
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<PAGE> 19
and conditions, including without limitation that there exists satisfactory
evidence that the Items will in fact be exported, of the applicable Export
Order or Indirect Export Order and, if required by the Bank, any Direct Export
Contracts.
7.3. GOVERNMENTAL APPROVALS. The Borrower, each
Subsidiary, the Guarantors, and the Bank shall have obtained all Governmental
Approvals required for the making and carrying out of this Agreement, the
making of the Loans and the issuance of Letters of Credit pursuant hereto and
the issuance of the Note to evidence such Loans and the execution, delivery and
performance of the applicable Export Order or Indirect Export Order. Without
limitation of the foregoing, no Loan shall be made or Letter of Credit issued
hereunder (a) in violation of the Eximbank Guaranty or contrary to the
instructions of the Eximbank; (b) following the occurrence of an event of
default or of any event which but for the giving of notice or the lapse of time
or both would constitute and event of default pursuant to Section 4.5 of the
Eximbank Guaranty; or (c) without the prior written approval of the Bank and
the Eximbank subsequent to the event of an occurrence under any insurance
policy referred to in Section 8.7 hereof.
7.4. BORROWING DOCUMENTS; INTERNATIONAL BORROWING BASE
CERTIFICATE. The Bank shall have timely received from the Borrower a duly
executed and completed Request for Borrowing in respect of Loans to be made on
such Borrowing Date, an International Borrowing Base Certificate dated within
the past five (5) Business Days, and such other documents and certificates
relating to the transactions herein contemplated as the Bank may reasonably
request.
7.5. LETTER OF CREDIT DOCUMENTS. On the date of the
issuance of any Letter of Credit, the Bank shall have received from the
Borrower a Letter of Credit Request in respect of Letters of Credit to be
issued on such issuance date together with such other documents and
certificates relating to the transactions herein contemplated as the Bank may
reasonably request. Without limitation of the foregoing, each Letter of Credit
shall be issued only upon receipt of an International Borrowing Base
Certificate current within the past five (5) Business Days.
7.6. REQUIRED INITIAL DOCUMENTS AND CERTIFICATES. On or
before the first Loan is made, or Letter of Credit issued, hereunder (the
"Initial Date"), the Bank shall have received from the Borrower the following,
in each case in form, scope and substance satisfactory to the Bank:
(i) the SBA/Eximbank Joint Application, duly executed by
the parties thereto, together with the $100 application fee related
thereto;
(ii) the Borrower Agreement duly executed by the parties
thereto;
(iii) this Agreement, together with all schedules and
exhibits thereto;
(iv) the Note duly executed by the Borrower;
(v) the International Security Agreement duly executed by
the parties thereto;
(vi) the International Guaranties duly executed by the
Guarantors;
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<PAGE> 20
(vii) an Officer's Certificate of the Borrower dated as of
the Closing Date to which are attached true and correct copies of the
articles of incorporation and bylaws of the Borrower and corporate
resolutions duly adopted by the Board of Directors of the Borrower
authorizing the transactions contemplated by the International Loan
Documents;
(viii) satisfactory results of on-line search as to the
continued existence and good standing of the Borrower;
(ix) satisfactory results of on-line search as to each
state in which the Borrower is authorized and qualified to do business
as to its due qualification and good standing;
(x) an International Borrowing Base Certificate dated
within five (5) Business Days preceding the Initial Date, as required
by Section 7.4;
(xi) copies of duly executed UCC-1 Financing Statements
and all other requisite filing documents necessary to perfect the
Liens granted pursuant to the International Security Documents and
duly executed releases or assignments of Liens and UCC-3 financing
statements in recordable form, and in form and substance satisfactory
to the Bank, and filed with the appropriate filing offices, covering
all of the Collateral subject thereto, as may be necessary to reflect
that the Liens granted to the Bank are of the priority required by
Section 9.1 hereof;
(xii) a copy of the fully effective Eximbank insurance
policy complying with the terms of Section 8.7 hereof, together with
an assignment thereof in favor of the Bank;
(xiii) the facility fee required under Section 4.1;
(xiv) the Borrower's monthly inventory listing and accounts
receivable aging schedule showing all of the Borrower's inventory and
accounts receivable as of the last day of the calendar month
immediately preceding the Initial Date;
(xv) satisfactory completion of field analysis and due
diligence of the Borrower to be performed by the Bank; and
(xvi) the Borrower's and each Guarantor's financial
statements and signed federal tax returns as contemplated in Sections
6.2 and 6.8(b).
In addition, as of the Initial Date, all legal matters
incident to the transactions herein contemplated shall be reasonably
satisfactory to the Bank.
7.7. EXIMBANK ACKNOWLEDGMENT, ETC. On or before the
Initial Date, the Eximbank shall have received from the Bank copies of all
documents required pursuant to the Eximbank Guaranty. The Bank shall have
received from the Eximbank (a) an acknowledged Loan Authorization Notice
executed by an Authorized Officer evidencing the Eximbank's commitment to issue
a guarantee pursuant to the Bank's exercise of its delegated authority with
respect to this Agreement, together with all other acknowledged items referred
to in Section 3 of the Delegated Authority Letter Agreement and (b) an
acknowledgment of the Eximbank's receipt of its portion of the facility fee
referred to in Section 4.1 hereof.
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<PAGE> 21
7.8. POST-CLOSING LIEN SEARCH. On or before the Initial
Date, Bank shall have received the results of all post-closing lien searches
confirming that the Bank has obtained a perfected security interest in the
Collateral of the priority required by Section 9.1.
7.9. APPROVAL OF AUTHORIZED OFFICER. Eximbank requires
that an Authorized Officer approve in writing any Loan made, or Letter of
Credit issued hereunder. Such approval shall not be withheld provided all
requirements set forth herein and in the Borrower Agreement are fully complied
with.
8. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees
that, so long as the Borrower may borrow hereunder and until payment in full of
the Note, the Borrower will:
8.1. FINANCIAL STATEMENTS AND INFORMATION. Deliver to the
Bank in duplicate:
(a) as soon as available, and in any event within one
hundred twenty (120) days after the end of each fiscal year of the
Borrower, the Annual Audited Financial Statements of (i) the Borrower
and its Subsidiaries prepared on a consolidated basis, and (ii) each
Guarantor;
(b) as soon as available, and in any event within one
hundred eighty (180) days after the end of each year, a copy of
Borrower's and each Guarantor's signed federal tax returns, including
federal income tax returns, and all supporting documentation;
(c) as soon as available, and in any event within thirty
(30) days after the end of each calendar month (including a month
ending a fiscal year), Monthly Unaudited Financial Statements of the
Borrower and its Subsidiaries prepared on a consolidated basis;
(d) as soon as available, and in any event within twenty
(20) Business Days after the end of each month, an International
Borrowing Base Certificate dated within the past five (5) Business
Days of the Bank's receipt thereof;
(e) promptly after such request is submitted to the
appropriate Governmental Authority, any request for waiver of funding
standards or extension of amortization periods with respect to any
employee benefit plan;
(f) contemporaneously therewith or within 10 days
thereafter copies of all statements and reports sent to the
stockholders of the Borrower or any Subsidiary, or filed with the
Securities and Exchange Commission;
(g) such additional financial or other information as the
Bank may reasonably request;
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<PAGE> 22
(h) as soon as available, and in any event within 30 days
after the end of each calendar month, the Borrower's monthly inventory
listing and accounts receivable aging schedule showing all of the
Borrower's inventory and accounts receivable; and
(i) as soon as available, and in any event within
forty-five (45) days after the end of each quarter, quarterly
financial statements of the Borrower.
Together with each delivery of the Annual Audited Financial Statements, the
Borrower will deliver to the Bank an Compliance Certificate in the form of
Exhibit E hereto, stating that there exists no Event of Default or Default, or,
if any such Event of Default or Default exists, stating the nature thereof, the
period of existence thereof and what action the Borrower has taken or proposes
to take with respect thereto. The Bank is authorized to deliver a copy of any
information and financial statement delivered to it to the Eximbank and any
Governmental Authority having jurisdiction over the Bank.
8.2. BOOKS AND RECORDS. Maintain, and cause its
Subsidiaries to maintain, proper books of record and account in accordance with
GAAP in which true, full and correct entries will be made of all its dealings
and business affairs.
8.3. INSURANCE. Maintain, and cause its Subsidiaries to
maintain, insurance with financially sound, responsible and reputable companies
in such types (including, without limitation, fire and casualty) and amounts
and against such casualties, risks and contingencies as is customarily carried
by owners of similar businesses and Properties, and furnish to the Bank,
together with each delivery of financial statements under Section 8.1(a), an
Officer's Certificate containing full information as to the insurance carried.
Without limiting the generality of the foregoing, the Borrower will comply with
the insurance requirements set forth in each International Security Document to
which the Borrower is a party. For purposes hereof, the Borrower's types and
amounts of insurance set forth in Schedule 8.3 shall be acceptable to the Bank.
8.4. INSPECTION OF PROPERTY AND RECORDS; AUDITS OF
COLLATERAL.
(a) Permit, and cause its Subsidiaries to permit, any
Person designated by the Bank in writing to visit and inspect any of the
Properties, books and financial records of the Borrower and its Subsidiaries
and discuss its affairs and finances with its officers, all at such times as
the Bank may reasonably request at a mutually agreeable time, and cause its
officers and employees to give full cooperation and assistance in connection
therewith. Without limiting the generality of the foregoing, the Borrower will
permit, and cause its Subsidiaries to permit, any officer or employee of, or
agent designated by, the Bank to have access to, examine and inspect the
Collateral and to audit and make extracts from the Borrower's records, files
and books of account in order to verify such Collateral.
(b) The Borrower will, from time to time, on at least a
semiannually basis, permit the Bank, an independent certified public accountant
or another appropriate entity acceptable to the Bank to audit the Borrower's
books, records and procedures with respect to the Inventory, Accounts
Receivable and other Collateral. This inspection shall include a physical
inspection of the Collateral in accordance with normal commercial lending
practices, except that a book audit shall be made of
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<PAGE> 23
the Borrower's Accounts Receivable and any intangible Collateral. Promptly
after the conclusion of each such audit, the Borrower shall pay to the Bank its
reasonable and customary out-of-pocket expenses associated with such audit.
8.5. NOTICE OF CERTAIN MATTERS. Notify the Bank
immediately upon acquiring knowledge of the occurrence of any of the following
events: (a) the occurrence of any event having a Material Adverse Effect; (b)
the occurrence of any Event of Default or any Default; (c) the existence of any
condition requiring a mandatory prepayment pursuant to Section 3.1 hereof; (d)
any failure to pay when due any amount payable to the Bank by the Borrower, any
Subsidiary or any Guarantor under any non-Eximbank guaranteed loan(s) extended
by the Bank to the Borrower, any Subsidiary or any Guarantor; (e) the filing of
an action for debtor's relief by, against, or on behalf of the Borrower, any
Subsidiary or any Guarantor; (f) any actual or threatened breach of any Export
Order, Indirect Export Order or Direct Export Contract by any party to any such
contract or (g) any threatened or pending material litigation against the
Borrower, any Subsidiary or any Guarantor or any material dispute involving the
Borrower, any Subsidiary or any Guarantor. The Borrower shall promptly notify
the Bank in writing of the occurrence of any of the following: (a) the
Borrower, any Subsidiary or any Guarantor begins or consents in any manner to
any proceeding or arrangement for its liquidation in whole or in part or to any
other proceeding or arrangement whereby any of its liabilities or whereby any
receiver, trustee, liquidator or the like is appointed for it or any
substantial part of its assets (including, without limitation, the filing by
the Borrower, any Subsidiary or any Guarantor of a petition for appointment as
a debtor-in-possession under Title 11 of the U.S. Code); (b) the Borrower, any
Subsidiary or any Guarantor fails to obtain the dismissal or stay on appeal
within thirty (30) calendar days of the commencement of any proceeding
arrangement referred to in (a) above; (c) the Borrower, any Subsidiary or any
Guarantor begins any other procedure for the relief of financially distressed
or insolvent debtors, or such procedure has been commenced against it, whether
voluntarily or involuntarily, and such procedure has not been effectively
terminated, dismissed or stayed within thirty (30) calendar days after the
commencement thereof, or (d) the Borrower, any Subsidiary or any Guarantor
begins any procedure for its dissolution, or a procedure therefore has been
commenced against it.
8.6. SECURITY AND FURTHER ASSURANCES. The Borrower shall,
whenever and as often as the Bank may reasonably request, at the Borrower's own
expense, promptly execute and deliver all such further instruments (including,
without limiting the generality of the foregoing, additional security
agreements, deeds of trust and financing statements) and do such other acts
(including, without limitation, field warehousing) as the Bank may reasonably
request for the purpose of protecting or perfecting any Lien created or granted
or intended to be created or granted in the International Security Documents or
in order to ensure that any such Lien is of the priority purported to be
granted thereby and as required by Section 9.1 hereof, or in order to police or
protect any Collateral or otherwise to carry out more effectually the purposes
and intent of the International Loan Documents.
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<PAGE> 24
8.7. EXPORT INSURANCE.
(a) Any Eligible Account Receivable to be covered by the
Eximbank insurance must be insured by the Eximbank pursuant to a policy in form
and substance, and in such amounts, satisfactory to the Bank;
(b) any Eligible Account Receivable to be covered by
private sector insurance must be pursuant to a policy in form and substance,
and in such amounts, satisfactory to the Bank;
(c) the Borrower shall keep each such policy in full
force and effect and timely pay all premiums thereon and deliver copies thereof
to the Bank, together with all endorsements, declarations, amendments and
renewals;
(d) the Borrower shall immediately notify the Bank of any
loss related to the accounts receivable and of any submission of a claim under
any such policy and upon the event of an occurrence thereunder;
(e) the Borrower hereby assigns and grants to the Bank
its rights to claim payment(s) under any such policy, such assignments to be
notified to the policy issuers in the manner required by the Bank and a duly
executed original of each such notification to be delivered to the Bank; and
(f) the proceeds of any such assignment paid to the Bank
shall be applied first towards reducing any amount then outstanding hereunder.
Any excess thereafter shall be promptly paid to the Borrower.
8.8. MAINTENANCE OF PROPERTY. Cause its and each
Subsidiary's material Properties to be maintained, preserved, protected and
kept in reasonably good repair, working order and condition so that the
business carried on in connection therewith may be conducted properly and
efficiently.
8.9. EXISTENCE, LAWS AND OBLIGATIONS. Maintain, and cause
each Subsidiary to maintain, its existence, and pay, or cause to be paid, all
taxes, assessments, governmental charges, claims for labor, supplies, rent and
other obligations which if unpaid might become a Lien against the Property of
the Borrower or any Subsidiary; except liabilities which are being contested in
good faith and which are not owed to a Government Authority. The Borrower will
comply, and cause each Subsidiary to comply, with all Governmental Requirements
except where failure to so comply could not reasonably be expected to have a
Material Adverse Effect.
8.10. ASSIGNMENT OF INTERNATIONAL LETTER OF CREDIT
PROCEEDS. Each letter of credit issued in favor of the Borrower with respect
to the sale of Items to be financed under this Agreement, if any, (a) shall be
in form and substance reasonably satisfactory to the Bank, and (b) shall be
issued and/or confirmed in the manner required by the Bank by financial
institutions acceptable to the Bank, and shall list the Bank as the advising
and paying bank. If required by the Bank, any such letter of credit shall
provide for an assignment of proceeds thereof, in form and substance
satisfactory to the Bank.
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8.11. ENVIRONMENTAL MATTERS. At all times:
(a) comply, and cause each Subsidiary to comply, with all
applicable Governmental Requirements under and Governmental Approvals
under Environmental Laws except where failure to so comply could not
reasonably be expected to have a Material Adverse Effect;
(b) promptly notify the Bank and provide copies upon
receipt of all material written claims, complaints, notices or
inquiries relating to the environmental condition of the facilities
and Properties of the Borrower or any Subsidiary or its compliance
with Environmental Laws; and
(c) provide such information and certifications which the
Bank may reasonably request from time to time to evidence compliance
with this Section 8.11.
8.12. CONTROLLING AFFILIATES. If any Person shall become a
Controlling Affiliate, then the Borrower will, and will cause such Controlling
Affiliate to, amend the International Loan Documents and execute additional
documents as may be required by the Bank or Eximbank.
9. NEGATIVE COVENANTS. So long as the Borrower may borrow
hereunder and until payment in full of the Note, unless the Bank shall
otherwise give its prior written consent in its sole and absolute discretion:
9.1. LIENS. The Borrower will not, and will not permit
any Subsidiary to create, incur, assume or permit to exist any Lien (including
any charge upon assets purchased under a conditional sales agreement, purchase
money mortgage, security agreement or other title retention agreement) upon any
of its Properties, or the proceeds thereof, whether now owned or hereafter
acquired, except (a) Permitted Liens and Liens set forth on Schedule 9.1,
provided that any such Lien (i) is not extended to any other Property, (ii)
secures only Indebtedness permitted by Section 9.6 and (iii) no such Lien shall
encumber the Collateral subject to the International Security Documents, (b)
Liens in favor of the Bank and Domestic Lenders created by the International
Security Documents and pursuant to the Domestic Security Documents, and (c)
Liens permitted pursuant to Section 8.2 of the Domestic Credit Agreement.
NOTHING WITHIN THIS SECTION SHALL PERMIT THE BORROWER TO TAKE ANY ACTION WHICH
WOULD CAUSE THE LIEN ON THE INTERNATIONAL COLLATERAL CREATED IN FAVOR OF THE
BANK PURSUANT TO THE INTERNATIONAL SECURITY DOCUMENTS TO FAIL TO BE A VALID
FIRST PRIORITY LIEN, AND THE LIEN ON THE DOMESTIC COLLATERAL CREATED IN FAVOR
OF THE BANK PURSUANT TO THE INTERNATIONAL SECURITY DOCUMENTS TO BE A VALID LIEN
WHICH IS JUNIOR IN PRIORITY ONLY TO LIENS CREATED PURSUANT TO THE DOMESTIC
SECURITY DOCUMENTS, AND THE BORROWER WILL NOT TAKE ANY SUCH ACTION.
9.2. MERGER, CONSOLIDATION, ETC. Without the prior
written consent of the Bank and the Eximbank, the Borrower will not merge or
consolidate with any other Person or sell, lease, transfer or otherwise dispose
of (whether in one transaction or a series of transactions) all or a
substantial part of its assets or any part of its assets which are essential to
the conduct of its business or operations or acquire (whether in one
transaction or a series of transactions) all or a substantial part of the
assets of any Person or make any material change in its corporate structure or
identity, or
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<PAGE> 26
enter into any agreement to do any of the foregoing. Without the prior written
consent of the Bank and the Eximbank, the Borrower shall not form, acquire or
create any Subsidiary. Without the prior written consent of the Bank and the
Eximbank, the Borrower shall not, and will not permit any of its Subsidiaries
to, transfer, purchase or redeem, or permit any Subsidiary to transfer,
purchase or redeem, any shares of the Borrower's or any Subsidiary's capital
stock unless such transfer, purchase or redemption is effected solely from the
proceeds of and within a reasonable time after the issuance to third parties by
the Borrower or its Subsidiary of capital stock which is in addition to the
capital stock of the Borrower or its Subsidiary, as the case may be,
outstanding on the date hereof.
9.3. NATURE OF BUSINESS; MANAGEMENT. Neither the Borrower
nor any Subsidiary will change its line of business from that described in
Section 6.7 or enter into any business which is substantially different from
such business.
9.4. LOANS AND INVESTMENTS. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, make or have
outstanding any loans, advances or other extensions of credit; or make or
permit to remain outstanding any capital contributions to, or purchase or own
any stocks, bonds, notes, debentures or other securities of, any Person other
than as permitted by Section 8.8 of the Domestic Credit Agreement. This
Section 9.4 shall not be construed to prohibit advances made to employees,
officers and directors in the usual, customary and ordinary course of business.
9.5. FINANCIAL COVENANTS. Throughout the term of this
Agreement, the Borrower shall comply with each of the financial tests in
Section 7.3 of the Domestic Credit Agreement. The Borrower shall deliver
schedules reflecting the calculation of such amounts and ratios concurrently
with each set of financial statements delivered under Section 8.1(a) of this
Agreement.
9.6. DEBT. The Borrower will not, and will not permit any
Subsidiary to create, incur, suffer or permit to exist, or assume or guarantee,
directly or indirectly, or become or remain liable with respect to any
Indebtedness, contingent or otherwise, except:
(a) Indebtedness to the Bank;
(b) Indebtedness previously approved by the Bank in
writing on any date following the Closing Date;
(c) current accounts payable and unsecured current
liabilities, not the result of borrowing, to vendors, suppliers and
persons providing services, for expenditures and/or goods and services
normally required by it in the ordinary course of business and on
ordinary trade terms, and liabilities related to deferred premiums for
liability insurance;
(d) Indebtedness set forth on Schedule 6.13 hereof or
reflected in the Borrower's Annual Audited Financial Statements
delivered to the Bank prior to the date hereof pursuant to Section
6.2, including any renewals or modifications, but not increases,
thereof; and
(e) Indebtedness permitted by Section 8.1(d) - (i) of the
Domestic Credit Agreement.
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<PAGE> 27
9.7. AFFILIATE TRANSACTIONS. The Borrower will not, and
will not permit any Subsidiary to enter into any transaction or agreement with
any officer, director or holder of any outstanding capital stock of the
Borrower or any Subsidiary (or any member of the family of such Person, or any
Person controlling, controlled by or under common control with such Person)
unless the same is upon terms substantially similar to those obtainable from
wholly unrelated sources. Without limitation of the foregoing, and except as
expressly permitted herein, in no event shall the Borrower or any Subsidiary
make any advances to any stockholder or affiliated or related entity (including
but not limited to, partnerships, joint ventures, joint stock companies, sister
companies, parent companies or subsidiaries). In the event that any such
advances are made, the Bank shall not make any further disbursements to the
Borrower hereunder without the prior written approval of Eximbank.
9.8. RESTRICTED PAYMENTS. The Borrower will not (a)
purchase, redeem, retire or otherwise acquire, directly or indirectly, any
shares of its capital stock or other equity interests; (b) declare or pay any
dividend (except stock dividends); (c) make any other disposition of any
Property or cash to owners of an equity interest in their capacity as such; (d)
Tax Dividends with respect to its estimated taxable income; or (e) as allowed
under Section 8.5 of the Domestic Credit Agreement.
9.9. CHANGE IN ACCOUNTING METHOD. The Borrower will not
make any change in the method of computing depreciation for either tax or book
purposes or any other material change in accounting method without prior
written notice to the Bank, except for any changes required by GAAP or
applicable law. The Borrower will not change its fiscal year.
9.10. EXPORT ORDERS AND INDIRECT EXPORT ORDERS. The
Borrower will not consent to any material and adverse modification, supplement
or waiver of any of the provisions of any Export Order or any Indirect Export
Order without the prior consent of the Bank and excluding change orders in the
ordinary course of business; provided, no such modifications or change orders
may be made if the effect thereof would cause the Loans outstanding plus the
Letter of Credit Outstandings to exceed the International Borrowing Base if
calculated after taking into effect such modification or change. The Borrower
will not assign or terminate any of its obligations, nor will it consent to any
assignment or termination of any other Person's obligations, under any Export
Order or any Indirect Export Order without the prior written consent of the
Bank.
9.11. COPYRIGHTS, PATENTS AND SOFTWARE. Except for (a)
Permitted Liens and (b) Liens to secure the Domestic Obligations, neither the
Borrower or any Subsidiary will create or suffer to exist any Lien upon any of
its copyrights, patents, software or other similar Property now owned or
hereafter acquired, or acquire any copyrights, patents, software or other
similar Property upon any conditional sale or other title retention device or
arrangement or any purchase money security agreement; or in any manner directly
or indirectly sell, assign, pledge or otherwise transfer any of its copyrights,
patents, software or other similar Property; provided, however, that Borrower
shall be entitled to sell software in the ordinary course of business and
Borrower shall be entitled to assign rights to market its software for sale in
the ordinary course of its business.
9.12. EXIMBANK VIOLATIONS. Notwithstanding anything herein
to the contrary, neither the Borrower nor any Subsidiary or Guarantor will take
any action which if taken would violate any rule, regulation or other
requirement of Eximbank applicable to such Borrower, Subsidiary or Guarantor,
or violate any agreement which such Borrower, Subsidiary or Guarantor has with
Eximbank.
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<PAGE> 28
10. EVENTS OF DEFAULT; REMEDIES. If any of the following events
shall occur, then the Bank may (a) by notice to the Borrower, declare the
Commitment of the Bank and the obligation of the Bank to make Loans and issue
Letters of Credit to be terminated, whereupon the same shall forthwith
terminate, and (b) declare the Note and all interest accrued and unpaid
thereon, and all other amounts payable under the Note and this Agreement, to be
forthwith due and payable, whereupon the Note, all such interest and all such
other amounts, shall become and be forthwith due and payable without
presentment, demand, protest, or further notice of any kind (including, without
limitation, notice of default, notice of intent to accelerate and notice of
acceleration), all of which are hereby expressly waived by the Borrower;
provided, however, that with respect to any Event of Default described in
Section 10.5 hereof, (i) the Commitment of the Bank and the obligation of the
Bank to make Loans and issue Letters of Credit hereunder shall automatically be
terminated and (ii) the entire unpaid principal amount of the Note, all
interest accrued and unpaid thereon, and all such other amounts payable under
the Note and this Agreement, shall automatically become immediately due and
payable, without presentment, demand, protest, or any notice of any kind
(including, without limitation, notice of default, notice of intent to
accelerate and notice of acceleration), all of which are hereby expressly
waived by the Borrower.
10.1. FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower
does not pay, repay or prepay any principal of the Note when due; or
10.2. FAILURE TO PAY OTHER AMOUNTS. The Borrower does not
pay any interest on the Note, other obligation or amount payable under this
Agreement or the Note or any other International Loan Document to which it is a
party when due and such failure continues for a period of five days; or
10.3. MISREPRESENTATION OR BREACH OF WARRANTY. Any
representation or warranty made by the Borrower, any Subsidiary or any
Guarantor herein or in any other International Loan Document or otherwise
furnished to the Bank in connection with this Agreement shall be incorrect,
false or misleading in any material respect when made; or
10.4. VIOLATION OF COVENANTS. The Borrower, any Subsidiary
or any Guarantor violates any covenant, agreement or condition contained herein
or in any other International Loan Document to which it is a party; or
10.5. BANKRUPTCY AND OTHER MATTERS. (i) The Borrower, any
Subsidiary or any Guarantor begins or consents in any manner to any proceeding
or arrangement for its liquidation in whole or in part or to any other
proceeding or arrangement whereby any of its assets are subject generally to
the payment of its liabilities or whereby any receiver, trustee, liquidator or
the like is appointed for it or any substantial part of its assets (including
without limitation the filing by the Borrower, any Subsidiary or any Guarantor
of a petition for appointment as a debtor-in-possession under Title 11 of the
U.S. Code); (ii) the Borrower, any Subsidiary or any Guarantor fails to obtain
the dismissal or stay on appeal within thirty (30) calendar days of the
commencement of any proceeding arrangement referred to in (i) above; (iii) the
Borrower, any Subsidiary or any Guarantor
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<PAGE> 29
begins any other procedure for the relief of financially distressed or
insolvent debtors, or such procedure has been commenced against it, whether
voluntarily or involuntarily, and such procedure has not been effectively
terminated, dismissed or stayed within thirty (30) calendar days after the
commencement thereof; (iv) the Borrower, any Subsidiary or any Guarantor begins
any procedure for its dissolution, or a procedure therefor has been commenced
against it; or (v) the Borrower, any Subsidiary or any Guarantor shall fail
generally to pay its debts as they become due; or
10.6. DISSOLUTION. Any order is entered in any proceeding
against the Borrower or any Subsidiary decreeing the dissolution, liquidation,
winding-up or split-up of the Borrower or any Subsidiary; or
10.7. LIENS. The Borrower, any Subsidiary or any Guarantor
claims, or any court finds or rules, that the Bank does not have a valid Lien
or a Lien of the purported priority as provided in any International Security
Document; or
10.8. COLLATERAL. The Borrower or any Subsidiary sells,
encumbers or abandons (except as otherwise expressly permitted by the
International Loan Documents) any of the Property now or hereafter subject to
any of the International Security Documents (other than the sale of inventory
in the normal course of business); or any levy, seizure, or attachment is made
thereof or thereon; or such Property is lost, stolen, substantially damaged or
destroyed; or
10.9. INTERNATIONAL SECURITY DOCUMENTS. The Borrower
violates any covenant, agreement or condition contained in any International
Security Documents or any default or event of default otherwise occurs
thereunder; or
10.10. CROSS-DEFAULT TO EXPORT ORDERS, INDIRECT EXPORT
ORDERS AND DIRECT EXPORT CONTRACTS. The Borrower is in breach of any material
provision of any Export Order, any Indirect Export Order or any Direct Export
Contract; or
10.11. CROSS-DEFAULT TO DOMESTIC LOAN DOCUMENTS. An event
of default shall occur under any of the Domestic Loan Documents, unless the
same shall have been waived in accordance with the terms thereof; or
10.12. CROSS-DEFAULT TO NON-EXIMBANK DEBT. The Borrower,
any Subsidiary or any Guarantor does not pay when due any amount payable to the
Bank under any loan or other extension of credit from the Bank to the Borrower,
any Subsidiary or any Guarantor which is not guaranteed by the Eximbank, unless
the same shall have been waived by the Bank in accordance with the terms
thereof; or
10.13. CROSS-ACCELERATION TO OTHER DEBT. Any event occurs
which results in acceleration of any Indebtedness in excess of $3,000,000 of
the Borrower, any Subsidiary or any Guarantor or if default shall be made in
the payment of any such Indebtedness at the stated maturity thereof, after any
applicable period of grace; or
10.14. UNDISCHARGED JUDGMENT. Final judgment shall be
rendered against the Borrower, any Subsidiary or any Guarantor and the same
shall remain undischarged for a period of thirty (30) days during which
execution shall not be effectively stayed, released, bonded or vacated; or
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<PAGE> 30
10.15. CROSS-DEFAULT TO BORROWER AGREEMENT. The Borrower
violates any covenant, agreement or condition contained in the Borrower
Agreement or any default or event of default otherwise occurs thereunder; or
10.16. CHANGE OF CONTROL. A Change of Control shall occur;
or
10.17. CONTROLLING AFFILIATES. A Person, other than those
in compliance with Section 8.12, shall become a Controlling Affiliate of the
Borrower; or
10.18. IMPAIRMENT OF EXIMBANK GUARANTY. The Eximbank
Guaranty shall cease to be in full force and effect or shall be declared null
and void or the validity or enforceability thereof shall be contested,
challenged or denied by the Eximbank, the Borrower, any Governmental Authority,
any Affiliate of the Borrower, any Subsidiary or any Guarantor; or
10.19. IMPAIRMENT OF INTERNATIONAL LOAN DOCUMENTS, EXPORT
ORDERS, INDIRECT EXPORT ORDERS AND DIRECT EXPORT CONTRACTS. This Agreement,
the Note, any Export Order, any Indirect Export Order, any Direct Export
Contract, or any other International Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability hereof or thereof shall be contested, challenged or denied by
the Borrower, any Governmental Authority, any Affiliate of the Borrower, any
Subsidiary or any Guarantor, or any Lien created by the International Security
Documents shall cease to be in effect or shall cease to be a valid first
priority Lien; or
10.20. NEGATIVE PLEDGE ON SHARES. Any Lien shall exist on
any of the outstanding shares of the Borrower or any Subsidiary, except in
favor of the Domestic Lenders pursuant to the Domestic Loan Documents; or
10.21. OTHER REMEDIES. In addition to and cumulative of any
rights or remedies expressly provided for in this Section 10, if any one or
more Events of Default shall have occurred, the Bank may proceed to protect and
enforce its rights hereunder by any appropriate proceedings and the Liens
evidenced by the International Security Documents shall be subject to
foreclosure in any manner provided for therein or provided for by law as the
Bank may elect. The Bank may also proceed either by the specific performance
of any covenant or agreement contained in this Agreement or the other
International Loan Documents or by enforcing the payment of the Note or by
enforcing any other legal or equitable right provided under this Agreement or
the other International Loan Documents or otherwise existing under any law in
favor of the holder of the Note. The Bank shall not, however, be under any
obligation to marshall any assets in favor of the Borrower or against or in
payment of any or all obligations under any International Loan Document. Upon
the occurrence of an Event of Default, it is hereby acknowledged and agreed
that the Eximbank shall have the right to (a) direct the Bank to make demand
hereunder and under the other International Loan Documents and (b) request that
the Bank accelerate the maturities of any of the Borrower's non-Eximbank loans,
and the Bank shall have no liability to the Borrower for complying with such
directions or requirements; or
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<PAGE> 31
10.22. COLLATERAL ACCOUNT. The Borrower hereby agrees that
in the event of (a) the termination of the Commitment, or (b) the occurrence of
an Event of Default, it shall, if requested by the Bank, pay to the Bank an
amount in immediately available funds equal to 100% of the then aggregate
amount of Letter of Credit Outstandings, which funds shall be held by the Bank
in a collateral account to be maintained by the Bank. The Borrower hereby
agrees to execute and deliver to the Bank such security agreements, pledges or
other documents as the Bank may, from time to time, require to perfect the
pledge, lien and security interest in and to any such funds provided for in
this Section 10.23. Upon the payment or expiry of all Letter of Credit
Outstandings, all such Collateral shall be promptly released to the Borrower in
due form at Borrower's cost.
10.23. REMEDIES CUMULATIVE. No remedy, right or power
conferred upon the Bank is intended to be exclusive of any other remedy, right
or power given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be cumulative.
10.24. DISTRIBUTIONS IN VIOLATION OF THE EXIMBANK GUARANTY.
The Borrower shall request and the Bank shall make a Disbursement in violation
of the Eximbank Guaranty.
10.25. MATERIAL LITIGATION. Any material litigation is
filed against the Borrower and is not withdrawn within thirty (30) calendar
days of filing.
11. MISCELLANEOUS.
11.1. REPRESENTATION BY THE BANK. The Bank represents
that it is its present intention, as of the date of its acquisition of the
Note, to acquire the Note for its account or for the account of its Affiliates,
and not with a view to the distribution or sale thereof, and, subject to any
applicable laws, the disposition of the Bank's Property shall at all times be
within its control. The Note has not been registered under the Securities Act
of 1933, as amended (the "Securities Act"), and may not be transferred, sold or
otherwise disposed of except (a) in a registered offering under the Securities
Act; (b) pursuant to an exemption from the registration provisions of the
Securities Act; or (c) if the Securities Act shall not apply to the Note or the
transactions contemplated by the International Loan Documents. Nothing in this
Section 11.1 shall affect the characterization of the Loans and the
transactions contemplated hereunder as commercial lending transactions.
11.2. WAIVERS, ETC. No failure or delay on the part of the
Bank in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No course of dealing between the Borrower, any Subsidiary, the
Guarantors and the Bank shall operate as a waiver of any right of the Bank. No
modification or waiver of any provision of this Agreement, the Note or any
other International Loan Document nor consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing,
and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Except as otherwise provided by
any International Loan Document or applicable law, no notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
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<PAGE> 32
11.3. REIMBURSEMENT OF EXPENSES. WHETHER OR NOT THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE CONSUMMATED, THE BORROWER
AGREES TO REIMBURSE THE BANK FOR ITS REASONABLE OUT-OF-POCKET EXPENSES,
INCLUDING THE REASONABLE FEES AND EXPENSES OF COUNSEL TO THE BANK, IN
CONNECTION WITH SUCH TRANSACTIONS, OR ANY OF THEM, OR OTHERWISE IN CONNECTION
WITH THIS AGREEMENT OR ANY OTHER INTERNATIONAL LOAN DOCUMENT, INCLUDING (A) THE
NEGOTIATION, PREPARATION, EXECUTION, ADMINISTRATION, MODIFICATION AND
ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER INTERNATIONAL LOAN DOCUMENT AND ALL
FEES AND EXPENSES OF ATTORNEYS TO THE BANK, AND (B) COSTS AND EXPENSES OF THE
BANK IN CONNECTION WITH DUE DILIGENCE, TRANSPORTATION AND DUPLICATION. THE
BORROWER AGREES TO PAY ANY AND ALL STAMP AND OTHER TAXES WHICH MAY BE PAYABLE
OR DETERMINED TO BE PAYABLE IN CONNECTION WITH THE EXECUTION AND DELIVERY OF
THIS AGREEMENT, THE NOTE OR ANY OTHER INTERNATIONAL LOAN DOCUMENT, AND TO SAVE
ANY HOLDER OF THE NOTE HARMLESS FROM ANY AND ALL LIABILITIES WITH RESPECT TO OR
RESULTING FROM ANY DELAY OR OMISSION TO PAY ANY SUCH TAXES. THE OBLIGATIONS OF
THE BORROWER UNDER THIS SECTION 11.3 SHALL SURVIVE THE TERMINATION OF THIS
AGREEMENT AND/OR THE PAYMENT OF THE NOTE.
11.4. NOTICES. All notices and other communications
provided for herein shall be in writing (including facsimile or cable
communication) and shall be mailed, telecopied, cabled or delivered, addressed
as follows:
(a) If to the Borrower, to it at:
National Tank Company
Brookhollow Central III
2950 North Loop West, Suite 750
Houston, Texas 77092
Attention: Mr. William B. Wiener III
Telephone No.: (713) 685-8020
Telefax No.: (713) 683-7841
(b) If to the Bank, to it at:
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Mrs. Mona M. Foch
Vice President
Telephone No.: (713) 216-5911
Telefax No.: (713) 216-4227
Attention: Mr. William L. McCollum
International Banking Officer
Telephone No.: (713) 216-8603
Telefax No.: (713) 216-4499
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<PAGE> 33
or to such other address as shall be designated by such party in a written
notice to the other party. All such notices and communications shall, when
mailed, telecopied, transmitted, or cabled, become effective when deposited in
the mail, transmitted to the telecopier, or delivered to the cable company,
except that notices and communications to the Bank shall not be effective until
actually received by the Bank.
11.5. GOVERNING LAW. UNLESS OTHERWISE SPECIFIED THEREIN,
EACH INTERNATIONAL LOAN DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF
AMERICA; provided, however, that Chapter 15 of Subtitle 3, Title 79, Revised
Civil Statutes of Texas, 1925, as amended (Articles 5069-15.01 through
5069-15.11, Vernon's Texas Civil Statutes, as amended) shall not apply to this
Agreement and the Note issued hereunder.
11.6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. All representations, warranties and covenants contained herein or
made in writing by the Borrower in connection herewith shall survive the
execution and delivery of this Agreement and the Note, and will bind and inure
to the benefit of the respective successors and assigns of the parties hereto,
whether so expressed or not. No investigation at any time made by or on behalf
of the Bank shall diminish the Bank's right to rely thereon.
11.7. COUNTERPARTS. This Agreement may be executed in
several counterparts, and by the parties hereto on separate counterparts, and
each counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
11.8. SEPARABILITY. Should any clause, sentence, paragraph
or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision shall not have the effect of invalidating
or voiding the remainder of this Agreement, and the parties hereto agree that
the part or parts of this Agreement so held to be invalid, unenforceable or
void will be deemed to have been stricken herefrom and the remainder will have
the same force and effectiveness as if such part or parts had never been
included herein.
11.9. DESCRIPTIVE HEADINGS. The section headings in this
Agreement have been inserted for convenience only and shall be given no
substantive meaning or significance whatsoever in construing the terms and
provisions of this Agreement.
11.10. ACCOUNTING TERMS. All accounting terms used herein
which are not expressly defined in this Agreement, or the respective meanings
of which are not otherwise qualified, shall have the respective meanings given
to them in accordance with GAAP.
11.11. LIMITATION OF LIABILITY. No claim may be made by the
Borrower or the Affiliates, directors, officers, employees, attorneys, or
agents of the Borrower against the Bank or the Affiliates, directors, officers,
employees, attorneys, or agents of the Bank for any special, indirect,
consequential or punitive damages in respect of any claim for breach of
contract arising out of or related to the transactions contemplated by this
Agreement, or any act, omission, or event occurring in connection herewith; and
the Borrower hereby waives, releases, and agrees not to sue upon any claim for
any such damages, whether or not accrued and whether or not known or suspected
to exist in its favor.
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<PAGE> 34
11.12. SET-OFF. If an Event of Default has occurred and is
continuing, the Borrower hereby gives and confirms to the Bank a right of
set-off of all moneys, securities and other property of the Borrower (whether
special, general or limited) and the proceeds thereof, now or hereafter
delivered to remain with or in transit in any manner to the Bank, its
correspondents or its agents from or for the Borrower, whether for safekeeping,
custody, pledge, transmission, collection or otherwise or coming into
possession of the Bank in any way, and also, any balance of any deposit
accounts and credits of the Borrower with, and any and all claims of security
for the payment of the Note and of all other liabilities and obligations now or
hereafter owed by the Borrower to the Bank, contracted with or acquired by the
Bank, whether such liabilities and obligations be joint, several, absolute,
contingent, secured, unsecured, matured or unmatured, and the Borrower hereby
authorizes the Bank at any time or times, without prior notice, to apply such
money, securities, other property, proceeds, balances, credits of claims, or
any part of the foregoing, to such liabilities in such amounts as it may
select, whether such liabilities be contingent, unmatured or otherwise, and
whether any collateral security therefor is deemed adequate or not. The rights
described herein shall be in addition to any collateral security described in
any separate agreement executed by the Borrower.
11.13. SALE OR ASSIGNMENT. The Bank may assign its rights
hereunder and under each other International Loan Document and the Liens
granted pursuant to the International Security Documents only to the Eximbank
in accordance with the terms and conditions of the Eximbank Guaranty.
Notwithstanding the foregoing, the Bank may assign, transfer, negotiate, sell
or participate all or part of its interests and rights in the Loans and Letters
of Credit to an Affiliate or Subsidiary of the Bank, provided that the Bank
retains all obligations under the Eximbank Guaranty with respect to the
Eximbank.
11.14. INTEREST. All agreements between the Borrower, the
Guarantors and the Bank, whether now existing or hereafter arising and whether
written or oral, are hereby expressly limited so that in no contingency or
event whatsoever, whether by reason of demand being made on the Note or
otherwise, shall the amount paid, or agreed to be paid, to the Bank for the
use, forbearance, or detention of the money to be loaned under this Agreement
or otherwise or for the payment or performance of any covenant or obligation
contained herein or in any other International Loan Document exceed the Highest
Lawful Rate. If, as a result of any circumstances whatsoever, fulfillment of
any provision hereof or of any of such documents, at the time performance of
such provision shall be due, shall involve transcending the limit of validity
prescribed by applicable usury law, then, ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity, and if, from any such
circumstance, the Bank shall ever receive interest or anything which might be
deemed interest under applicable law which would exceed the Highest Lawful
Rate, such amount which would be excessive interest shall be applied to the
reduction of the principal amount owing on account of the Note or the amounts
owing on other obligations of the Borrower or the Guarantors to the Bank under
any International Loan Document and not to the payment of interest, or if such
excessive interest exceeds the unpaid principal balance of the Note and the
amounts owing on other obligations of the Borrower and the Guarantors to the
Bank under any International Loan Document, as the case may be, such excess
shall be refunded to the Borrower or the Guarantor, as applicable. All sums
paid or agreed to be paid to the Bank for the use, forbearance, or detention of
the
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<PAGE> 35
indebtedness of the Borrower and the Guarantors to the Bank shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term of such indebtedness until payment in full of
the principal thereof (including the period of any renewal or extension
thereof) so that the interest on account of such indebtedness shall not exceed
the Highest Lawful Rate. Notwithstanding anything to the contrary contained in
this Agreement or the Note, it is understood and agreed that if at any time the
rate of interest which accrues on the outstanding principal balance of the Note
shall exceed the Highest Lawful Rate, the rate of interest which accrues on the
outstanding principal balance of the Note shall be limited to the Highest
Lawful Rate, but any subsequent reductions in the rate of interest which
accrues on the outstanding principal balance of the Note shall not reduce the
rate of interest which accrues on the outstanding principal balance of the Note
below the Highest Lawful Rate until the total amount of interest accrued on the
outstanding principal balance of the Note equals the amount of interest which
would have accrued if such interest rate had at all times been in effect. The
terms and provisions of this Section 11.14 shall control and supersede every
other provision of all agreements between the Borrower, the Guarantors and the
Bank.
11.15. INDEMNIFICATION. THE BORROWER AGREES TO INDEMNIFY,
DEFEND, AND SAVE HARMLESS THE BANK AND ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, AND ATTORNEYS, AND EACH OF THEM (THE "INDEMNIFIED PARTIES"), FROM AND
AGAINST ALL CLAIMS, ACTIONS, SUITS, AND OTHER LEGAL PROCEEDINGS, DAMAGES, COSTS,
INTEREST, CHARGES, TAXES (OTHER THAN THE BANK'S FRANCHISE TAXES OR TAXES ON
INCOME), COUNSEL FEES, AND OTHER EXPENSES AND PENALTIES WHICH ANY OF THE
INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR BY REASON OF OR ARISING OUT OF (I) THE
MAKING OF ANY LOAN HEREUNDER, THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
NOTE AND THE OTHER INTERNATIONAL LOAN DOCUMENTS AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY AND THE EXERCISE OF ANY OF THE BANK'S RIGHTS
UNDER THIS AGREEMENT, THE NOTE AND THE OTHER INTERNATIONAL LOAN DOCUMENTS OR
OTHERWISE, INCLUDING, WITHOUT LIMITATION, DAMAGES, COSTS, AND EXPENSES INCURRED
BY ANY OF THE INDEMNIFIED PARTIES IN INVESTIGATING, PREPARING FOR, DEFENDING
AGAINST, OR PROVIDING EVIDENCE, PRODUCING DOCUMENTS, OR TAKING ANY OTHER ACTION
IN RESPECT OF ANY COMMENCED OR THREATENED LITIGATION UNDER ANY FEDERAL
SECURITIES LAW OR ANY SIMILAR LAW OF ANY JURISDICTION OR AT COMMON LAW OR (II)
ANY VIOLATIONS OF ANY LAW OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN WHICH COULD
RESULT IN A VIOLATION OF ANY ENVIRONMENTAL LAW, OR IMPOSE ANY LIABILITY ON THE
INDEMNIFIED PARTIES FOR DAMAGE TO HEALTH OR THE ENVIRONMENT; AND PROVIDED
FURTHER THAT NO INDEMNIFIED PARTY SHALL BE ENTITLED TO THE BENEFITS OF THIS
SECTION 11.15 TO THE EXTENT ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
CONTRIBUTED TO ITS LOSS; AND PROVIDED FURTHER THAT IT IS THE INTENTION OF THE
BORROWER TO INDEMNIFY THE INDEMNIFIED PARTIES AGAINST THE CONSEQUENCES OF THEIR
OWN NEGLIGENCE. THIS AGREEMENT IS INTENDED TO PROTECT AND INDEMNIFY THE
INDEMNIFIED PARTIES AGAINST ALL RISKS HEREBY ASSUMED BY THE BORROWER. THE
OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 11.15 SHALL SURVIVE ANY EXERCISE
OF THE POWER OF SALE GRANTED IN ANY INTERNATIONAL SECURITY DOCUMENT TO WHICH THE
BORROWER IS A PARTY, ANY FORECLOSURE OF THE LIENS CREATED BY ANY INTERNATIONAL
SECURITY DOCUMENT TO WHICH THE BORROWER IS A PARTY, OR CONVEYANCE IN LIEU OF
FORECLOSURE, THE REPAYMENT OF THE NOTE, THE DISCHARGE AND RELEASE OF ANY PERSON
UNDER ANY INTERNATIONAL LOAN DOCUMENT AND ANY TERMINATION OF THIS AGREEMENT.
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<PAGE> 36
11.16. PAYMENTS SET ASIDE. To the extent that the Borrower
makes a payment or payments to the Bank or the Bank enforces any security
interest or exercises its right of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other Person under any
Debtor Law or equitable cause, then, to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all rights
and remedies therefor, shall be revived and shall continue in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
11.17. LOAN AGREEMENT CONTROLS. If there are any conflicts
or inconsistencies between this Agreement and any of the other International
Loan Documents, the provisions of this Agreement shall prevail and control.
11.18. FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE
INTERNATIONAL LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
11.19. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAWS, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS AGREEMENT OR INTERNATIONAL LOAN DOCUMENTS, OR ARISING FROM
ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY
INTERNATIONAL LOAN DOCUMENT AND AGREE THAT ANY ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto, by their respective
officers thereunto duly authorized, have executed this Agreement effective as
of June 30, 1997.
NATIONAL TANK COMPANY
By: /s/ WILLIAM B. WIENER III
------------------------------
Name: William B. Wiener III
Title: Senior Vice President
Commitment: TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
$3,000,000.00
By: /s/ MONA M. FOCH
------------------------------
Name: Mona M. Foch
Title: Vice President
By: /s/ WILLIAM L. MCCOLLUM
------------------------------
Name: William L. McCollum
Title: International Banking Officer
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<PAGE> 38
EXHIBIT "A"
CERTAIN DEFINITIONS
As used herein, the following words and terms shall have the
respective meanings indicated opposite each of them:
"Accounts Receivable" shall have the meaning set forth in the
Borrower Agreement.
"Adjusted Indebtedness" shall mean, as to the Borrower, as at
any date, Indebtedness minus Subordinated Debt.
"Adjusted Tangible Net Worth" shall mean, as to the Borrower,
as at any date, stockholder's equity in the Borrower minus goodwill, other
intangible assets, loans and advances to equity holders and loans to
Affiliates, plus Subordinated Debt.
"Affiliate" shall have the meaning set forth in Section 5 of
the Delegated Authority Letter Agreement.
"Agreement" shall mean this International Revolving Loan
Agreement, as the same may be amended, modified or supplemented from time to
time.
"Annual Audited Financial Statements" shall mean, as to any
Person, the year-end financial statements of such Person (balance sheet, income
statement, cash flow statement), all prepared in conformity with GAAP and
audited by independent certified public accountants reasonably satisfactory to
the Bank.
"Application" shall mean an application, in such form as the
Bank may specify from time to time, requesting the Bank to open a Letter of
Credit.
"Authorized Officer" shall have the meaning set forth in
Section 4 of the Delegated Authority Letter Agreement.
"Base Rate" shall mean, for any day, a rate per annum (rounded
upward to the nearest 1/16 of 1%) equal to the greater of (a) the Prime Rate
(computed on the basis of the actual number of days elapsed over a year of 360
days) in effect on such day and (b) the Federal Funds Rate in effect for such
day. For purposes of this Agreement, any change in the Base Rate due to a
change in the Federal Funds Rate shall be effective on the effective date of
such change in the Federal Funds Rate. If for any reason the Bank shall have
determined (which determination shall be conclusive and binding, absent
manifest error) that it is unable to ascertain the Federal Funds Rate for any
reason, including, without limitation, the inability or failure of the Bank to
obtain sufficient binds or publications in accordance with the terms thereof,
the Base Rate shall be the Prime Rate until the circumstances giving rise to
such inability no longer exist.
"Base Rate Loan" shall mean any Loan which bears interest at
the Base Rate.
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<PAGE> 39
"Borrower Agreement" shall mean the Borrower Agreement dated
as of the Closing Date, executed and delivered by the Borrower, and
acknowledged by the Bank.
"Borrowing Date" shall have the meaning set forth in Section
2.1(c).
"Business Day" shall mean a day when the Bank is open for
business, provided that, if the applicable Business Day relates to any LIBOR
Rate Loan, it shall mean a day when the Bank is open for business and on which
commercial banks are open for international business (including dealings in
Dollar deposits) in London.
"Buyer" shall mean an entity which has entered into one or
more Export Orders or Indirect Export Orders with the Borrower.
"Change of Control" shall mean any change in the percentage
ownership of the outstanding voting shares of the Borrower identified in
Schedule 6.5.
"Closing Date" shall mean June 30, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, as now or hereafter in effect, together with all regulations, rulings
and interpretations thereof or thereunder issued by the Internal Revenue
Service.
"Collateral" shall mean collectively the Domestic Collateral
and the International Collateral.
"Collateral Value" shall have the meaning set forth in the
Borrower Agreement.
"Commitment" shall have the meaning set forth in Section
2.1(a).
"Controlling Affiliate" shall have the meaning set forth in
Section 5 of the Delegated Authority Letter Agreement.
"Conversion/Continuation Date" shall have the meaning set forth
in Section 2.9(a).
"Country Limitation Schedule" shall have the meaning set forth
in the Borrower Agreement.
"Debtor Laws" shall mean all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization, or similar laws, or general equitable principles from time to
time in effect affecting the rights of creditors generally.
"Default" shall mean any of the events specified in Section
10, whether or not there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act.
"Determination Date" shall have the meaning set forth in
Section 2.2(c).
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<PAGE> 40
"Delegated Authority Letter Agreement" shall mean the
Delegated Authority Letter Agreement issued by Eximbank to the Bank.
"Direct Export Contract" shall mean each contract pursuant to
which a Buyer under an Indirect Export Order exports goods incorporating the
Items.
"Dollars" and "$" shall mean lawful currency of the United
States of America.
"Domestic Collateral" shall have the meaning set forth in the
International Security Agreement.
"Domestic Credit Agreement" shall mean the Loan Agreement
dated June 30, 1997 between the Borrower and the Domestic Lenders, as the same
may be amended from time to time.
"Domestic Lenders" shall mean the Bank, as agent and lender,
and the other lenders who are a party to the Domestic Credit Agreement.
"Domestic Loan Documents" shall mean the Domestic Credit
Agreement, the Domestic Notes, and the Domestic Security Documents and, the
agreements, documents, instruments and other writings related to or executed in
connection with the foregoing documents, all other assignments, deeds,
guaranties, pledges, instruments, certificates and agreements now or hereafter
executed or delivered to the Domestic Lenders pursuant to any of the foregoing,
and all amendments, modifications, renewals, extensions, increases and
rearrangements of, and substitutions for, any of the foregoing.
"Domestic Notes" shall mean all notes of the Borrower made in
connection with the Domestic Credit Agreement, including the Revolving Notes
and the Term Notes made to each of the Domestic Lenders, together with any and
all renewals, extensions, modifications, rearrangements, increases and
replacements thereof and substitutions therefor.
"Domestic Obligations" shall mean the Borrower's obligations
arising under the Domestic Loan Documents to repay the loans thereunder and all
other indebtedness of the Borrower to the Bank under the Domestic Loan
Documents of any nature and in any amount whatsoever, whether now or hereafter
arising.
"Domestic Security Documents" shall mean, collectively, as the
same may be amended or modified from time to time, those certain security
agreements executed by the Borrower in favor of the Domestic Lenders from time
to time, and any and all other agreements, deeds of trust, mortgages, chattel
mortgages, security agreements, pledges, guaranties, assignments of production
or proceeds of production, assignments of income, assignments of contract
rights, assignments of partnership interests, assignments of royalty interests,
assignments of performance, completion or surety bonds, standby agreements,
subordination agreements, undertakings and other instruments and financing
statements now or hereafter executed and delivered by any Person in connection
with, or as security for the payment or performance of indebtedness of the
Borrower to the Domestic Lenders under or in connection with the Domestic Loan
Documents.
"Drawings" still have the meaning set forth in Section 2.5(b).
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<PAGE> 41
"Eligible Accounts Receivable" shall mean Accounts Receivable
of the Borrower meeting all of the following criteria as of the date of any
determination of Eligible Accounts Receivable: (a) the account debtor is not,
in the opinion of the Bank, unsatisfactory as to creditworthiness; (b) the
account debtor's obligation to pay the account receivable is not conditional
upon such account debtor's approval or the account receivable is not subject to
any repurchase obligation or return right other than warranty obligations in
the ordinary course of business; (c) the account receivable shall arise from
the performance by the Borrower of services which have been fully and
satisfactorily performed, or from the absolute sale by the Borrower of goods
(i) in which the Borrower or any of its Subsidiaries had sole and complete
ownership and (ii) which have been shipped and delivered to the account debtor,
which shall evidence which such obligee has possession of shipping and delivery
receipts; (d) the account receivable shall arise in the ordinary course of
business of the Borrower thereon, and no notice of bankruptcy or insolvency of
the account debtor (unless such account debtor's obligations are secured by a
letter of credit or bond), nor any notice of such account debtor's inability to
pay its debts as they become due, has been received by the Borrower of such
account receivable; and (e) for which the account debtor is contractually
obligated to pay. In addition, pursuant to the requirements of the Eximbank,
the following criteria must be met as of such date: (a) the account receivable
is payable in Dollars and is due and collected in the United States (unless
Eximbank shall otherwise give its prior written consent); (b) the account
receivable is not subject to set-off (other than commissions to salesmen in the
normal course of business), counterclaim, defense, allowance or adjustment
other than non-material claims for warranty, discounts for prompt payment shown
on the invoice, or to dispute, objection or complaint by the account debtor
concerning its liability on the account receivable, and the goods, the sale of
which gave rise to the account receivable, have not been returned, rejected,
lost or damaged; (c) the account receivable does not have a term in excess of
one hundred eighty (180) days; (d) the Bank has a valid and perfected first
priority Lien with respect thereto; (e) the account receivable is not more than
sixty (60) calendar days past the original invoice due date, unless it is
insured through Eximbank export credit insurance for comprehensive commercial
and political risk, or through Eximbank approved private insurers for
comparable coverage, in each case in form and substance satisfactory to the
Bank in its sole discretion, in which case ninety (90) calendar days shall
apply, (f) the account debtor is not a director, officer, employee or Affiliate
of the Borrower; (g) if the account receivable arises under an Export Order,
such account receivable is, at the option of the Bank: (i) fully supported by a
letter of credit complying with the terms of Section 8.10 hereof; or (ii)
insured by the Eximbank or private sector sources on terms and conditions
acceptable to the Bank, including, without limitation, terms complying with
Section 8.7 hereof or (iii) a result of a cash against documents, documentary
collection or cash prior to shipment transaction which is acceptable to the
Bank or (iv) on any other terms as approved by the Bank in its sole and
absolute discretion; (h) the account receivable is supported by an Export Order
or an Indirect Export Order complying with Section 7.2 hereof; (i) the account
receivable is not in the name of a Buyer (or, if the account receivable arises
under an Indirect Export Order, the name of a Person buying the Items from the
Buyer pursuant to a Direct Export Contract) located or incorporated in one of
those countries in which the Eximbank is prohibited from doing business (as
those countries are identified in the Country Limitation Schedule); (j) the
account receivable is not in the name of a Buyer (or, if the account receivable
arises under an Indirect Export Order, the name of a Person buying the Items
from the Buyer pursuant to a Direct Export Contract) located or incorporated in
one of those countries in which the Eximbank coverage is not available for
commercial reasons (as those countries are identified in the Country Limitation
Schedule), unless and only to the extent that the Items were sold to such Buyer
or such Person on terms of a Letter of Credit in form and substance
satisfactory to the Bank and issued or confirmed by a bank acceptable to the
Bank and the Eximbank; (k) the account receivable is not due pursuant to the
sale of Items
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<PAGE> 42
which were purchased by a military Buyer or a Person for military purposes; (l)
if the account receivable arises under an Indirect Export Order, such account
receivable must result from the sale of Items by a Borrower to the Buyer for
export by the Buyer and (i) must be supported by documentation stating the name
and address (including country) of the ultimate foreign buyer and the
U.S.-based intermediary or (ii) on any other terms as approved by the Bank in
its sole and absolute discretion; (m) the account receivable is not, in the
reasonable opinion of the Bank or the Eximbank, uncollectible for any reason;
(n) at least fifty percent (50%) of the Item which was sold to create the
account receivable must be of U.S. Content; and (o) the account receivable
shall not be generated by the sale of defense articles or defense services. In
addition, "Eligible Accounts Receivable" shall also mean any account receivable
of the Borrower which is approved in writing by the Bank and the Eximbank. As
used in this definition, "Letter of Credit" shall mean an irrevocable letter of
credit subject to the UCP 500, payable in the United States or at the issuing
bank and issued for the benefit of the Borrower on behalf of a Buyer in
connection with the purchase of Items.
"Eligible Inventory" shall mean Inventory of the Borrower
meeting all of the following criteria as of the date of determination of
Eligible Inventory: (a) the Inventory has not been returned, repossessed or
damaged; (b) the Inventory is not the subject of a canceled purchase order or
otherwise not used for the purpose for which it was originally manufactured or
purchased; and (c) the Inventory is not, in the opinion of the Bank exercising
reasonable discretion, unacceptable due to age, type, category, and/or
quantity. In addition, pursuant to the requirements of the Eximbank, the
following criteria must be met as of such date: (a) the Bank has a valid and
perfected first priority Lien with respect to such Inventory and such Inventory
is in the possession of such Borrower or its bailee and is not evidenced by any
negotiable or non-negotiable document of title; (b) the Inventory is not
subject to a buyer's rights which would be superior to the Lien of the Bank
evidenced by the International Security Documents; (c) the Inventory is located
inside the United States of America; (d) the Inventory is not to be used in
manufacturing or selling an Item to be purchased by a Buyer (or, if the Item is
to be sold pursuant to an Indirect Export Order, a Person purchasing the Item
pursuant to a Direct Export Contract) for a military purpose; (e) the Inventory
is not to be incorporated into Items which are destined for shipment to
countries in which the Eximbank is prohibited from doing business (as these
countries are identified in the Country Limitation Schedule); (f) the Inventory
is not destined for shipment to countries in which the Eximbank coverage is not
available for commercial reasons (as those countries are identified in the
Country Limitation Schedule), unless and only to the extent that the Items are
to be sold to such countries on terms of a Letter of Credit in form and
substance satisfactory to the Bank and issued or confirmed by a bank acceptable
to the Bank and the Eximbank; (g) with respect to Inventory incorporated into
Items sold under an Indirect Export Order and which, in turn, are to be
incorporated into goods to be sold under a Direct Export Contract, said goods
shall, in fact, be destined for export by the Buyer thereof; (h) at least fifty
percent (50%) of such Inventory must be of U.S. Content; (i) the Inventory is
not demonstration Inventory or Inventory sold on consignment; (j) the Inventory
is not proprietary software; (k) the Inventory is not damaged, obsolete,
returned, defective, recalled or unfit for further processing; (l) the
Inventory has not been previously exported from the United States; (m) the
Inventory does not constitute defense articles or defense services; or (n) the
Inventory is not to be incorporated into Items whose sale would result in an
account receivable which would not constitute an Eligible Account Receivable.
For purposes of determining the value of Eligible Inventory to be included in
the International Borrowing Base, the value thereof shall be the lower of
actual cost or market value as determined in accordance with GAAP. As used in
this definition, "Letter of Credit" shall mean an irrevocable letter of credit
subject to the UCP 500, payable in the United States or at the issuing bank and
issued for the benefit of the Borrower on behalf of a Buyer in connection with
the purchase of Items.
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<PAGE> 43
"Environmental Laws" shall mean any Governmental Requirement
pertaining to health or the environment, including, but not limited to, CERCLA,
the Toxic Substances Control Act, the Clean Water Act, the Safe Drinking Water
Act or the Clean Air Act, the Resource Conservation and Recovery Act of 1976,
the Texas Water Code, the Texas Solid Waste Disposal Act and the Texas Clean
Air Act, each as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the U.S. Department
of Labor thereunder.
"Event of Default" shall mean any of the events specified in
Section 10, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act.
"Eximbank" shall mean the Export-Import Bank of the United
States.
"Eximbank Guaranty" shall mean that certain Master Guaranty
Agreement No. TX-MGA-96-004 dated as of June 24, 1996 between the Eximbank and
the Bank, as the same may be amended, modified or supplemented from time to
time.
"Expiration Date" shall mean the last day of an Interest
Period.
"Export Order" shall have the meaning set forth in the
Borrower Agreement.
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal fund transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, of the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Bank from three Federal funds brokers of
recognized standing selected by it.
"GAAP" shall mean Generally Accepted Accounting Principles as
defined in the Borrower Agreement.
"Governmental Approval" means any authorization, consent,
approval, license or exemption of, registration or filing with, or report or
notice to, any Governmental Authority.
"Governmental Authority" shall mean any foreign governmental
authority, the United States of America, any State of the United States of
America and any political subdivision of any of the foregoing, and any agency,
department, commission, board, bureau, court or other tribunal having
jurisdiction over the Bank, any Guarantor or the Borrower, or any of their
respective assets or Property.
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"Governmental Requirement" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict,
franchise, permit, certificate, license, award, authorization or other
direction, guideline, or requirement of any Governmental Authority, including,
without limitation, any requirement under common law.
"Guarantors" shall mean, collectively, NATCO Holdings, Inc.,
and Cummings Point Industries, Inc.
"Highest Lawful Rate" shall mean, with respect to the Bank,
the maximum nonusurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged, or received with respect
to the Note or on other amounts, if any, due to the Bank pursuant to this
Agreement or any other International Loan Document, under laws applicable to
the Bank which are presently in effect, or, to the extent allowed by law, under
such applicable laws which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
"Indebtedness" shall mean, without duplication, (a) all items
which, in accordance with GAAP, would be included on the liability side of a
balance sheet on the date as of which Indebtedness is to be determined
(excluding capital stock, surplus, surplus reserves and deferred credits); (b)
all guaranties, endorsements and other contingent obligations in respect of, or
any obligations to purchase or otherwise acquire, Indebtedness of others; and
(c) all Indebtedness secured by any Lien existing on any interest of the Person
with respect to which indebtedness is being determined in Property owned
subject to such Lien whether or not the Indebtedness secured thereby shall have
been assumed.
"Indemnified Parties" shall have the meaning set forth in
Section 11.15.
"Indirect Export Order" shall have the meaning set forth in
the Borrower Agreement for the term "Export Order," shall relate to purchase
orders and other contracts pursuant to which Items will be sold to a Buyer who
will export the Items pursuant to a Direct Export Contract, and shall include
the purchase order.
"Initial Date" shall have the meaning set forth in Section 7.6.
"Interest Period" shall mean the period of time for which the
LIBOR Rate shall be in effect as to any LIBOR Rate Loan which shall be a 1, 2,
3 or 6 month period of time, commencing with the Borrowing Date or the
Expiration Date of the immediately preceding Interest Period, as the case may
be, applicable to and ending on the effective date of any rate change or rate
continuation made as provided in Section 2.9 as the Borrower may specify in the
Request for Borrowing or the Notice of Rate Change/Continuation; provided,
however, that: (i) any Interest Period which would otherwise end on a day which
is not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Business Day, (ii) the duration
of any Interest Period which commences before any principal repayment
installment date and otherwise ends after such date shall end on such date,
(iii) Interest Periods commencing for Loans comprising part of the same
borrowing shall be of the same duration and (iv) no Interest Period shall
extend beyond the Maturity Date.
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<PAGE> 45
"International Borrowing Base" shall mean (i) an amount equal
to the sum of 90% of the Eligible Accounts Receivable of the Borrower which is
supported by a firm Export Order or Indirect Export Order to which no party is
in breach of any material provision thereof, and (ii) 75% of the Eligible
Inventory of the Borrower supported by firm Export Orders or firm Indirect
Export Orders. Notwithstanding anything herein to the contrary, the
International Borrowing Base shall not include the amount of any receivable
supported by a letter of credit prior to the date of shipment of the Items
covered by the subject letter of credit. That is, an account receivable shall
not be included in the International Borrowing Base until shipment of the
Items, regardless of when the letter of credit is in effect.
"International Borrowing Base Certificate" shall have the
meaning set forth in Section 2.2(b).
"International Collateral" shall have the meaning set forth in
the International Security Agreement.
"International Guaranties" shall mean the continuing
guaranties dated as of the Closing Date executed by the Guarantors in favor of
the Bank, as may be amended, modified or supplemented from time to time.
"International Loan Documents" shall mean this Agreement, the
Note, all International Security Documents, and all instruments, certificates
and agreements now or hereafter executed or delivered to the Bank pursuant to
any of the foregoing and the transactions connected therewith, and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing; provided that "International
Loan Documents" shall not include the Domestic Credit Agreement, the Domestic
Notes, the Domestic Security Documents, the Eximbank Guaranty and the Borrower
Agreement.
"International Obligations" shall mean the Borrower's
obligations arising under this Agreement, the Note and the other International
Loan Documents to repay the Loans and all other indebtedness of the Borrower to
the Bank under the International Loan Documents of any nature and in any amount
whatsoever, whether now or hereafter arising.
"International Security Agreement" shall mean that certain
International Security Agreement dated as of even date herewith, executed by
the Borrower for the benefit of the Bank, and any and all amendments,
modifications, renewals and extensions thereof.
"International Security Documents" shall mean this Agreement
and the International Security Agreement, as each may be amended or modified
from time to time.
"Inventory" shall have the meaning set forth in the Borrower
Agreement.
"Items" shall have the meaning set forth in the Borrower
Agreement.
"Letter of Credit" shall have the meaning provided in Section
2.3(a).
"Letter of Credit Fee" shall have the meaning specified in
Section 4.2.
-8-
<PAGE> 46
"Letter of Credit Outstandings" shall mean, at any time, the
sum of, without duplication, (a) the aggregate Stated Amount of all outstanding
Letters of Credit and (b) the amount of all Unpaid Drawings in respect of all
Letters of Credit.
"Letter of Credit Request" shall have the meaning specified in
Section 2.4(a).
"LIBOR Rate" shall mean, for any Interest Period or portion
thereof, a rate per annum (rounded upwards, if necessary, to the nearest 1/16th
of 1%) equal to the LIBOR Rate (Unadjusted) divided by the difference between 1
and the LIBOR Reserve Percentage on the first day of such Interest Period.
"LIBOR Rate Loan" shall mean any Loan which bears interest at
the LIBOR Rate.
"LIBOR Rate (Unadjusted)" shall mean, for each Interest
Period, the rate of interest per annum (rounded upwards, if necessary, to the
nearest 1/16th of 1%) quoted by the Bank at or before 10:00 a.m., (Houston,
Texas time) (or as soon thereafter as practicable), on the date two (2)
Business Days prior to the first day of such Interest Period, for the offering
to the Bank by prime banks in the London LIBOR interbank market, at the time of
determination and in accordance with the then usual practice in such market, of
deposits in Dollars for delivery on the first day of such Interest Period and
having a maturity equal to the length of such Interest Period and in an amount
equal (or as nearly equal as possible) to the LIBOR Rate Loan to which such
Interest Period relates. Each determination by the Bank of the LIBOR Rate
shall be conclusive and binding, absent manifest error, and may be computed
using any reasonable averaging and attribution method.
"LIBOR Reserve Percentage" shall mean, with respect to any
Interest Period or portion thereof, a percentage (expressed as a decimal) equal
to the percentage in effect on the first day of such Interest Period as
prescribed by the Board for determining the maximum reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other
applicable regulation of the Federal Reserve Board (or any successor thereto)
which prescribes reserve requirements applicable to "Eurocurrency Liabilities"
as currently defined in Regulation D.
"Lien" shall mean any claim, mortgage, deed of trust, pledge,
security interest, encumbrance, lien, or charge of any kind (including, without
limitation, any agreement to give any of the foregoing, any conditional sale or
other title retention agreement or any lease in the nature thereof).
"Loan" or "Loans" shall mean a loan or loans, respectively,
from the Bank to the Borrower made under Section 2.
"Material Adverse Effect" shall mean any material adverse
effect on (a) the consolidated financial condition, business, properties,
assets, prospects or operations of the Borrower or any Guarantor, or (b) the
ability of the Borrower or any Guarantor to perform its obligations under this
Agreement or any other International Loan Document to which it is a party on a
timely basis.
"Maturity Date" shall mean June 30, 1998.
"Monthly Unaudited Financial Statements" shall mean the
monthly financial statements of a Person, which statements shall include a
balance sheet as of the end of such month and a statement of operations and
retained earnings for such month, and for the fiscal year to date, subject to
normal year-end adjustments, all setting forth in comparative form the
corresponding figures for the corresponding month and year to date of the
preceding year, prepared in accordance with GAAP and certified as true and
correct by the president or chief financial officer of such Person.
-9-
<PAGE> 47
"Note" shall mean the promissory note of the Borrower,
executed and delivered under this Agreement, as amended from time to time.
"Notice of Rate Change/Continuation shall have the meaning
provided in Section 2.9(a).
"Officer's Certificate" shall mean a certificate signed in the
name of the Borrower by either its President, its Chief Financial Officer, any
Vice President or its Secretary.
"Past Due Rate" shall mean the lower of (a) the Highest Lawful
Rate, or (b) a rate per annum equal to the Prime Rate plus two percent (2%).
"Permitted Liens" shall mean each of the following: (a)
artisans' or mechanics' Liens arising in the ordinary course of business, and
Liens for taxes, but only to the extent that payment thereof shall not at the
time be due or if due, the payment thereof is being diligently contested in
good faith and adequate reserves computed in accordance with GAAP have been set
aside therefor; (b) Liens in effect on the date of this Agreement and disclosed
to the Bank in Annual Audited Financial Statements delivered on or prior to the
date of this Agreement or in a schedule hereto; (c) normal reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions and encumbrances which do not secure Indebtedness and which do not
materially impair the value or utility of the applicable Property; (d) Liens
incurred or deposits made in the ordinary course of business (1) in connection
with workmen's compensation, unemployment insurance, social security and other
like laws, or (2) to secure insurance in the ordinary course of business, the
performance of bids, tenders, contracts, leases, licenses, statutory
obligations, surety, appeal and performance bonds and other similar obligations
incurred in the ordinary course of business, not, in any of the cases specified
in this clause (2), incurred in connection with the borrowing of money, the
obtaining of advances or the payment of the deferred purchase price of
Property; (e) attachments, judgments and other similar Liens arising in
connection with court proceedings, provided that the execution and enforcement
of such Liens are effectively stayed and the claims secured thereby are being
actively contested in good faith with adequate reserves made therefor in
accordance with GAAP; (f) Liens imposed by law, such as landlords', carriers',
warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good
faith in the ordinary course of business and securing obligations which are not
yet due or which are being contested in good faith by appropriate proceedings
if adequate reserves with respect thereto are maintained in accordance with
GAAP; (g) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, and restrictions on the use of Property, and
which do not in any case singly or in the aggregate materially impair the
present value or utility of the applicable Property; (h) Liens securing
purchase money Indebtedness permitted under Section 9.6 hereof and covering the
Property so purchased; (i) capital leases and sale/leaseback transactions
permitted under the other provisions of this Agreement, and (j) extensions,
renewals and replacements of Liens referred to in clauses (a) through (i) of
this definition; provided that any such extension, renewal or replacement Lien
shall be limited to the Property or assets covered by the Lien extended,
renewed or replaced and that the Indebtedness secured by any such extension,
renewal or replacement Lien shall be in an amount not greater than the amount
of the Indebtedness secured by the Lien extended, renewed or replaced.
"Person" shall mean an individual, partnership, joint venture,
corporation, joint stock company, bank, trust, unincorporated organization
and/or a government or any department or agency thereof.
-10-
<PAGE> 48
"Plan" shall mean any plan subject to Title IV of ERISA or
Section 412 of the Code and maintained at any time since January 1, 1986 for
employees of the Borrower or any Subsidiary thereof or of any member of a
"controlled group of corporations" or "trade or business," as such terms are
defined in Section 414(b) or (c) of the Code, of which the Borrower or any
Subsidiary thereof is a member, or any plan subject to Title IV of ERISA or
Section 412 of the Code to which the Borrower or any Subsidiary thereof is
required to contribute, or has been required to contribute at any time since
January 1, 1986, on behalf of its employees.
"Prime Rate" shall mean the prime rate announced from time to
time by the Bank, and thereafter entered in the minutes of the Bank's Loan and
Discount Committee. Without notice to the Borrower or any other Person, the
Prime Rate shall change automatically from time to time as and in the amount by
which said Prime Rate shall fluctuate, with each such change to be effective as
of the date of each change in such Prime Rate. The Prime Rate is a reference
rate and does not necessarily represent the lowest or best rate actually
charged to any customer. The Bank may make commercial or other loans at rates
of interest at, above or below the Prime Rate.
"Property" or "Properties" means any interest in any kind of
property or assets, whether real, personal or mixed, and whether tangible or
intangible.
"Request for Borrowing" shall have the meaning set forth in
Section 2.1(c).
"Securities Act" shall have the meaning set forth in Section
11.1.
"Stated Amount" shall mean, as to each Letter of Credit, at
any time, the maximum amount then available to be drawn thereunder (without
regard to whether any conditions to drawing could then be met).
"Subordinated Debt" shall mean any Indebtedness subordinated
to Indebtedness due the Bank on terms reasonably satisfactory to the Bank.
"Subsidiary" means any corporation, joint venture or limited
liability company of which the Borrower or any Subsidiary of the Borrower,
either directly or indirectly, owns at the time more than 50% of the indicia of
equity rights (whether outstanding capital stock or otherwise) of such Person,
and shall include any such Person which shall become a Subsidiary of the
Borrower after the date hereof, and shall further include any partnership of
which the Borrower or any Subsidiary is a general partner thereof and any other
entity of which the Borrower or any Subsidiary shall by virtue of its
investment therein incur liability for the liabilities and obligations thereof.
"Tax Dividends" shall mean, for each Subchapter "S"
corporation or other entity which is, without regard to its income, statutorily
exempt from the payment of income tax, dividends with respect to its estimated
taxable income.
"Type" shall mean, with respect to any Loan, any LIBOR Rate
Loan or any Base Rate Loan.
"Unpaid Drawing" shall have the meaning specified in Section
2.5(a).
"U.S. Content" shall have the meaning set forth in the
Borrower Agreement. The parties hereto hereby agree that in the event any
dispute arises as to the U.S. Content of any good or service, the decision of
the Eximbank shall be final and conclusive.
-11-
<PAGE> 49
EXHIBIT "B"
INTERNATIONAL REVOLVING NOTE
$3,000,000.00 June 30, 1997
FOR VALUE RECEIVED, the undersigned, NATIONAL TANK COMPANY, a
corporation organized under the laws of the State of Texas (the "Borrower"),
HEREBY PROMISES TO PAY to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
a national banking association (the "Bank"), on or before June 30, 1998 (the
"Maturity Date"), the principal sum of Three Million and 00/100 Dollars
($3,000,000.00), or, if less, the aggregate principal amount of Loans
outstanding on the Maturity Date, in accordance with the terms and provisions of
that certain International Revolving Loan Agreement dated as of June 30, 1997 by
and between the Borrower and the Bank (the "International Loan Agreement";
capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to such terms in the International Loan Agreement).
The outstanding principal balance of this Note shall be due
and payable as provided in the International Loan Agreement. The Borrower
promises to pay interest on the unpaid principal balance of this Note from the
date of any Loan evidenced by this Note until the principal balance thereof is
paid in full. Interest shall accrue on the outstanding principal balance of this
Note from and including the date of any Loan evidenced by this Note to but not
including the Maturity Date at the rate or rates, and shall be due and payable
on the dates, set forth in the International Loan Agreement. Any amount not paid
when due with respect to principal (whether at stated maturity, by acceleration
or otherwise), costs or expenses, or, to the extent permitted by applicable law,
interest, shall bear interest from the date when due to and excluding the date
the same is paid in full, payable on demand, at the Past Due Rate.
Payments of principal and interest, and all amounts due with
respect to costs and expenses, shall be made in lawful money of the United
States of America in immediately available funds, without deduction, set-off or
counterclaim to the Bank, or such other location as may be notified to the
Borrower by the Bank, not later than 12:00 noon (Houston time) on the dates on
which such payments shall become due pursuant to the terms and provisions set
forth in the International Loan Agreement.
If any payment of principal or interest on this Note shall
become due on a Saturday, Sunday, or public holiday on which the Bank is not
open for business, such payment shall be made on the next succeeding Business
Day and such extension of time shall in such case be included in computing
interest in connection with such payment.
<PAGE> 50
All loans and advances and all payments and prepayments made
hereon shall be recorded in the holder's records and such records shall be
controlling, absent manifest error.
In addition to all principal and accrued interest on this
Note, the Borrower agrees to pay (a) all reasonable costs and expenses incurred
by all owners and holders of this Note in collecting this Note through any
probate, reorganization, bankruptcy or any other proceeding and (b) reasonable
attorneys' fees when and if this Note is placed in the hands of an attorney for
collection after default.
All agreements among the Borrower and the Bank, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
demand being made on this Note or otherwise, shall the amount paid, or agreed to
be paid, to the Bank for the use, forbearance, or detention of the money to be
loaned under the International Loan Agreement and evidenced by this Note or
otherwise or for the payment or performance of any covenant or obligation
contained in the International Loan Agreement, this Note or in any other
International Loan Document exceed the Highest Lawful Rate. If, as a result of
any circumstances whatsoever, fulfillment of any provision hereof or of any of
such documents, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by applicable usury law,
then, ipso facto, the obligation to be fulfilled shall be reduced to the limit
of such validity, and if, from any such circumstance, the Bank shall ever
receive interest or anything which might be deemed interest under applicable law
which would exceed the Highest Lawful Rate, such amount which would be excessive
interest shall be applied to the reduction of the principal amount owing on
account of this Note or the amounts owing on other obligations of the Borrower
to the Bank under any International Loan Document and not to the payment of
interest, or if such excessive interest exceeds the unpaid principal balance of
this Note and the amounts owing on other obligations of the Borrower to the Bank
under any International Loan Documents, as the case may be, such excess shall be
refunded to the Borrower. All sums paid or agreed to be paid to the Bank for the
use, forbearance, or detention of the indebtedness of the Borrower to the Bank
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full term of such indebtedness until
payment in full of the principal thereof (including the period of any renewal or
extension thereof) so that the interest on account of such indebtedness shall
not exceed the Highest Lawful Rate. Notwithstanding anything to the contrary
contained in the International Loan Agreement or this Note, it is understood and
agreed that if at any time the rate of interest which accrues on the outstanding
principal balance of this Note shall exceed the Highest Lawful Rate, the rate of
interest which accrues on the outstanding principal balance of this Note shall
be limited to the Highest Lawful Rate, but any subsequent reductions in the rate
of interest which accrues on the outstanding principal balance of this Note
shall not reduce the rate of interest which accrues on the outstanding principal
balance of this Note below the Highest Lawful Rate until the total amount of
interest accrued on the outstanding principal balance of this Note equals the
amount of interest which would have accrued if such interest rate had at all
times been in effect. The terms and provisions of this paragraph shall control
and supersede every other provision of all agreements between the Borrower and
the Bank.
<PAGE> 51
This Note is entitled to the benefits of the International
Loan Agreement, which International Loan Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events, for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions and with the effect therein
specified, and provisions to the effect that no provision of the International
Loan Agreement or this Note shall require the payment or permit the collection
of interest in excess of the Highest Lawful Rate. The obligations of the
Borrower hereunder are secured by the International Security Documents. It is
contemplated that by reason of prepayments or repayments hereon prior to the
Maturity Date, there may be times when no indebtedness is owing hereunder prior
to such date, but notwithstanding such occurrences, this Note shall remain valid
and shall be in full force and effect as to Loans made pursuant to the
International Loan Agreement subsequent to each such occurrence.
Except as otherwise specifically provided for in the
International Loan Agreement, the Borrower and any and all endorsers, guarantors
and sureties severally waive grace, demand, presentment for payment, notice of
dishonor or default, protest, notice of protest, notice of intent to accelerate,
notice of acceleration and diligence in collecting and bringing of suit against
any party hereto, and agree to all renewals, extensions or partial payments
hereon, with or without notice, before or after maturity.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW.
THIS NOTE AND THE OTHER INTERNATIONAL LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AS TO THE SUBJECT MATTER HEREOF AND
THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES; AND THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered by its officer thereunto duly authorized effective as of
the date first above written.
NATIONAL TANK COMPANY
By: /s/ WILLIAM B. WIENER, III
-----------------------------
William B. Wiener III
Senior Vice President
<PAGE> 52
EXHIBIT "C"
REQUEST FOR BORROWING
(International)
The undersigned hereby certifies that he is the
__________________ of NATIONAL TANK COMPANY, a Texas corporation (the
"Borrower"), and that as such he is authorized to execute this Request for
Borrowing on behalf of the Borrower. With reference to that certain
International Revolving Loan Agreement dated as of June 30, 1997 (as same may
be amended, modified, increased, supplemented and/or restated from time to
time, the "International Loan Agreement") entered into by and between the
Borrower and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association (the "Bank"), the undersigned further certifies, represents and
warrants on behalf of the Borrower that all of the following statements are
true and correct (each capitalized term used herein having the same meaning
given to it in the International Loan Agreement unless otherwise specified):
(a) All of the statements and calculations set forth in
the most recent International Borrowing Base Certificate provided to
the Bank and dated as of ________, 199_, were true and correct as of
the date thereof, and such International Borrowing Base Certificate is
dated within the past five (5) Business Days. In accordance with the
terms of the International Loan Agreement as evidenced by such
International Borrowing Base Certificate, the borrowing availability
for which the Borrower was eligible as of the date of such
International Borrowing Base Certificate was $____________. The
Borrower represents and warrants that as of the date hereof and after
the making of the requested Loan, the aggregate amount of Loans
outstanding under the International Loan Agreement will not be in
excess of that permitted by Section 2.1 of the International Loan
Agreement.
(b) The Borrower requests that the Bank advance to the
Borrower the aggregate sum of $___________ by no later than
__________, 199_. Immediately following the making of such Loan, the
aggregate outstanding balance of the Loans under the International
Loan Agreement shall equal $________.
(c) As of the date hereof, and as a result of the making
of the requested Loan, there does not and will not exist any Default
or Event of Default.
-1-
<PAGE> 53
(d) The representations and warranties contained in
Section 6 of the International Loan Agreement and in each other
International Loan Document are true and correct in all respects as of
the date hereof and shall be true and correct upon the making of the
requested Loan, with the same force and effect as though made on and
as of the date hereof and thereof.
(e) No change that would cause a material adverse effect
on the business, properties, operations or condition (financial or
otherwise) of the Borrower has occurred since the date of the most
recent financial statements provided to the Bank dated as of ________,
199_.
(f) The Items to be financed with the proceeds of the
Loan requested hereby shall be sold solely pursuant to an export
transaction eligible for financing pursuant to and in accordance with
the International Loan Agreement.
(g) All conditions set forth in Section 7 of the
International Loan Agreement to the making of the Loans requested
hereunder have been fully satisfied as of the date hereof.
EXECUTED AND DELIVERED this ___ day of __________, 199_.
NATIONAL TANK COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-2-
<PAGE> 54
EXHIBIT "D"
INTERNATIONAL BORROWING BASE CERTIFICATE
Monthly accounting period ended _____________, 199_
Reference is made to that certain International Revolving Loan
Agreement dated as of June 30, 1997 (as amended, modified and supplemented and
in effect from time to time, the "International Loan Agreement") by and between
NATIONAL TANK COMPANY, a Texas corporation (the "Borrower") and TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"). Terms
defined in the International Loan Agreement are used herein as defined therein.
Pursuant to Sections 7.4 and 8.1(d) of the International Loan
Agreement, the undersigned, the _______________________ of the Borrower, hereby
certifies that, to the best of his knowledge and belief after reasonable and
due investigation and review, (i) attached hereto as Annex 1 is a true and
accurate calculation of the International Borrowing Base determined in
accordance with the requirements set forth in the International Loan Agreement;
(ii) attached hereto as Annex 2 is a true and accurate schedule which
specifically identifies the Eligible Accounts Receivable and Eligible Inventory
in accordance with the requirements of the Eximbank; and (iii) all statements
and calculations set forth in Annexes 1 and 2 hereof are current as of the date
hereof.
IN WITNESS WHEREOF, the undersigned has caused this
International Borrowing Base Certificate to be duly executed as of the ___ day
of _______________, 199_.
NATIONAL TANK COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 55
ANNEX 1
International Borrowing Base Calculation
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 A Total Eligible Accounts Receivable of Borrower $
B Advance Rate: 90% $
C Total Eligible Inventory of Borrower $
D Advanced Rate: 75% $
2 Line 1B plus 1D equals: International Borrowing Base $
3 Lesser of line 3 or the Commitment $
4 Less the International Exposure (under this facility): $
Loan(s) Outstanding $
Letter(s) of Credit(1) $
5 Equals: Borrowing Availability $
If line 6 above is a negative number, the amount of paydown and/or $
additional collateral required:
If line 6 above is a positive number, the amount of borrowing $
availability:
6 Requested Action:
Paydown $
Drawdown $
Issuance of Letter of Credit $
</TABLE>
____________________
(1) Subject to review of the transaction, the Bank may allow
the inclusion of L/Cs that are less than 100% collateralized.
The face value of L/Cs issued under this facility plus Loans
Outstanding under this facility can not exceed the amount of
the Commitment.
<PAGE> 56
ANNEX 2
International Borrowing Base Detailed Schedule Report
1. Eligible Accounts Receivable
The Borrower represents and warrants that all of the accounts
receivable outlined below meet the requirements set forth in the
definition of "Eligible Accounts Receivables." All such accounts
receivable are supported by an Export Order delivered to the Bank.
A. Receivables covered by letters of credit issued and/or
confirmed in accordance with Section 8.10 of the International
Loan Agreement. Copies of such letters of credit and
assignments of proceeds of such letters of credit are attached
hereto or have already been provided to the Bank.
<TABLE>
<CAPTION>
Invoice
Customer Country Amount Date L/C Bank
-------- ------- ------ ---- --------
<S> <C> <C> <C> <C>
1.
2.
3.
</TABLE>
B. Receivables insured by export insurance in accordance with
Section 8.7 of the International Loan Agreement. True and
correct copies of such insurance policies together with all
endorsements, declarations, amendments and renewals thereto
have been delivered to the Bank. True and correct copies of
the notification of assignment of insurance claims under such
policies have been delivered to the Bank.
<TABLE>
<CAPTION>
Customer Country Amount SBCL or DCL
-------- ------- ------ -----------
<S> <C> <C> <C>
1.
2.
3.
</TABLE>
- 1 -
<PAGE> 57
C. Receivables arising from documentary collections,
cash against documents transactions and other
receivables otherwise approved in writing by the Bank
and Eximbank.
<TABLE>
<CAPTION>
Invoice
Customer Country Amount Date Payment Terms
-------- ------- ------ ------- -------------
<S> <C> <C> <C> <C>
1.
2.
3.
</TABLE>
2. Eligible Inventory
The Borrower represents and warrants that all of the inventory
outlined below meets the requirements set forth in the definition of
"Eligible Inventory." Without limitation of the foregoing, the
Borrower represents and warrants that all such inventory contains at
least 50% U.S. content and, except as notified to the Bank, that all
of such inventory is supported by an Export Order delivered to the
Bank.
<TABLE>
<CAPTION>
<S> <C> <C>
Inventory Supported by
Purchase Order: Finished Goods
-------------- -------------------------
Work-in-Process
-------------------------
Raw Materials
-------------------------
Inventory Not Supported
by Purchase Order: Finished Goods
----------------- -------------------------
Work-in-Process
-------------------------
Raw Materials
-------------------------
Total
--------------------------
</TABLE>
Note: Describe any large or special inventory items.
ADDITIONAL COLLATERAL
1. Export-related receivables no longer Eligible which have previously
been included in an International Borrowing Base Certificate and which
remain as Collateral for the International Obligations.
[List]
- 2 -
<PAGE> 58
ATTACHMENTS
-----------
1. Export Orders
Attached hereto are executed Export Orders for each new Eligible
Receivable, as outlined below:
<TABLE>
<CAPTION>
Customer Country Amount Payment Terms
-------- ------- ------ -------------
<S> <C> <C> <C>
1.
2.
3.
</TABLE>
2. Export Insurance
In accordance with Section 8.7 of the International Loan Agreement
attached hereto are duly executed copies of the export insurance
policies, together with endorsements, declarations, amendments and
renewals which have not been previously provided to the Bank:
3. Other Information or Special Requests
- 3 -
<PAGE> 59
EXHIBIT "E"
COMPLIANCE CERTIFICATE
(International)
I, ___________________, do hereby certify to Texas Commerce
Bank National Association (the "Bank") that I am the duly elected, qualified
and acting _______________ of NATIONAL TANK COMPANY, a Texas corporation (the
"Borrower"), and do hereby further certify to the Bank as follows:
1. Each of the representations and warranties contained
in Section 6 of the International Revolving Loan
Agreement dated as of June 30, 1997 (as amended or
otherwise modified from time to time, the
"International Loan Agreement"), by and between the
Borrower and the Bank and in each other International
Loan Document is true and correct in all respects on
and as of the date hereof as though made on and as of
the date hereof;
2. No Default or Event of Default has occurred as of the
date hereof or would result from the making of any
Loans on the date hereof; and
3. No change that would cause a material adverse effect
on the business, properties, operations or condition
(financial or otherwise) of the Borrower has occurred
since the date of the most recent financial
statements provided to the Bank dated as of ________,
199_.
All terms used and not otherwise defined herein shall have the meanings
ascribed to such terms in the International Loan Agreement.
IN WITNESS WHEREOF, I have signed by name this ____ day of ________, 199_.
--------------------------------------
(Signature)
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 60
EXHIBIT "F"
LETTER OF CREDIT REQUEST
(International)
_______________, 199_
Texas Commerce Bank National Association
_________________
_________________
Attention: _______________
Gentlemen:
Reference is made to that certain International Revolving
Credit Agreement dated as of June 30, 1997 (the "International Loan Agreement")
executed by and between Texas Commerce Bank National Association (the "Bank"),
and National Tank Company (the "Borrower"). Capitalized terms which are used
but not defined herein shall have the respective meanings assigned to such
terms in the International Loan Agreement.
The Borrower hereby requests the issuance of a Letter of
Credit under the International Loan Agreement, and in that connection sets
forth below the information relating to such Letter of Credit ("Proposed Letter
of Credit") as required by Section 2.3 of the International Loan Agreement. As
more fully set forth in the Application for Irrevocable Stand-by Letter of
Credit attached hereto as Exhibit I, the Proposed Letter of Credit must be
issued:
(a) on or before _______________, 19__(1);
(b) for the benefit of __________________;
(c) in the amount of $_____________(2);
(d) having an expiry date of __________, 19__(3); and which is
__________________________________
(1) Which must be not less than three (3) Business Days after notice is given
to the Bank.
(2) Which must not be less than $2,000.
(3) Which shall not be later than the stated Maturity Date, without the prior
written consent of the Bank.
<PAGE> 61
(e) subject to the conditions set forth in the Application
attached hereto.
OR
The Borrower hereby refers to Letter of Credit Number _____
(the "Expiring Letter of Credit") which has an existing expiry date of
__________. The Borrower hereby requests that [the expiry date of the Expiring
Letter of Credit be extended to __________(3)]. [The Bank permits the expiry
date of the Expiring Letter of Credit to be extended to _____________(3)].
The Borrower hereby certifies that after giving effect to the
[issuance of the Proposed Letter of Credit] or [the extension of the Expiring
Letter of Credit] (a) the aggregate Letter of Credit Outstandings will not
exceed the Letter of Credit Limit and (b) the sum of the aggregate outstanding
Loans plus the aggregate Letter of Credit Outstandings will not exceed the
Commitment.
The Borrower hereby further certifies that:
(a) on the date hereof all applicable conditions to the
[issuance of the Proposed Letter of Credit] [extension of the Expiring Letter
of Credit] set forth in Sections 2.3 and 7 of the International Loan Agreement
have been satisfied and that the [Proposed Letter of Credit] [the Expiring
Letter of Credit as extended] complies with the terms of the International Loan
Agreement;
(b) as of the date hereof and as a result of the
[issuance of the Proposed Letter of Credit] [the extension of the Expiring
Letter of Credit], there does not and will not exist any Default or Event of
Default;
(c) the representations and warranties contained in
Section 6 of the International Loan Agreement and in each other International
Loan Document are true and correct as of the date hereof and shall be true and
correct upon the [issuance of the Proposed Letter of Credit] [the extension of
the Expiring Letter of Credit], with the same force and effect as though made
on and as of the date hereof and thereof; and
(d) no material adverse change in the business,
properties, operations or condition (financial or otherwise) of the Borrower
has occurred since the date of the most recent financial statements provided to
the Bank dated as of __________, 199_.
Upon the [issuance of the Proposed Letter of Credit]
[extension of the Expiring Letter of Credit], the Borrower will be deemed to
have recertified the foregoing on such issuance date or extension date, as the
case may be.
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<PAGE> 62
EXECUTED AND DELIVERED this _____ day of __________, 199__.
NATIONAL TANK COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 63
Exhibit "G"
NOTICE OF RATE CHANGE/CONTINUATION
TO: TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the "Bank") pursuant to that
certain International Revolving Loan Agreement dated as of June 30,
1997 (as same may be amended, modified, increased, supplemented and/or
restated from time to time, the "Credit Agreement"), entered into by
and between National Tank Company (the "Borrower") and the Bank.
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Notice.
Pursuant to Section 2.9 of the Credit Agreement, this Notice of Rate
Change/Continuation (the "Notice") represents the Borrower's election to
[insert one or more of the following]:
[1. Use if converting LIBOR Rate Loans to Base Rate Loans.]
Convert $_____________ in aggregate principal amount of LIBOR
Rate Loans with a current Interest Period ending on________,
19__, to Base Rate Loans on____________, 19__. [and]
[1. Use if converting Base Rate Loans to LIBOR Rate Loans.]
Convert $_____________ in aggregate principal amount of Base
Rate Loans to LIBOR Rate Loans on _________________, 19__.
The initial Interest Period for such LIBOR Rate Loans is
requested to be a [one] [two] [three] [six] (_____) month
period.
[1. Use if continuing LIBOR Rate Loans.]
Continue $__________ in aggregate principal amount of LIBOR
Rate Loans with a current Interest Period ending on
_____________, 19___. The initial Interest Period for such
LIBOR Rate Loans is requested to be a [one] [two] [three]
[six] (__) month period.
2. Borrower hereby certifies that no Default or Event of Default
has occurred and is continuing under the Credit Agreement.
3. As of the date hereof, and as a result of the making of the
requested Loans, there does not and will not exist any Default
or Event of Default.
4. The representations and warranties contained in the Loan
Documents (other than those by their terms limited to a
specific date) are true and correct in all material respects
as of the date hereof and shall be true and correct upon the
making of the requested Loans, with the same force and effect
as though made on and as of the date hereof and thereof.
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<PAGE> 64
5. No event has occurred since the date of the most
recent financial statements provided to the Bank
dated as of ________, 19__ that has caused a Material
Adverse Effect.
Dated: __________, 19___.
NATIONAL TANK COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE> 65
INTERNATIONAL REVOLVING NOTE
$3,000,000.00 June 30, 1997
FOR VALUE RECEIVED, the undersigned, NATIONAL TANK COMPANY, a
corporation organized under the laws of the State of Texas (the "Borrower"),
HEREBY PROMISES TO PAY to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
a national banking association (the "Bank"), on or before June 30, 1998 (the
"Maturity Date"), the principal sum of Three Million and 00/100 Dollars
($3,000,000.00), or, if less, the aggregate principal amount of Loans
outstanding on the Maturity Date, in accordance with the terms and provisions of
that certain International Revolving Loan Agreement dated as of June 30, 1997 by
and between the Borrower and the Bank (the "International Loan Agreement";
capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to such terms in the International Loan Agreement).
The outstanding principal balance of this Note shall be due
and payable as provided in the International Loan Agreement. The Borrower
promises to pay interest on the unpaid principal balance of this Note from the
date of any Loan evidenced by this Note until the principal balance thereof is
paid in full. Interest shall accrue on the outstanding principal balance of this
Note from and including the date of any Loan evidenced by this Note to but not
including the Maturity Date at the rate or rates, and shall be due and payable
on the dates, set forth in the International Loan Agreement. Any amount not paid
when due with respect to principal (whether at stated maturity, by acceleration
or otherwise), costs or expenses, or, to the extent permitted by applicable law,
interest, shall bear interest from the date when due to and excluding the date
the same is paid in full, payable on demand, at the Past Due Rate.
Payments of principal and interest, and all amounts due with
respect to costs and expenses, shall be made in lawful money of the United
States of America in immediately available funds, without deduction, set-off or
counterclaim to the Bank, or such other location as may be notified to the
Borrower by the Bank, not later than 12:00 noon (Houston time) on the dates on
which such payments shall become due pursuant to the terms and provisions set
forth in the International Loan Agreement.
If any payment of principal or interest on this Note shall
become due on a Saturday, Sunday, or public holiday on which the Bank is not
open for business, such payment shall be made on the next succeeding Business
Day and such extension of time shall in such case be included in computing
interest in connection with such payment.
<PAGE> 66
All loans and advances and all payments and prepayments made
hereon shall be recorded in the holder's records and such records shall be
controlling, absent manifest error.
In addition to all principal and accrued interest on this
Note, the Borrower agrees to pay (a) all reasonable costs and expenses incurred
by all owners and holders of this Note in collecting this Note through any
probate, reorganization, bankruptcy or any other proceeding and (b) reasonable
attorneys' fees when and if this Note is placed in the hands of an attorney for
collection after default.
All agreements among the Borrower and the Bank, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
demand being made on this Note or otherwise, shall the amount paid, or agreed to
be paid, to the Bank for the use, forbearance, or detention of the money to be
loaned under the International Loan Agreement and evidenced by this Note or
otherwise or for the payment or performance of any covenant or obligation
contained in the International Loan Agreement, this Note or in any other
International Loan Document exceed the Highest Lawful Rate. If, as a result of
any circumstances whatsoever, fulfillment of any provision hereof or of any of
such documents, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by applicable usury law,
then, ipso facto, the obligation to be fulfilled shall be reduced to the limit
of such validity, and if, from any such circumstance, the Bank shall ever
receive interest or anything which might be deemed interest under applicable law
which would exceed the Highest Lawful Rate, such amount which would be excessive
interest shall be applied to the reduction of the principal amount owing on
account of this Note or the amounts owing on other obligations of the Borrower
to the Bank under any International Loan Document and not to the payment of
interest, or if such excessive interest exceeds the unpaid principal balance of
this Note and the amounts owing on other obligations of the Borrower to the Bank
under any International Loan Documents, as the case may be, such excess shall be
refunded to the Borrower. All sums paid or agreed to be paid to the Bank for the
use, forbearance, or detention of the indebtedness of the Borrower to the Bank
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full term of such indebtedness until
payment in full of the principal thereof (including the period of any renewal or
extension thereof) so that the interest on account of such indebtedness shall
not exceed the Highest Lawful Rate. Notwithstanding anything to the contrary
contained in the International Loan Agreement or this Note, it is understood and
agreed that if at any time the rate of interest which accrues on the outstanding
principal balance of this Note shall exceed the Highest Lawful Rate, the rate of
interest which accrues on the outstanding principal balance of this Note shall
be limited to the Highest Lawful Rate, but any subsequent reductions in the rate
of interest which accrues on the outstanding principal balance of this Note
shall not reduce the rate of interest which accrues on the outstanding principal
balance of this Note below the Highest Lawful Rate until the total amount of
interest accrued on the outstanding principal balance of this Note equals the
amount of interest which would have accrued if such interest rate had at all
times been in effect. The terms and provisions of this paragraph shall control
and supersede every other provision of all agreements between the Borrower and
the Bank.
<PAGE> 67
This Note is entitled to the benefits of the International
Loan Agreement, which International Loan Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events, for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions and with the effect therein
specified, and provisions to the effect that no provision of the International
Loan Agreement or this Note shall require the payment or permit the collection
of interest in excess of the Highest Lawful Rate. The obligations of the
Borrower hereunder are secured by the International Security Documents. It is
contemplated that by reason of prepayments or repayments hereon prior to the
Maturity Date, there may be times when no indebtedness is owing hereunder prior
to such date, but notwithstanding such occurrences, this Note shall remain valid
and shall be in full force and effect as to Loans made pursuant to the
International Loan Agreement subsequent to each such occurrence.
Except as otherwise specifically provided for in the
International Loan Agreement, the Borrower and any and all endorsers, guarantors
and sureties severally waive grace, demand, presentment for payment, notice of
dishonor or default, protest, notice of protest, notice of intent to accelerate,
notice of acceleration and diligence in collecting and bringing of suit against
any party hereto, and agree to all renewals, extensions or partial payments
hereon, with or without notice, before or after maturity.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAW.
THIS NOTE AND THE OTHER INTERNATIONAL LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AS TO THE SUBJECT MATTER HEREOF AND
THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES; AND THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered by its officer thereunto duly authorized effective as of
the date first above written.
NATIONAL TANK COMPANY
By: /s/ WILLIAM B. WIENER, III
-----------------------------
William B. Wiener III
Senior Vice President
<PAGE> 68
INTERNATIONAL GUARANTY
This INTERNATIONAL GUARANTY (the "Guaranty") is made as of the
30th day of June, 1997 by NATCO Holdings, Inc., a Delaware corporation (the
"Guarantor"), to Texas Commerce Bank National Association, a national banking
association (the "Bank").
PRELIMINARY STATEMENT. The Bank and National Tank Company, a
Delaware corporation (the "Borrower") have entered into that certain
International Revolving Loan Agreement dated of even date herewith (as amended
or otherwise modified from time to time, the "Credit Agreement"). The
Guarantor expects to derive substantial benefit from the Loans (as defined in
the Credit Agreement) made by the Bank to the Borrower pursuant to the terms
and conditions set forth in the Credit Agreement. It is a condition precedent
to the effectiveness of the Credit Agreement that the Guarantor shall have
executed and delivered this Guaranty.
All terms used herein and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Bank to make the Loans under the Credit Agreement, the Guarantor
hereby agrees as follows:
SECTION 1. Guaranty. The Guarantor hereby unconditionally
and irrevocably (a) guarantees the punctual payment when due, whether at stated
maturity, by acceleration, by prepayment or otherwise, of all obligations of
the Borrower now or hereafter existing under the Credit Agreement, the Note,
all other International Loan Documents to which the Borrower is a party and any
other agreement or instrument executed in connection therewith, whether for
principal, interest, prepayment, fees, expenses, taxes, costs, losses,
compensation, reimbursements or any other amount payable to the Bank under the
terms of any such agreements, and (b) agrees to pay all reasonable expenses
(including, without limitation, reasonable counsel fees and expenses) incurred
by the Bank in enforcing any rights under this Guaranty (all of the above being
hereinafter called the "Guaranteed Obligations").
SECTION 2. Guaranty Absolute. The Guarantor guarantees that
the Guaranteed Obligations will be paid strictly in accordance with the terms
of the Credit Agreement, the Note, all other International Loan Documents and
any other agreement or instrument executed in connection therewith, regardless
of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Bank with respect thereto.
The liability of the Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of or defect
or deficiency in the Credit Agreement, the Note, any of the other
International Loan Documents or any other agreement or instrument
executed in connection with or pursuant to any International Loan
Document;
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<PAGE> 69
(b) any change in the time, manner, terms or place of
payment of, or in any other term of, all or any of the Guaranteed
Obligations, or any other amendment or waiver of or any consent to
departure from the Credit Agreement, the Note, any of the other
International Loan Documents, or any other agreement or instrument
relating thereto or executed in connection with or pursuant to any
International Loan Document;
(c) any sale, exchange, release or non-perfection of any
Collateral or any setoff against any of the Guaranteed Obligations, or
any release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guaranteed Obligations;
(d) an Event of Bankruptcy (as defined below), which
shall occur where the Borrower makes a general assignment for the
benefit of creditors or petitions or applies to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or
any substantial part of its business, estate or assets or commences
any proceeding under any bankruptcy, insolvency, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in
effect; or any such petition or application is filed or any such
proceeding is commenced against the Borrower, and the Borrower, by an
act or omission, indicates approval thereof, consents thereto or
acquiesces therein, or an order is entered appointing a trustee,
custodian, receiver or liquidator of all or any substantial part of
the assets of the Borrower or granting relief to the Borrower or
approving the petition in any such proceeding (each an "Event of
Bankruptcy");
(e) the exercise by the Bank of any of its rights and
remedies under this Guaranty or any of the International Loan
Documents;
(f) any delay or failure by the Bank in the exercise of
its rights and remedies under this Guaranty or any of the
International Loan Documents;
(g) any breach or default by the Borrower in the
performance or observance of any of its obligations under any of the
International Loan Documents; or
(h) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Borrower or
any other Person that is a party to any International Loan Document
(including any guarantor) in respect of the Guaranteed Obligations.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by the Bank upon the insolvency,
bankruptcy or reorganization of the Borrower, or any other guarantor or
otherwise, all as though such payment had not been made. The obligations of
the Guarantor under this Guaranty shall not be affected by the amount of credit
extended to the Borrower, any repayment by the Borrower to the Bank (other than
the full and final payment of all of the Guaranteed Obligations), allocation by
the Bank of any repayment, any compromise or discharge of the Guaranteed
Obligations, any application, release or substitution of collateral or other
security
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<PAGE> 70
therefor, release of any guarantor, surety or other person obligated in
connection with the International Loan Documents, or any further advances to
the Borrower, or for any other reason.
SECTION 3. Continuing Guaranty. This is a continuing
Guaranty, and all extensions of credit and financial accommodations heretofore,
concurrently herewith or hereafter made by the Bank to the Borrower and all
indebtedness of the Borrower now owned or hereafter acquired by the Bank in
connection with the transactions contemplated under the Credit Agreement shall
be conclusively presumed to have been made or acquired in acceptance hereof.
SECTION 4. Waiver. This is an absolute Guaranty of payment
and not of collection; and the Guarantor hereby waives (a) promptness,
diligence, notice of acceptance, presentment, demand, protest, notice of
protest and dishonor, notice of intent to accelerate, notice of acceleration
and any other notice with respect to any of the Guaranteed Obligations and this
Guaranty; (b) any requirement that the Bank protect, secure, perfect or insure
any Lien on any Property subject thereto or exhaust any right or take any
action against the Borrower or any other Person or any Collateral or that the
Borrower or any other Person be joined in any action hereunder. Should the
Bank seek to enforce the obligations of the Guarantor hereunder by action in
any court, the Guarantor waives any necessity, substantive or procedural, that
a judgment previously be rendered against the Borrower or any other Person, or
that any action be brought against the Borrower or any other Person, or that
the Borrower or any other Person should be joined in such cause. Such waiver
shall be without prejudice to the Bank at its option to proceed against the
Borrower or any other Person, whether by separate action or by joinder.
The Guarantor waives, and agrees, to the fullest extent
permitted by applicable law, that the Guarantor shall not at any time insist
upon, plead or in any manner whatever claim or take the benefit or advantage
of, any appraisal, valuation, stay, extension, marshalling of assets or
redemption laws, or exemption, whether now or at any time hereafter in force,
which may delay, prevent or otherwise affect the performance by the Guarantor
of the Guarantor's obligations under, or the enforcement by the Bank of, this
Guaranty.
SECTION 5. Several Obligations. The obligations of the
Guarantor hereunder are several from the Borrower or any other Person, and are
primary obligations concerning which the Guarantor is the principal obligor.
The Guarantor agrees that this Guaranty shall not be discharged except by
complete performance of the obligations of the Borrower under the Note, the
Credit Agreement and any other International Loan Document to which the
Borrower is a party and the obligations of the Guarantor hereunder. The
obligations of the Guarantor hereunder shall not be affected in any way by any
receivership, insolvency, bankruptcy or other proceedings affecting the
Borrower or any of the Borrower's assets, or the release or discharge of the
Borrower from the performance of any obligation contained in any promissory
note or other instrument issued in connection with, evidencing or securing any
Guaranteed Obligations, whether occurring by reason of law or any other cause,
whether similar or dissimilar to the foregoing.
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<PAGE> 71
SECTION 6. Subrogation. The Guarantor will not exercise any
rights which it may acquire by way of subrogation under this Guaranty, by any
payment made hereunder or otherwise, until all the Guaranteed Obligations shall
have been paid in full. If any amount shall be paid to the Guarantor on
account of such subrogation rights at any time when all the Guaranteed
Obligations shall not have been paid in full, such amount shall be held in
trust for the benefit of the Bank and shall forthwith be paid to the Bank to be
applied to the Guaranteed Obligations in such order as the Bank shall select.
If (a) the Guarantor shall make payment to the Bank of all or any part of the
Guaranteed Obligations and (b) all the Guaranteed Obligations shall be paid in
full, the Bank will, at the Guarantor's request, execute and deliver to the
Guarantor appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to the Guarantor of
any interest in the Guaranteed Obligations resulting from such payment by the
Guarantor.
SECTION 7. Representations and Warranties. The Guarantor
hereby represents and warrants as follows:
(a) The Guarantor has received, or will receive, direct
or indirect benefit from the making of this Guaranty.
(b) No authorization or approval or other action by, and
no notice to or filing with, any Governmental Authority is required
for the due execution, delivery and performance by the Guarantor of
this Guaranty and the other documents and instruments executed in
connection therewith, all of which have been duly obtained or made and
are in full force and effect.
(c) This Guaranty is, and all other documents and
instruments executed in connection therewith, when delivered, will be,
legal, valid and binding obligations of the Guarantor, enforceable
against the Guarantor in accordance with their respective terms,
except as such enforceability may be (i) limited by the effect of any
applicable Debtor Laws and (ii) subject to the effect of general
principles of equity.
(d) The Guarantor's execution, delivery and performance
of this Guaranty do not require the consent or approval of any other
Person except the Bank, which consent and approval shall be deemed
granted by the Bank's acceptance of the delivery of this Guaranty.
SECTION 8. Delivery of Financial Information. The Guarantor
covenants and agrees that, so long as any of the Guaranteed Obligations shall
remain outstanding, the Guarantor will deliver to the Bank as soon as
available, and in any event within one hundred eighty (180) days after the end
of each year, a copy of its signed federal tax returns, including federal
income tax returns, and all supporting documentation.
SECTION 9. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom shall in any event be effective
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<PAGE> 72
unless the same shall be in writing and signed by the Bank, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 10. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, facsimile or cable communication) and mailed, telegraphed,
transmitted, cabled or delivered, if to the Guarantor, at the Guarantor's
address at Brookhollow Central III, 2950 North Loop West, Suite 750, Houston,
Texas 77092, Attention: William B. Wiener III, Senior Vice President, Telecopy
No. (713) 683-7841, if to the Bank, at its address at 712 Main Street,
Houston, Texas 77002, attention William L. McCollum, International Banking
Officer, Telecopy No. (713) 216-4499, or, as to each party, at such other
address as shall be designated by such party in a written notice to the other
party. All such notices and communications shall, when mailed, telegraphed,
transmitted or cabled be effective when deposited in the mail, delivered to the
telegraph company, transmitted by telecopier or delivered to the cable company,
respectively.
SECTION 11. No Waiver; Remedies. No failure on the part of
the Bank or the Guarantor to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 12. Right of Setoff. Upon the occurrence and during
the continuance of any Event of Default, the Bank is hereby authorized at any
time and from time to time, without notice to the Guarantor (any such notice
being expressly waived by the Guarantor) to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Bank to or for the credit or the account of the Guarantor
against any and all of the obligations of the Guarantor now or hereafter
existing under this Guaranty, irrespective of whether or not the Bank shall
have made any demand under this Guaranty and although such obligations may be
contingent and unmatured. The Bank agrees promptly to notify the Guarantor
after any such setoff and application made by the Bank, provided that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Bank under this Section 11 are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which the Bank may have.
SECTION 13. Costs, Expenses and Taxes. The Guarantor agrees
to pay, and cause to be paid, on demand all costs and expenses actually
incurred by the Bank in connection with the preparation, execution, delivery,
filing, recording and administration of this Guaranty and any of the documents
or instruments evidencing the Guaranteed Obligations and any other agreements
or documents delivered in connection with any of the Guaranteed Obligations,
including, without limitation, the reasonable fees and out-of-pocket expenses
of outside counsel for the Bank with respect thereto and with respect to
advising the Bank as to its rights and responsibilities under this Guaranty,
and all costs and expenses, if any (including reasonable counsel fees and
expenses), in connection with the enforcement of this Guaranty. The Guarantor
agrees to pay interest on any
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<PAGE> 73
expenses or other sums due to the Bank hereunder that are not paid when due at
a rate per annum equal to the Past Due Rate. In addition, the Guarantor shall
pay any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Guaranty and any of the
documents or instruments evidencing the Guaranteed Obligations, and agrees to
save the Bank harmless from and against any and all liabilities with respect to
or resulting from any delay in paying or omission to pay such taxes. The
agreements of the Guarantor contained in this Section 12 shall survive the
payment of all other amounts owing hereunder or under any of the other
obligations.
SECTION 14. INDEMNITY. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE GUARANTOR AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS
THE BANK FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES GROWING
OUT OF OR RESULTING FROM THIS GUARANTY (INCLUDING, WITHOUT LIMITATION,
ENFORCEMENT OF THIS GUARANTY), EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING
FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE BANK, PROVIDED THAT IT
IS THE INTENTION OF THE GUARANTOR TO INDEMNIFY THE BANK AGAINST THE
CONSEQUENCES OF ITS OWN NEGLIGENCE.
SECTION 15. Separability. Should any clause, sentence,
paragraph, subsection or Section of this Guaranty be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Guaranty, and the parties hereto
agree that the part or parts of this Guaranty so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder will have the same force and effectiveness as if such part or parts
had never been included herein.
SECTION 16. Captions. The captions in this Guaranty have
been inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Guaranty.
SECTION 17. Continuing Guaranty; Transfer of Note. This
Guaranty is a continuing guaranty and shall (a) remain in full force and effect
until payment in full of the Guaranteed Obligations and all other amounts
payable under this Guaranty; (b) be binding upon the Guarantor and the
Guarantor's successors and assigns; and (c) inure to the benefit of and be
enforceable by the Bank and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (c), the Bank may assign or
otherwise transfer the Note to any Person permitted under the Credit Agreement,
and such other Person shall thereupon become vested with all the rights and
benefits in respect thereof granted to the Bank herein or otherwise.
SECTION 18. Limitation by Law. All rights, remedies and
powers provided in this Guaranty may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law, and all the
provisions of this Guaranty are intended to be subject to all applicable
mandatory provisions of law which may be controlling and to be limited to the
extent necessary so that they will not render this Guaranty invalid,
unenforceable, in whole or in part, or not entitled to be recorded, registered
or filed under the provisions of any applicable law.
- 6 -
<PAGE> 74
SECTION 19. GOVERNING LAW; JURISDICTION. (A) THIS GUARANTY
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
(B) THE GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THE GUARANTOR MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS GUARANTY OR THE GUARANTEED OBLIGATIONS BROUGHT IN
ANY TEXAS STATE COURT OR FEDERAL COURT LOCATED IN HOUSTON, TEXAS (COLLECTIVELY,
THE "COURTS"), OR ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
AN INCONVENIENT FORUM. THE GUARANTOR HEREBY IRREVOCABLY AGREES THAT ANY
JUDICIAL PROCEEDING AGAINST THE GUARANTOR ARISING OUT OF OR IN CONNECTION WITH
THIS GUARANTY OR THE GUARANTEED OBLIGATIONS MAY BE BROUGHT IN THE COURTS.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAWS, THE
PARTIES HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS GUARANTY OR ANY OF THE
OTHER INTERNATIONAL LOAN DOCUMENTS, OR ARISING FROM ANY FINANCING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS GUARANTY OR ANY OTHER INTERNATIONAL LOAN
DOCUMENTS AND AGREES THAT ANY ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
THIS GUARANTY TOGETHER WITH ALL OTHER INTERNATIONAL LOAN
DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty
as of the date first above written.
NATCO HOLDINGS, INC.
By: /s/ William B. Wiener III
----------------------------------
Name: William B. Wiener III
--------------------------------
Title: [ILLEGIBLE]
-------------------------------
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<PAGE> 75
INTERNATIONAL GUARANTY
This INTERNATIONAL GUARANTY (the "Guaranty") is made as of the
30th day of June, 1997 by Cummings Point Industries, Inc., a Delaware
corporation (the "Guarantor"), to Texas Commerce Bank National Association, a
national banking association (the "Bank").
PRELIMINARY STATEMENT. The Bank and National Tank Company, a
Delaware corporation (the "Borrower") have entered into that certain
International Revolving Loan Agreement dated of even date herewith (as amended
or otherwise modified from time to time, the "Credit Agreement"). The
Guarantor expects to derive substantial benefit from the Loans (as defined in
the Credit Agreement) made by the Bank to the Borrower pursuant to the terms
and conditions set forth in the Credit Agreement. It is a condition precedent
to the effectiveness of the Credit Agreement that the Guarantor shall have
executed and delivered this Guaranty.
All terms used herein and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Bank to make the Loans under the Credit Agreement, the Guarantor
hereby agrees as follows:
SECTION 1. Guaranty. The Guarantor hereby unconditionally
and irrevocably (a) guarantees the punctual payment when due, whether at stated
maturity, by acceleration, by prepayment or otherwise, of all obligations of
the Borrower now or hereafter existing under the Credit Agreement, the Note,
all other International Loan Documents to which the Borrower is a party and any
other agreement or instrument executed in connection therewith, whether for
principal, interest, prepayment, fees, expenses, taxes, costs, losses,
compensation, reimbursements or any other amount payable to the Bank under the
terms of any such agreements, and (b) agrees to pay all reasonable expenses
(including, without limitation, reasonable counsel fees and expenses) incurred
by the Bank in enforcing any rights under this Guaranty (all of the above being
hereinafter called the "Guaranteed Obligations").
SECTION 2. Guaranty Absolute. The Guarantor guarantees that
the Guaranteed Obligations will be paid strictly in accordance with the terms
of the Credit Agreement, the Note, all other International Loan Documents and
any other agreement or instrument executed in connection therewith, regardless
of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Bank with respect thereto.
The liability of the Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of or defect
or deficiency in the Credit Agreement, the Note, any of the other
International Loan Documents or any other agreement or instrument
executed in connection with or pursuant to any International Loan
Document;
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<PAGE> 76
(b) any change in the time, manner, terms or place of
payment of, or in any other term of, all or any of the Guaranteed
Obligations, or any other amendment or waiver of or any consent to
departure from the Credit Agreement, the Note, any of the other
International Loan Documents, or any other agreement or instrument
relating thereto or executed in connection with or pursuant to any
International Loan Document;
(c) any sale, exchange, release or non-perfection of any
Collateral or any setoff against any of the Guaranteed Obligations, or
any release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guaranteed Obligations;
(d) an Event of Bankruptcy (as defined below), which
shall occur where the Borrower makes a general assignment for the
benefit of creditors or petitions or applies to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or
any substantial part of its business, estate or assets or commences
any proceeding under any bankruptcy, insolvency, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in
effect; or any such petition or application is filed or any such
proceeding is commenced against the Borrower, and the Borrower, by an
act or omission, indicates approval thereof, consents thereto or
acquiesces therein, or an order is entered appointing a trustee,
custodian, receiver or liquidator of all or any substantial part of
the assets of the Borrower or granting relief to the Borrower or
approving the petition in any such proceeding (each an "Event of
Bankruptcy");
(e) the exercise by the Bank of any of its rights and
remedies under this Guaranty or any of the International Loan
Documents;
(f) any delay or failure by the Bank in the exercise of
its rights and remedies under this Guaranty or any of the
International Loan Documents;
(g) any breach or default by the Borrower in the
performance or observance of any of its obligations under any of the
International Loan Documents; or
(h) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Borrower or
any other Person that is a party to any International Loan Document
(including any guarantor) in respect of the Guaranteed Obligations.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned by the Bank upon the insolvency,
bankruptcy or reorganization of the Borrower, or any other guarantor or
otherwise, all as though such payment had not been made. The obligations of
the Guarantor under this Guaranty shall not be affected by the amount of credit
extended to the Borrower, any repayment by the Borrower to the Bank (other than
the full and final payment of all of the Guaranteed Obligations), allocation by
the Bank of any repayment, any compromise or discharge of the Guaranteed
Obligations, any application, release or substitution of collateral or other
security
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<PAGE> 77
therefor, release of any guarantor, surety or other person obligated in
connection with the International Loan Documents, or any further advances to
the Borrower, or for any other reason.
SECTION 3. Continuing Guaranty. This is a continuing
Guaranty, and all extensions of credit and financial accommodations heretofore,
concurrently herewith or hereafter made by the Bank to the Borrower and all
indebtedness of the Borrower now owned or hereafter acquired by the Bank in
connection with the transactions contemplated under the Credit Agreement shall
be conclusively presumed to have been made or acquired in acceptance hereof.
SECTION 4. Waiver. This is an absolute Guaranty of payment
and not of collection; and the Guarantor hereby waives (a) promptness,
diligence, notice of acceptance, presentment, demand, protest, notice of
protest and dishonor, notice of intent to accelerate, notice of acceleration
and any other notice with respect to any of the Guaranteed Obligations and this
Guaranty; (b) any requirement that the Bank protect, secure, perfect or insure
any Lien on any Property subject thereto or exhaust any right or take any
action against the Borrower or any other Person or any Collateral or that the
Borrower or any other Person be joined in any action hereunder. Should the
Bank seek to enforce the obligations of the Guarantor hereunder by action in
any court, the Guarantor waives any necessity, substantive or procedural, that
a judgment previously be rendered against the Borrower or any other Person, or
that any action be brought against the Borrower or any other Person, or that
the Borrower or any other Person should be joined in such cause. Such waiver
shall be without prejudice to the Bank at its option to proceed against the
Borrower or any other Person, whether by separate action or by joinder.
The Guarantor waives, and agrees, to the fullest extent
permitted by applicable law, that the Guarantor shall not at any time insist
upon, plead or in any manner whatever claim or take the benefit or advantage
of, any appraisal, valuation, stay, extension, marshalling of assets or
redemption laws, or exemption, whether now or at any time hereafter in force,
which may delay, prevent or otherwise affect the performance by the Guarantor
of the Guarantor's obligations under, or the enforcement by the Bank of, this
Guaranty.
SECTION 5. Several Obligations. The obligations of the
Guarantor hereunder are several from the Borrower or any other Person, and are
primary obligations concerning which the Guarantor is the principal obligor.
The Guarantor agrees that this Guaranty shall not be discharged except by
complete performance of the obligations of the Borrower under the Note, the
Credit Agreement and any other International Loan Document to which the
Borrower is a party and the obligations of the Guarantor hereunder. The
obligations of the Guarantor hereunder shall not be affected in any way by any
receivership, insolvency, bankruptcy or other proceedings affecting the
Borrower or any of the Borrower's assets, or the release or discharge of the
Borrower from the performance of any obligation contained in any promissory
note or other instrument issued in connection with, evidencing or securing any
Guaranteed Obligations, whether occurring by reason of law or any other cause,
whether similar or dissimilar to the foregoing.
- 3 -
<PAGE> 78
SECTION 6. Subrogation. The Guarantor will not exercise any
rights which it may acquire by way of subrogation under this Guaranty, by any
payment made hereunder or otherwise, until all the Guaranteed Obligations shall
have been paid in full. If any amount shall be paid to the Guarantor on
account of such subrogation rights at any time when all the Guaranteed
Obligations shall not have been paid in full, such amount shall be held in
trust for the benefit of the Bank and shall forthwith be paid to the Bank to be
applied to the Guaranteed Obligations in such order as the Bank shall select.
If (a) the Guarantor shall make payment to the Bank of all or any part of the
Guaranteed Obligations and (b) all the Guaranteed Obligations shall be paid in
full, the Bank will, at the Guarantor's request, execute and deliver to the
Guarantor appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to the Guarantor of
any interest in the Guaranteed Obligations resulting from such payment by the
Guarantor.
SECTION 7. Representations and Warranties. The Guarantor
hereby represents and warrants as follows:
(a) The Guarantor has received, or will receive, direct
or indirect benefit from the making of this Guaranty.
(b) No authorization or approval or other action by, and
no notice to or filing with, any Governmental Authority is required
for the due execution, delivery and performance by the Guarantor of
this Guaranty and the other documents and instruments executed in
connection therewith, all of which have been duly obtained or made and
are in full force and effect.
(c) This Guaranty is, and all other documents and
instruments executed in connection therewith, when delivered, will be,
legal, valid and binding obligations of the Guarantor, enforceable
against the Guarantor in accordance with their respective terms,
except as such enforceability may be (i) limited by the effect of any
applicable Debtor Laws and (ii) subject to the effect of general
principles of equity.
(d) The Guarantor's execution, delivery and performance
of this Guaranty do not require the consent or approval of any other
Person except the Bank, which consent and approval shall be deemed
granted by the Bank's acceptance of the delivery of this Guaranty.
SECTION 8. Delivery of Financial Information. The Guarantor
covenants and agrees that, so long as any of the Guaranteed Obligations shall
remain outstanding, the Guarantor will deliver to the Bank as soon as
available, and in any event within one hundred eighty (180) days after the end
of each year, a copy of its signed federal tax returns, including federal
income tax returns, and all supporting documentation.
SECTION 9. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom shall in any event be effective
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<PAGE> 79
unless the same shall be in writing and signed by the Bank, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 10. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, facsimile or cable communication) and mailed, telegraphed,
transmitted, cabled or delivered, if to the Guarantor, at the Guarantor's
address at Brookhollow Central III, 2950 North Loop West, Suite 750, Houston,
Texas 77092, Attention: William B. Wiener III, Senior Vice President, Telecopy
No. (713) 683-7841, if to the Bank, at its address at 712 Main Street,
Houston, Texas 77002, attention William L. McCollum, International Banking
Officer, Telecopy No. (713) 216-4499, or, as to each party, at such other
address as shall be designated by such party in a written notice to the other
party. All such notices and communications shall, when mailed, telegraphed,
transmitted or cabled be effective when deposited in the mail, delivered to the
telegraph company, transmitted by telecopier or delivered to the cable company,
respectively.
SECTION 11. No Waiver; Remedies. No failure on the part of
the Bank or the Guarantor to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 12. Right of Setoff. Upon the occurrence and during
the continuance of any Event of Default, the Bank is hereby authorized at any
time and from time to time, without notice to the Guarantor (any such notice
being expressly waived by the Guarantor) to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Bank to or for the credit or the account of the Guarantor
against any and all of the obligations of the Guarantor now or hereafter
existing under this Guaranty, irrespective of whether or not the Bank shall
have made any demand under this Guaranty and although such obligations may be
contingent and unmatured. The Bank agrees promptly to notify the Guarantor
after any such setoff and application made by the Bank, provided that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Bank under this Section 11 are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which the Bank may have.
SECTION 13. Costs, Expenses and Taxes. The Guarantor agrees
to pay, and cause to be paid, on demand all costs and expenses actually
incurred by the Bank in connection with the preparation, execution, delivery,
filing, recording and administration of this Guaranty and any of the documents
or instruments evidencing the Guaranteed Obligations and any other agreements
or documents delivered in connection with any of the Guaranteed Obligations,
including, without limitation, the reasonable fees and out-of-pocket expenses
of outside counsel for the Bank with respect thereto and with respect to
advising the Bank as to its rights and responsibilities under this Guaranty,
and all costs and expenses, if any (including reasonable counsel fees and
expenses), in connection with the enforcement of this Guaranty. The Guarantor
agrees to pay interest on any
- 5 -
<PAGE> 80
expenses or other sums due to the Bank hereunder that are not paid when due at
a rate per annum equal to the Past Due Rate. In addition, the Guarantor shall
pay any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Guaranty and any of the
documents or instruments evidencing the Guaranteed Obligations, and agrees to
save the Bank harmless from and against any and all liabilities with respect to
or resulting from any delay in paying or omission to pay such taxes. The
agreements of the Guarantor contained in this Section 12 shall survive the
payment of all other amounts owing hereunder or under any of the other
obligations.
SECTION 14. INDEMNITY. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE GUARANTOR AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS
THE BANK FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES GROWING
OUT OF OR RESULTING FROM THIS GUARANTY (INCLUDING, WITHOUT LIMITATION,
ENFORCEMENT OF THIS GUARANTY), EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING
FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE BANK, PROVIDED THAT IT
IS THE INTENTION OF THE GUARANTOR TO INDEMNIFY THE BANK AGAINST THE
CONSEQUENCES OF ITS OWN NEGLIGENCE.
SECTION 15. Separability. Should any clause, sentence,
paragraph, subsection or Section of this Guaranty be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Guaranty, and the parties hereto
agree that the part or parts of this Guaranty so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder will have the same force and effectiveness as if such part or parts
had never been included herein.
SECTION 16. Captions. The captions in this Guaranty have
been inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Guaranty.
SECTION 17. Continuing Guaranty; Transfer of Note. This
Guaranty is a continuing guaranty and shall (a) remain in full force and effect
until payment in full of the Guaranteed Obligations and all other amounts
payable under this Guaranty; (b) be binding upon the Guarantor and the
Guarantor's successors and assigns; and (c) inure to the benefit of and be
enforceable by the Bank and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (c), the Bank may assign or
otherwise transfer the Note to any Person permitted under the Credit Agreement,
and such other Person shall thereupon become vested with all the rights and
benefits in respect thereof granted to the Bank herein or otherwise.
SECTION 18. Limitation by Law. All rights, remedies and
powers provided in this Guaranty may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law, and all the
provisions of this Guaranty are intended to be subject to all applicable
mandatory provisions of law which may be controlling and to be limited to the
extent necessary so that they will not render this Guaranty invalid,
unenforceable, in whole or in part, or not entitled to be recorded, registered
or filed under the provisions of any applicable law.
- 6 -
<PAGE> 81
SECTION 19. GOVERNING LAW; JURISDICTION. (A) THIS GUARANTY
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
(B) THE GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THE GUARANTOR MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS GUARANTY OR THE GUARANTEED OBLIGATIONS BROUGHT IN
ANY TEXAS STATE COURT OR FEDERAL COURT LOCATED IN HOUSTON, TEXAS (COLLECTIVELY,
THE "COURTS"), OR ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
AN INCONVENIENT FORUM. THE GUARANTOR HEREBY IRREVOCABLY AGREES THAT ANY
JUDICIAL PROCEEDING AGAINST THE GUARANTOR ARISING OUT OF OR IN CONNECTION WITH
THIS GUARANTY OR THE GUARANTEED OBLIGATIONS MAY BE BROUGHT IN THE COURTS.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAWS, THE
PARTIES HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS GUARANTY OR ANY OF THE
OTHER INTERNATIONAL LOAN DOCUMENTS, OR ARISING FROM ANY FINANCING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS GUARANTY OR ANY OTHER INTERNATIONAL LOAN
DOCUMENTS AND AGREES THAT ANY ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
THIS GUARANTY TOGETHER WITH ALL OTHER INTERNATIONAL LOAN
DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty
as of the date first above written.
CUMMINGS POINT INDUSTRIES, INC.
By: /s/ WILLIAM B. WIENER II
----------------------------------
Name: William B. Wiener II
--------------------------------
Title: Senior Vice President
-------------------------------
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<PAGE> 82
EXHIBIT 10.4
Pursuant to Regulation S-K 601(b)(2), the Disclosure Schedule to
Exhibit 10.4 of the Registration Statement has been omitted. Such Disclosure
Schedule contains the following sections:
<TABLE>
<S> <C>
Section 6.1: Subsidiaries
Section 6.3: Litigation
Section 6.5: Ownership
Section 6.13: Existing Indebtedness
Section 8.3: Insurance
Section 9.1: Existing Liens
</TABLE>
The Registrant hereby agrees to furnish supplementally copies of any
omitted Sections of the Disclosure Schedule to the Commission upon request.
<PAGE> 1
EXHIBIT 10.5
[SCOTIABANK LOGO]
Page 1
ALBERTA
COLLATERAL MORTGAGE
1
(a) You, NATCO CANADA, LTD., c/o 6200, Scotia Place, 40 King Street West,
Toronto, Ontario as mortgagor(s), being registered as owner(s) of an
estate in fee simple in possession, subject, however, to such
encumbrances, liens and interests as are notified by memorandum
underwritten, of that piece of land described under the heading
DESCRIPTION OF PROPERTY COVERED, in consideration of all
indebtedness and liability now or hereafter owing or incurred by you
to us THE BANK OF NOVA SCOTIA, covenant with us:
FIRSTLY that you will pay to us the principal amount of One Million
Eight Hundred Eighty Five Thousand ($1,885,000.00) dollars on demand,
being a part of the debts and liabilities described in subparagraph
(b);
SECONDLY that you will pay on demand interest on that principal amount
at a rate equal to the prime lending rate of The Bank of Nova Scotia
from time to time plus three per cent (3%) per annum, calculated
monthly and payable monthly, both before and after maturity and
default, and interest on overdue interest at the same rate and
calculated and payable in the same way; and
THIRDLY that you will do everything you promise to do in this
mortgage.
The debts and liabilities secured by this mortgage are referred to in
this mortgage as the obligations secured.
(b) The debts and liabilities referred to in sub-paragraph (a) are all
debts and liabilities, present or future, direct or indirect,
absolute or contingent, matured or not, at any time owing by you to
us or remaining unpaid by you to us, whether arising from dealings
between you and us or from any other dealings or proceedings by which
we may be or become in any manner whatever your creditor, and
wherever incurred, and whether incurred by you alone or with another
or others and whether as principal or surety.
(c) If the debts and liabilities described in sub-paragraph (b) exceed
the principal amount or rate of interest stated in sub-paragraph (a),
we may decide what part of them is secured by this mortgage.
(d) In this mortgage you and your mean each person who has signed this
mortgage as mortgagor. We, our and us mean The Bank of Nova Scotia.
2 DESCRIPTION OF THE PROPERTY COVERED
PLAN 911 2035
LOT 1
EXCEPTING THEREOUT ALL MINES AND MINERALS
AREA: 6.624 HECTARES (16.37 ACRES) MORE OR LESS
Any buildings on the land described above are also covered by this
mortgage. Any other property that is at any time attached or fixed to
the land or buildings or placed on and used in connection with them
is also covered by this mortgage. Additions, alterations and
improvements to the buildings are also covered. The property
covered by this mortgage is referred to in this mortgage as the
property.
<PAGE> 2
Page 2
3 OUR SECURITY
(a) What this mortgages does
By signing this mortgage, you have mortgaged your entire interest in the
property to us and our successors and assigns (called our legal representatives)
and to anyone to whom this mortgage is transferred in any way, as security for
the repayment of the obligations secured. This mortgage secures a current or
running account. Although this mortgage is not satisfied or discharged by any
intermediate payment of all or part of the obligations secured but is a
continuing security for payment of the obligations secured, our interest in the
property under this mortgage will end when:
o you have repaid the obligations secured on our demand and repaid all
additional amounts to which we may become entitled under this mortgage,
and
o you have fulfilled all of your other obligations to us under this
mortgage, and
o we have discharged this mortgage.
You may remain in possession of the property as long as you are not in default
under any of the obligations secured or under any agreements evidencing or
securing the obligations secured and as long as you meet all your other
obligations to us under this mortgage.
(b) Your title to the property
You certify that you own the property covered by this mortgage; that you have
the right to mortgage the property to us; and that there are no restrictions,
limitations or encumbrances on your title to the property or on your ability to
mortgage the property to us, except as set out in the MEMORANDUM OF
ENCUMBRANCES in this mortgage. You will not do anything that will interfere
with our interest in the property, and you will sign any other documents which
we think are necessary to mortgage to us your interest in the property.
(c) Effect of this mortgage on other obligations
This mortgage does not release you from or alter any of your other obligations
to us or agreements with us. This mortgage does not affect any other security we
hold for the payment of the obligations secured, or any other right we may have
to enforce the payment of the obligations secured.
(d) We are not required to lend
Our acceptance of this mortgage and our giving credit secured by this mortgage
does not mean that we must make any particular amount of credit available or
continue to make any credit at all available.
(e) Effect of sales or transfer of property
If you sell or transfer the property, your liability and responsibilities under
this mortgage and our rights against either you or anyone else who is liable
for the payment of any of the obligations secured are not affected.
(f) Effect of subdivision
If the property is subdivided, each part of the property will secure payment of
the total amount of the obligations secured.
4 YOUR RESPONSIBILITIES AS TO THE PROPERTY
(a) Taxes and other charges
You will pay all taxes on the property when they are due. You will immediately
give us a receipt showing that they have been paid if we ask for it. You will
pay all charges, mortgages and other encumbrances on the property when they are
due and comply with your other obligations under them. If you do not pay any
taxes, charges, mortgages or other encumbrances when they are due, we may pay
them and charge to you the amount paid as an additional amount secured under
this mortgage.
(b) Insurance
You will insure with an insurer satisfactory to us and under a policy
satisfactory to us all buildings covered by this mortgage against loss or
damage by fire, extended perils and other perils usually covered in fire
insurance policies. If there is a steam boiler or sprinkler system in those
buildings, your insurance must cover loss or damage caused by an explosion of
the boiler and equipment operated by it or caused by the sprinkler system. You
will insure against any other risks which we require you to insure against. The
buildings must be insured for their replacement cost in Canadian dollars.
If we think it is necessary we can require you to cancel any existing insurance
on the property, and to provide other insurance which meets our approval. You
will assign any insurance you have on the property, or the proceeds of that
insurance, to us at our request. You must give us proof that you have insured
as required above and you must at least 10 days before any insurance expires or
is terminated give us proof that you have renewed or replaced it. If you fail
in any way to comply with these obligations, we may (but we are not obligated
to) obtain insurance on your behalf and charge the amount of any premium to you
as an additional amount secured under this mortgage. If loss or damage occurs,
you will provide us with all necessary proofs of claim and do everything else
necessary to enable us to obtain payment of insurance proceeds. Insurance
proceeds may, in whole or in part, at our option, be used to rebuild or repair
damaged buildings or be used to reduce all or part of the obligations secured.
(c) Keeping the property in good condition
You will keep the property in good condition and make any repairs that are
needed. You will not do anything, or let anyone else do anything, that lowers
the value of the property. If you do not keep the property in good condition,
or if you do anything, or anyone else does anything, that lowers the value of
the property, we may make any needed repairs and charge the cost of them to you
as an additional amount secured under this mortgage.
(d) Construction of buildings
If you are having any buildings or improvements constructed on the property,
you will have them constructed only in accordance with plans and specifications
approved in writing by us in advance. You must complete those buildings or
improvements as quickly as possible.
(e) Legal requirements
You will observe and confirm to all laws and requirements of any governmental
authorities relating to the property.
(f) Condominiums
The following provisions apply to any condominium unit that is part of the
property. In this mortgage, the Condominium Property Act as amended or
re-enacted is called the "Act". Expressions used in provisions of this mortgage
dealing with a condominium unit which are the same as those in the Act have the
same meaning as those in the Act, except that the expression "condominium
property" has the same meaning as the word "parcel" in the Act.
o You will comply with the Act and the by-laws and rules of the
corporation. You will provide us with proof of your compliance from time
to time as we may request. You will forward to us copies of any notices,
assessments, by-laws, rules and financial statements of the corporation.
You will provide us, on request, with any other documents and information
that you receive from the corporation or are entitled to receive. You will
maintain all improvements made to your unit and repair them after damage.
o You will insure all improvements which you or previous owners have made
to your unit and insure your common or other interest in buildings which
are part of the condominium property or assets of the corporation if the
corporation fails to insure the buildings as required by the Act and the
by-laws and rules of the corporation. These obligations are in addition
to your obligations as to insurance under the heading Insurance as far as
they apply to a condominium unit.
o You authorize us to exercise your rights under the act to vote and to
consent. If we do not exercise your rights, you may do so, but you will
do so according to any instructions we may give you. We may at any time
revoke any arrangement we make for you to vote or to consent. You also
authorize us to inspect the corporation's records. Nothing done under
this paragraph puts us in possession of your property.
o If you do not comply with the Act and the by-laws and rules of the
corporation, we may comply with them and charge our costs of doing so
to you as an additional amount secured under this mortgage. If we pay
common expenses, we can accept statements that appear to be issued by the
corporation as conclusive evidence of the amount of those expenses and
the dates they are due. You will pay us on demand as additional amounts
secured under this mortgage our expenses in relation to any by-law,
resolution, rules or other matter (other than one for which only a vote
of the majority present at the meeting is required), the enforcement of
our right to have the corporation or any owner comply with the Act and
the by-laws and rules of the corporation and our exercising any voting
rights we may have.
<PAGE> 3
Page 3
5 ENFORCING OUR RIGHTS
If you fail to comply with any of your obligations under this mortgage, we may
enforce our rights in any of the ways set out below. These provisions do not
limit any other rights given to us by law or this mortgage. We may enforce this
and any other security we may have for any of the obligations secured, and
enforce our rights under this mortgage, at the same time or at different times
and in ay order we choose.
(a) You will make immediate payment
You will immediately pay to us all of the obligations secured if any part of
the obligations secured is not paid when it is due or if you fail to comply
with any of your obligations under this mortgage or any other agreement to
which you and we are parties.
(b) We may sue you
We may take such legal action as is necessary and permitted by law to collect
the obligations secured.
(c) We may foreclose or sell through the courts
We may commence court proceedings to foreclose the property. If we obtain a
final order of foreclosure, the property will by law become our property. We
may also ask a court to order a sale or lease of the property. We may also ask
a court to appoint a receiver (or receiver and manager) of the property.
(d) We may appoint a receiver
We may appoint in writing a receiver (or receiver and manager), on any terms
including remuneration) that we think are reasonable, to collect any income
from the property. We may make the appointment even if we have taken possession
of the property. We may also, in writing remove a receiver appointed by us and
appoint a new receiver. The receiver is considered to be your agent and not
ours; his defaults are considered your defaults and not ours. Nothing done by
the receiver puts us in possession of the property or makes us accountable for
any money except money we actually receive.
The receiver has the right, subject to any applicable law, to use any legal
remedy (taken in your name or our name) to collect the income from the property;
take possession of the property or part of it; manage the property and any
business conducted on the property and maintain the property in good condition;
lease the property or any part of it; enforce any of our rights under this
mortgage which we delegate to him; and borrow money on the security of the
property in priority to this mortgage for these purposes.
(e) We may recover our expenses
You will pay us on demand, as additional amounts secured under this mortgage,
our expenses incurred:
o under the headings Taxes and other charges, insurance, Keeping the
property in good condition and Condominiums.
o in negotiating this mortgage, investigating title to the property and
preparing and registering this mortgage,
o in collecting payment after default of the obligations secured, and
o in enforcing our rights under this mortgage,
including our reasonable legal fees on a solicitor and client basis and
interest on the total amount of our above expenses from the date we incur them
to the date you pay them to us at the rate stated under paragraph 1 (a) of
this mortgage. We may deduct our expenses from any money we owe you.
6 WE MAY USE PROCEEDS TO REDUCE ANY OBLIGATIONS
We may apply the proceeds we receive from enforcing our rights under this
mortgage to reduce or repay any of the obligations secured in such manner as we
may decide.
7 WE MAY OPEN A SEPARATE ACCOUNT
If we learn that you have disposed of or encumbered the property or any part of
it, we may close your account at the amount then due to us. We may open a new
account for advances and payments subsequently made and received by us. No
amount paid in or credited to the new account will be applied to or have the
effect of reducing or repaying any of the obligations secured due to us on the
closed account when we learned of the subsequent disposition or encumbrance.
8 DELAY, RELEASES AND PARTIAL DISCHARGES
We may delay enforcing any of our rights under this mortgage or the obligations
secured or any agreement evidencing or securing the obligations secured without
losing or impairing those rights. We can waive any breach of your obligations
under this mortgage or the obligations secured or any agreement evidencing or
securing the obligations secured without losing our rights in respect of any
breach of your obligations.
We may release others on any terms from any liability to repay the obligations
secured without releasing you. We may on any terms discharge any part of the
property from this mortgage and, if we do so, the remainder of the property not
discharged will secure the total amount of the obligations secured.
9 DISCHARGE OF THIS MORTGAGE
We will discharge this mortgage if you pay us the obligations secured on our
demand. You will give us 30 days after payment in which to furnish the
discharge. You are responsible for registering it.
10 EFFECT OF JUDGMENTS
If we obtain a court judgment against you for your failure to pay any of the
obligations secured or to perform any of your obligations to us under this
mortgage, the judgment will not result in a merger of your obligations under
this mortgage with the judgment or take away any of our other rights to enforce
the mortgage or any other security you agree to continue to pay us interest
after judgment on the obligations secured at the agreed rate, calculated and
payable in the agreed way, and the judgment may so provide.
11 OUR RESPONSIBILITY
We are not responsible for any loss arising in the course of our enforcing our
rights under this mortgage unless it results from our willful neglect or
default.
12 HOW WE MAY MAKE DEMANDS OR GIVE NOTICES
Where this mortgage allows or requires us to make a demand on or give a notice
to any person (including you), we may make the demand or give the notice by
delivering it personally to the person (where the person is a corporation, by
delivering it personally to a director, officer or employee of the corporation)
or by mailing it by prepaid registered mail addressed to the person at the
person's last known address.
A notice or demand so delivered will be regarded as given or made when it is so
delivered to the person or to the director, officer or employee of the
corporation. A notice or demand so mailed will be regarded as given or made on
the third business day after the day it is mailed, whether the person receives
it or not.
13 WHO IS BOUND BY THIS MORTGAGE
This mortgage will be binding on your legal or personal representatives and
anyone else to whom your interest in the property is transferred. It will be
binding on our legal representatives and anyone to whom it is transferred from
us. All our rights under it may be enforced by anyone to whom it is transferred
from us.
If more than one person signs this mortgage, each person is jointly and
severally bound to comply with all obligations of the mortgagor under this
mortgage.
<PAGE> 4
Page 4
14 MORTGAGING PROVISION
And for the better securing to us repayment in the manner aforesaid of the
principal amount, interest and other money, you hereby mortgage to us your
estate and interest in the land (property) described above.
15 SIGNING THE MORTGAGE
You have read this mortgage and acknowledge receiving a copy of this mortgage,
in witness whereof the mortgagor has hereunto signed the mortgagor's name this
30 day of January 1995.
Signed by the above named NATCO CANADA, LTD.
---------------------------------------------------
(Mortgagor)
In the presence of: NATCO CANADA, LTD.
x[ILLEGIBLE] x per: [ILLEGIBLE]
- ---------------------------- ---------------------------
Witness Mortgagor
x [ILLEGIBLE] x per: [ILLEGIBLE]
- ---------------------------- ---------------------------
Witness Mortgagor
16 CONSENT OF SPOUSE
I,_____________________, being married to the above-named __________________,
do hereby give my consent to the disposition of our homestead, made in this
instrument, and I have executed this document for the purpose of giving up my
life estate and other dower rights in the said property given to me by the
Dower Act, to the extent necessary to give effect to the said disposition.
x x
- ---------------------------- ---------------------------
Witness Spouse of Mortgagor
CERTIFICATE OF ACKNOWLEDGEMENT BY SPOUSE
1. This mortgage was acknowledged before me by ____________________ apart
from her husband (or his wife).
2. ____________________ acknowledged to me that she (or he):
(a) is aware of the nature of the disposition;
(b) is aware that the Dower Act gives her (or him) a life estate in the
homestead and the right to prevent disposition of the homestead by
withholding consent;
(c) consents to the disposition for the purpose of giving up the life
estate and other dower rights in the homestead given to her (or him) by
the Dower Act, to the extent necessary to give effect to the said
disposition;
(d) is executing the document freely and voluntarily without any
compulsion on the part of her husband (or his wife).
DATED at __________________ in _____________ this __________ day of ________,
19_____.
------------------------------------------------
A Commissioner, etc./*A Notary Public in and for
------------------------------------------------
*Where certificate is given outside Alberta, it must be given before a notary
public in and for the place where given and he must impress his official seal
here.
MEMORANDUM OF ENCUMBRANCES
Subject to the encumbrances noted on the existing Certificate of Title.
<PAGE> 5
Page 5
AFFIDAVIT OF BORROWER
I, ___________________________________________________________________________,
of the ____________________________________ of _______________________________,
in the ____________________________________ of _______________________________,
___________________________________________.
(Occupation)
MAKE OATH AND SAY:
1. I am the mortgagor named in the within mortgage.
2. I am not married.
or
Neither myself nor my spouse have resided on the within mentioned land at
any time since our marriage.
SWORN before me )
at the __________________________ of ________________ )
in the __________________________ of ________________ )
this ___________________day of ____________, 19 ____. )
- ----------------------------------------------------------
A Commissioner, etc./*A Notary Public in and for
- ----------------------------------------------------------
*Where affidavit is sworn outside Alberta, it must be sworn before a notary
public in and for the place where sworn and he must impress his official seal
here.
AFFIDAVIT OF WITNESS
I, ___________________________________________________________________________,
of the ____________________________________ of _______________________________,
in the ____________________________________ of _______________________________,
___________________________________________.
(Occupation)
MAKE OATH AND SAY:
1. I was personally present and did see ______________________________________
________________________________________________________________________________
named in the within mortgage who is (are) personally known to me to be the
person(s) named therein, duly sign and execute the same for the purpose named
therein.
2. The mortgage was executed at the ___________________ of ___________________
in the ___________________ of ____________________ and that I am the subscribing
witness thereto.
3. I know the said ___________________________________________________________
________________________________________________________________________________
and he (she) is (they are) in my belief of the full age of eighteen years.
SWORN before me )
at the __________________________ of ________________ )
in the __________________________ of ________________ )
this ___________________day of ____________, 19 ____. )
- ----------------------------------------------------------
A Commissioner, etc./*A Notary Public in and for
- ----------------------------------------------------------
*Where affidavit is sworn outside Alberta, it must be sworn before a notary
public in and for the place where sworn and he must impress his official seal
here.
<PAGE> 6
DATED January 30, 1995
--------------------------------
NATCO CANADA, LTD.
--------------------------------------
(mortgagor)
TO
THE BANK OF NOVA SCOTIA
(mortgagee)
Branch address: 240 - 8 Avenue S.W.
--------------------------------------
Calgary, Alberta
--------------------------------------
T2P 2N7
--------------------------------------
MORTGAGE
BALLEN McDILL MacINNES EDEN
Barristers and Solicitors
4000, 150 - 6 Avenue S.W.
Calgary, Alberta
T2P 3Y7
File: 10049.044JRS
COPY OF INSTRUMENT
REGISTERED AS 951028170
---------
LAND TITLES OFFICE
COPY
SOLICITOR FOR THE MORTGAGEE
<PAGE> 1
EXHIBIT 10.6
[SCOTIABANK LOGO]
Page 1
ALBERTA
COLLATERAL MORTGAGE
1
(a) You, NATCO CANADA, LTD., c/o 6200, Scotia Place, 40 King Street West,
Toronto, Ontario, as mortgagor(s), being registered as owner(s) of an
estate in fee simple in possession, subject, however, to such
encumbrances, liens and interests as are notified by memorandum
underwritten, of that piece of land described under the heading
DESCRIPTION OF PROPERTY COVERED, in consideration of all
indebtedness and liability now or hereafter owing or incurred by you
to us THE BANK OF NOVA SCOTIA, covenant with us:
FIRSTLY that you will pay to us the principal amount of Two Hundred
Thousand ($200,000.00) dollars on demand, being a part of the debts
and liabilities described in subparagraph (b);
SECONDLY that you will pay on demand interest on that principal amount
at a rate equal to the prime lending rate of The Bank of Nova Scotia
from time to time plus three per cent (3%) per annum, calculated
monthly and payable monthly, both before and after maturity and
default, and interest on overdue interest at the same rate and
calculated and payable in the same way; and
THIRDLY that you will do everything you promise to do in this
mortgage.
The debts and liabilities secured by this mortgage are referred to in
this mortgage as the obligations secured.
(b) The debts and liabilities referred to in sub-paragraph (a) are all
debts and liabilities, present or future, direct or indirect,
absolute or contingent, matured or not, at any time owing by you to
us or remaining unpaid by you to us, whether arising from dealings
between you and us or from any other dealings or proceedings by which
we may be or become in any manner whatever your creditor, and
wherever incurred, and whether incurred by you alone or with another
or others and whether as principal or surety.
(c) If the debts and liabilities described in sub-paragraph (b) exceed
the principal amount or rate of interest stated in sub-paragraph (a),
we may decide what part of them is secured by this mortgage.
(d) In this mortgage you and your mean each person who has signed this
mortgage as mortgagor. We, our and us mean The Bank of Nova Scotia.
2 DESCRIPTION OF THE PROPERTY COVERED
PLAN 3992 TR
BLOCK 2
LOT 3
EXCEPTING THEREOUT ALL MINES AND MINERALS
AREA: 1.17 HECTARES (2.88 ACRES) MORE OR LESS
Any buildings on the land described above are also covered by this
mortgage. Any other property that is at any time attached or fixed to
the land or buildings or placed on and used in connection with them
is also covered by this mortgage. Additions, alterations and
improvements to the buildings are also covered. The property
covered by this mortgage is referred to in this mortgage as the
property.
<PAGE> 2
Page 2
3 OUR SECURITY
(a) What this mortgages does
By signing this mortgage, you have mortgaged your entire interest in the
property to us and our successors and assigns (called our legal representatives)
and to anyone to whom this mortgage is transferred in any way, as security for
the repayment of the obligations secured. This mortgage secures a current or
running account. Although this mortgage is not satisfied or discharged by any
intermediate payment of all or part of the obligations secured but is a
continuing security for payment of the obligations secured, our interest in the
property under this mortgage will end when:
o you have repaid the obligations secured on our demand and repaid all
additional amounts to which we may become entitled under this mortgage,
and
o you have fulfilled all of your other obligations to us under this
mortgage, and
o we have discharged this mortgage.
You may remain in possession of the property as long as you are not in default
under any of the obligations secured or under any agreements evidencing or
securing the obligations secured and as long as you meet all your other
obligations to us under this mortgage.
(b) Your title to the property
You certify that you own the property covered by this mortgage; that you have
the right to mortgage the property to us; and that there are no restrictions,
limitations or encumbrances on your title to the property or on your ability to
mortgage the property to us, except as set out in the MEMORANDUM OF
ENCUMBRANCES in this mortgage. You will not do anything that will interfere
with our interest in the property, and you will sign any other documents which
we think are necessary to mortgage to us your interest in the property.
(c) Effect of this mortgage on other obligations
This mortgage does not release you from or alter any of your other obligations
to us or agreements with us. This mortgage does not affect any other security we
hold for the payment of the obligations secured, or any other right we may have
to enforce the payment of the obligations secured.
(d) We are not required to land
Our acceptance of this mortgage and our giving credit secured by this mortgage
does not mean that we must make any particular amount of credit available or
continue to make any credit at all available.
(e) Effect of sale or transfer of property
If you sell or transfer the property, your liability and responsibilities under
this mortgage and our rights against either you or anyone else who is liable
for the payment of any of the obligations secured are not affected.
(f) Effect of subdivision
If the property is subdivided, each part of the property will secure payment of
the total amount of the obligations secured.
4 YOUR RESPONSIBILITIES AS TO THE PROPERTY
(a) Taxes and other charges
You will pay all taxes on the property when they are due. You will immediately
give us a receipt showing that they have been paid if we ask for it. You will
pay all charges, mortgages and other encumbrances on the property when they are
due and comply with your other obligations under them. If you do not pay any
taxes, charges, mortgages or other encumbrances when they are due, we may pay
them and charge to you the amount paid as an additional amount secured under
this mortgage.
(b) Insurance
You will insure with an insurer satisfactory to us and under a policy
satisfactory to us all buildings covered by this mortgage against loss or
damage by fire, extended perils and other perils usually covered in fire
insurance policies. If there is a steam boiler or sprinkler system in those
buildings, your insurance must cover loss or damage caused by an explosion of
the boiler and equipment operated by it or caused by the sprinkler system. You
will insure against any other risks which we require you to insure against. The
buildings must be insured for their replacement cost in Canadian dollars.
If we think it is necessary we can require you to cancel any existing insurance
on the property, and to provide other insurance which meets our approval. You
will assign any insurance you have on the property, or the proceeds of that
insurance, to us at our request. You must give us proof that you have insured
as required above and you must at least 10 days before any insurance expires or
is terminated give us proof that you have renewed or replaced it. If you fail
in any way to comply with these obligations, we may (but we are not obligated
to) obtain insurance on your behalf and charge the amount of any premium to you
as an additional amount secured under this mortgage. If loss or damage occurs,
you will provide us with all necessary proofs of claim and do everything else
necessary to enable us to obtain payment of insurance proceeds. Insurance
proceeds may, in whole or in part, at our option, but used to rebuild or repair
damaged buildings or be used to reduce all or part of the obligations secured.
(c) Keeping the property in good condition
You will keep the property in good condition and make any repairs that are
needed. You will not do anything, or let anyone else do anything, that lowers
the value of the property. If you do not keep the property in good condition,
or if you do anything, or anyone else does anything, that lowers the value of
the property, we may make any needed repairs and charge the cost of them to you
as an additional amount secured under this mortgage.
(d) Construction of buildings
If you are having any buildings or improvements constructed on the property,
you will have them constructed only in accordance with plans and specifications
approved in writing by us in advance. You must complete those buildings or
improvements as quickly as possible.
(e) Legal requirements
You will observe and confirm to all laws and requirements of any governmental
authorities relating to the property.
(f) Condominiums
The following provisions apply to any condominium unit that is part of the
property. In this mortgage, the Condominium Property Act as amended or
re-enacted is called the "Act". Expressions used in provisions of this mortgage
dealing with a condominium unit which are the same as those in the Act have the
same meaning as those in the Act, except that the expression "condominium
property" has the same meaning as the word "parcel" in the Act.
o You will comply with the Act and the by-laws and rules of the
corporation. You will provide us with proof of your compliance from time
to time as we may request. You will forward to us copies of any notices,
assessments, by-laws, rules and financial statements of the corporation.
You will provide us, on request, with any other documents and information
that you receive from the corporation or are entitled to receive. You will
maintain all improvements made to your unit and repair them after damage.
o You will insure all improvements which you or previous owners have made
to your unit and insure your common or other interest in buildings which
are part of the condominium property of assets of the corporation if the
corporation fails to insure the buildings as required by the Act and the
by-laws and rules of the corporation. These obligations are in addition
to your obligations as to insurance under the heading Insurance as far as
they apply to a condominium unit.
o You authorize us to exercise your rights under the act to vote and to
consent. If we do not exercise your rights, you may do so, but you will
do so according to any instructions we may give you. We may at any time
revoke any arrangement we make for you to vote or to consent. You also
authorize us to inspect the corporation's records. Nothing done under
this paragraph puts us in possession of your property.
o If you do not comply with the Act and the by-laws and rules of the
corporation, we may comply with them and charge our costs of doing so
to you as an additional amount secured under this mortgage. If we pay
common expenses, we can accept statements that appear to be issued by the
corporation as conclusive evidence of the amount of those expenses and
the dates they are due. You will pay us on demand as additional amounts
secured under this mortgage our expenses in relation to any by-law,
resolution, rule or other matter (other than one for which only a vote
of the majority present at the meeting is required), the enforcement of
our right to have the corporation or any owner comply with the Act and
the by-laws and rules of the corporation and our exercising any voting
rights we may have.
<PAGE> 3
Page 3
5 ENFORCING OUR RIGHTS
If you fail to comply with any of your obligations under this mortgage, we may
enforce our rights in any of the ways set out below. These provisions do not
limit any other rights given to us by law or this mortgage. We may enforce this
and any other security we may have for any of the obligations secured, and
enforce our rights under this mortgage, at the same time or at different times
and in any order we choose.
(a) You will make immediate payment
You will immediately pay to us all of the obligations secured if any part of
the obligations secured is not paid when it is due or if you fail to comply
with any of your obligations under this mortgage or any other agreement to
which you and we are parties.
(b) We may sue you
We may take such legal action as is necessary and permitted by law to collect
the obligations secured.
(c) We may foreclose or sell through the courts
We may commence court proceedings to foreclose the property. If we obtain a
final order of foreclosure, the property will by law become our property. We
may also ask a court to order a sale or lease of the property. We may also ask a
a court to appoint a receiver (or receiver and manager) of the property.
(d) We may appoint a receiver
We may appoint in writing a receiver (or receiver and manager), on any terms
including remuneration) that we think are reasonable, to collect any income
from the property. We may make the appointment even if we have taken possession
of the property. We may also, in writing remove a receiver appointed by us and
appoint a new receiver. The receiver is considered to be your agent and not
ours; his defaults are considered your defaults and not ours. Nothing done by
the receiver puts us in possession of the property or makes us accountable for
any money except money we actually receive.
The receiver has the right, subject to any applicable law, to use any legal
remedy (taken in your name or our name) to collect the income from the property;
take possession of the property or part of it; manage the property and any
business conducted on the property and maintain the property in good condition;
lease the property or any part of it; enforce any of our rights under this
mortgage which we delegate to him; and borrow money on the security of the
property in priority to this mortgage for these purposes.
(e) We may recover our expenses
You will pay us on demand, as additional amounts secured under this mortgage,
our expenses incurred:
o under the headings Taxes and other charges, insurance, Keeping the
property in good condition and Condominiums,
o in negotiating this mortgage, investigating title to the property and
preparing and registering this mortgage,
o in collecting payment after default of the obligations secured, and
o in enforcing our rights under this mortgage.
including our reasonable legal fees on a solicitor and client basis and
interest on the total amount of our above expenses from the date we incur them
to the date you pay them to us at the rate stated under paragraph 1 (a) of
this mortgage. We may deduct our expenses from any money we owe you.
6 WE MAY USE PROCEEDS TO REDUCE ANY OBLIGATIONS
We may apply the proceeds we receive from enforcing our rights under this
mortgage to reduce or repay any of the obligations secured in such manner as we
may decide.
7 WE MAY OPEN A SEPARATE ACCOUNT
If we learn that you have disposed of or encumbered the property or any part of
it, we may close your account at the amount then due to us. We may open a new
account for advances and payments subsequently made and received by us. No
amount paid in or credited to the new account will be applied to or have the
effect of reducing or repaying any of the obligations secured due to us on the
closed account when we learned of the subsequent disposition or encumbrance.
8 DELAY, RELEASES AND PARTIAL DISCHARGES
We may delay enforcing any of our rights under this mortgage or the obligations
secured or any agreement evidencing or securing the obligations secured without
losing or impairing those rights. We can waive any breach of your obligations
under this mortgage or the obligations secured or any agreement evidencing or
securing the obligations secured without losing our rights in respect of any
breach of your obligations.
We may release others on any terms from any liability to repay the obligations
secured without releasing you. We may on any terms discharge any part of the
property from this mortgage and, if we do so, the remainder of the property not
discharged will secure the total amount of the obligations secured.
9 DISCHARGE OF THIS MORTGAGE
We will discharge this mortgage if you pay us the obligations secured on our
demand. You will give us 30 days after payment in which to furnish the
discharge. You are responsible for registering it.
10 EFFECT OF JUDGMENTS
If we obtain a court judgment against you for your failure to pay any of the
obligations secured or to perform any of your obligations to us under this
mortgage, the judgment will not result in a merger of your obligations under
this mortgage with the judgment or take away any of our other rights to enforce
the mortgage or any other security you agree to continue to pay us interest
after judgment on the obligations secured at the agreed rate, calculated and
payable in the agreed way, and the judgment may so provide.
11 OUR RESPONSIBILITY
We are not responsible for any loss arising in the course of our enforcing our
rights under this mortgage unless it results from our willful neglect or
default.
12 HOW WE MAY MAKE DEMANDS OR GIVE NOTICES
Where this mortgage allows or requires us to make a demand on or give a notice
to any person (including you), we may make the demand or give the notice by
delivering it personally to the person (where the person is a corporation, by
delivering it personally to a director, officer or employee of the corporation)
or by mailing it by prepaid registered mail addressed to the person at the
person's last known address.
A notice or demand so delivered will be regarded as given or made when it is so
delivered to the person or to the director, officer or employee of the
corporation. A notice or demand so mailed will be regarded as given or made on
the third business day after the day it is mailed, whether the person receives
it or not.
13 WHO IS BOUND BY THIS MORTGAGE
This mortgage will be binding on your legal or personal representatives and
anyone else to whom your interest in the property is transferred. It will be
binding on our legal representatives and anyone to whom it is transferred from
us. All our rights under it may be enforced by anyone to whom it is transferred
from us.
If more than one person signs this mortgage, each person is jointly and
severally bound to comply with all obligations of the mortgagor under this
mortgage.
<PAGE> 4
Page 4
14 MORTGAGING PROVISION
And for the better securing to us repayment in the manner aforesaid of the
principal amount, interest and other money, you hereby mortgage to us your
estate and interest in the land (property) described above.
15 SIGNING THE MORTGAGE
You have read this mortgage and acknowledge receiving a copy of this mortgage.
In witness whereof the mortgagor has hereunto signed the mortgagor's name this
30 day of January 1995.
Signed by the above-named NATCO CANADA, LTD.
---------------------------------------------------
(Mortgagor)
In the presence of: NATCO CANADA, LTD.
x[ILLEGIBLE] x per: [ILLEGIBLE]
- ---------------------------- ---------------------------
Witness Mortgagor
x [ILLEGIBLE] x per: [ILLEGIBLE]
- ---------------------------- ---------------------------
Witness Mortgagor
16 CONSENT OF SPOUSE
I,_____________________, being married to the above-named __________________,
do hereby give my consent to the disposition of our homestead, made in this
instrument, and I have executed this document for the purpose of giving up my
life estate and other dower rights in the said property given to me by the
Dower Act, to the extent necessary to give effect to the said disposition.
x x
- ---------------------------- ---------------------------
Witness Spouse of Mortgagor
CERTIFICATE OF ACKNOWLEDGEMENT BY SPOUSE
1. This mortgage was acknowledged before me by ____________________ apart
from her husband (or his wife).
2. ____________________ acknowledged to me that she (or he):
(a) is aware of the nature of the disposition;
(b) is aware that the Dower Act gives her (or him) a life estate in the
homestead and the right to prevent disposition of the homestead by
withholding consent;
(c) consents to the disposition for the purpose of giving up the life
estate and other dower rights in the homestead given to her (or him) by
the Dower Act, to the extent necessary to give effect to the said
disposition;
(d) is executing the document freely and voluntarily without any
compulsion on the part of her husband (or his wife).
DATED at __________________ in _____________ this __________ day of ________,
19_____.
------------------------------------------------
A Commissioner, etc./*A Notary Public in and for
------------------------------------------------
*Where certificate is given outside Alberta, it must be given before a notary
public in and for the place where given and he must impress his official seal
here.
MEMORANDUM OF ENCUMBRANCES
Subject to the encumbrances noted on the existing Certificate of Title.
<PAGE> 5
Page 5
AFFIDAVIT OF BORROWER
I, ___________________________________________________________________________,
of the ____________________________________ of _______________________________,
in the ____________________________________ of _______________________________,
___________________________________________.
(Occupation)
MAKE OATH AND SAY:
1. I am the mortgagor named in the within mortgage.
2. I am not married.
or
Neither myself nor my spouse have resided on the within mentioned land at
any time since our marriage.
SWORN before me )
at the __________________________ of ________________ )
in the __________________________ of ________________ )
this ___________________day of ____________, 19 ____. )
- ----------------------------------------------------------
A Commissioner, etc./*A Notary Public in and for
- ----------------------------------------------------------
*Where affidavit is sworn outside Alberta, it must be sworn before a notary
public in and for the place where sworn and he must impress his official seal
here.
AFFIDAVIT OF WITNESS
I, ___________________________________________________________________________,
of the ____________________________________ of _______________________________,
in the ____________________________________ of _______________________________,
___________________________________________.
(Occupation)
MAKE OATH AND SAY:
1. I was personally present and did see ______________________________________
________________________________________________________________________________
named in the within mortgage who is (are) personally known to me to be the
person(s) named therein, duly sign and execute the same for the purpose named
therein.
2. The mortgage was executed at the ___________________ of ___________________
in the ___________________ of ____________________ and that I am the subscribing
witness thereto.
3. I know the said ___________________________________________________________
________________________________________________________________________________
and he (she) is (they are) in my belief of the full age of eighteen years.
SWORN before me )
at the __________________________ of ________________ )
in the __________________________ of ________________ )
this ___________________day of ____________, 19 ____. )
- ----------------------------------------------------------
A Commissioner, etc./*A Notary Public in and for
- ----------------------------------------------------------
*Where affidavit is sworn outside Alberta, it must be sworn before a notary
public in and for the place where sworn and he must impress his official seal
here.
<PAGE> 6
DATED January 30, 1995
--------------------------------
NATCO CANADA, LTD.
--------------------------------------
(mortgagor)
TO
THE BANK OF NOVA SCOTIA
(mortgagee)
Branch address: 240 - 8 Avenue S.W.
--------------------------------------
Calgary, Alberta
--------------------------------------
T2P 2N7
--------------------------------------
MORTGAGE
BALLEN McDILL MacINNES EDEN
Barristers and Solicitors
4000, 150 - 6 Avenue S.W.
Calgary, Alberta
T2P 3Y7
File: 10049.044/JRS
COPY OF INSTRUMENT
REGISTERED AS 952028670
---------
LAND TITLES OFFICE
EDMONTON
SOLICITOR FOR THE MORTGAGEE
<PAGE> 1
EXHIBIT 10.7
LOAN AGREEMENT
($10,000,000 TERM LOAN FACILITY
AND
$18,000,000 REVOLVING LOAN FACILITY)
DATED AS OF JUNE 30, 1997
AMONG
NATIONAL TANK COMPANY,
AS BORROWER,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
AS AGENT AND AS A LENDER,
AND
THE OTHER LENDERS NOW OR HEREAFTER
PARTIES HERETO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------
1.2 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------------
2. Commitments and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
---------------------
2.1 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----
2.2 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------
2.3 Terminations or Reductions of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------------------------------------
2.4 Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------------
2.5 Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-------------------
2.6 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----
2.7 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
---------------
3. Borrowings, Payments, Prepayments and Interest Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
------------------------------------------------------
3.1 Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------
3.2 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-----------
3.3 Interest Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
----------------
4. Payments; Pro Rata Treatment; Computations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------------------------------------------------
4.1 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
--------
4.2 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
------------------
4.3 Certain Actions, Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
------------------------------
4.4 Non-Receipt of Funds by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------------------------
4.5 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-------------------------
5. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
--------------------
5.1 Initial Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-----------------------------------
5.2 All Loans and Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-------------------------------
6. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
------------------------------
6.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
------------
6.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
--------------------
6.3 Enforceable Obligations; Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
--------------------------------------
6.4 Other Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
----------
6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
----------
6.6 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----
6.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
6.8 Regulations G, U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
----------------------
6.9 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
------------
6.10 No Untrue or Misleading Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
----------------------------------
6.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----
6.12 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
----------------------
6.13 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
----------------------------------
6.14 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
--------
6.15 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
-----------
6.16 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
----------
6.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
---------------------
6.18 Collateral Covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
------------------
7. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
---------------------
7.1 Taxes, Existence, Regulations, Property, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
---------------------------------------------
7.2 Financial Statements and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
------------------------------------
7.3 Financial Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
---------------
7.4 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
----------
7.5 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
------------------
7.6 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-----------------
7.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
---------
7.8 Notice of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-------------------------
7.9 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
----------------
7.10 ERISA Information and Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
--------------------------------
7.11 Additional Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
-----------------------------
8. Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
------------------
8.1 Borrowed Money Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
---------------------------
8.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
-----
8.3 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
----------------------
8.4 Mergers, Consolidations and Acquisitions and Dispositions of Assets . . . . . . . . . . . . . . . 52
-------------------------------------------------------------------
8.5 Redemption, Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
---------------------------------------
8.6 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
------------------
8.7 Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
---------------------------------
8.8 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
---------------------
8.9 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
------------
8.10 Key Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
--------------
8.11 Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
------------------------
8.12 Unfunded Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
--------------------
8.13 Operating Lease Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
------------------------
8.14 Sale/Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
---------------
8.15 Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
-------------------------
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
8.16 Negative Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
--------
9.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
-----------------
9.2 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
---------------
9.3 Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
------------------
9.4 Preservation of Security for Letter of Credit Liabilities . . . . . . . . . . . . . . . . . . . . 58
---------------------------------------------------------
9.5 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
-------------------
10. Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
-----
10.1 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
----------------------------------
10.2 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------
10.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------
10.4 Material Written Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
------------------------
10.5 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
------------------
10.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
---------------
10.7 Non-Reliance on Agent and Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
---------------------------------------
10.8 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
--------------
10.9 Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
-------------------------------
10.10 No Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
--------------
10.11 Authority of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
------------------
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
-------------
11.1 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
------
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
-------
11.3 Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
--------------
11.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
---------------
11.5 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
----------------
11.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
----------------------
11.7 Limitation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
----------------------
11.8 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
--------
11.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
--------
11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
------------
11.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
-------------
11.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
------------
11.13 Tax Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
---------
11.14 Conflicts Between This Agreement and the Other Loan Documents . . . . . . . . . . . . . . . . . . 70
-------------------------------------------------------------
11.15 Limitation on Charges; Substitute Lenders; Non-Discrimination . . . . . . . . . . . . . . . . . . 70
-------------------------------------------------------------
11.16 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
---------------
</TABLE>
iii
<PAGE> 5
EXHIBITS
A -- Request for Extension of Credit
B -- Rate Designation Notice
C -- Term Note
D -- Revolving Note
E -- Assignment and Acceptance
F -- Compliance Certificate
G -- Borrowing Base Certificate
I -- Existing Letters of Credit
H -- Permitted Sales
iv
<PAGE> 6
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of June 30, 1997 (the
"Effective Date"), by and among NATIONAL TANK COMPANY, a Delaware corporation
(together with its permitted successors and assigns, herein called the
"Borrower"); each of the lenders which is or may from time to time become a
party hereto (individually, a "Lender" and, collectively, the "Lenders"), and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), a national banking
association, as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Agent").
The parties hereto agree as follows:
1. Definitions.
1.1 Certain Defined Terms.
In this Agreement, terms defined above shall have the meanings
ascribed to them above. Unless a particular term, word or phrase is otherwise
defined or the context otherwise requires, capitalized terms, words and phrases
used herein or in the Loan Documents (as hereinafter defined) have the
following meanings (all definitions that are defined in this Agreement or in
the Loan Documents in the singular have the same meanings when used in the
plural and vice versa):
Accounts, Equipment, General Intangibles and Inventory shall have the
respective meanings assigned to them in the Uniform Commercial Code enacted in
the State of Texas as Sections 1 through 11 of the Texas Business and Commerce
Code, in force on the Effective Date.
Additional Interest means the aggregate of all amounts accrued or paid
pursuant to the Notes or any of the other Loan Documents (other than interest
on the Notes at the Stated Rate) which, under applicable laws, are or may be
deemed to constitute interest on the indebtedness evidenced by the Notes or any
other amounts owing under any Loan Document.
Additional Collateral shall have the meaning ascribed to such term in
Section 7.8 hereof.
Additional Collateral Event shall have the meaning ascribed to such
term in Section 7.8 hereof.
Adjusted LIBOR means, with respect to each Interest Period applicable
to a LIBOR Borrowing, a rate per annum equal to the quotient, expressed as a
percentage, of (a) LIBOR with respect to such Interest Period divided by (b)
1.0000 minus the Eurodollar Reserve Requirement in effect on the first day of
such Interest Period.
<PAGE> 7
Affiliate means any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
Agreement means this Loan Agreement, as it may from time to time be
amended, modified, restated or supplemented.
Annual Financial Statements means the annual financial statements of a
Person, including all notes thereto, which statements shall include a balance
sheet as of the end of the fiscal year relating thereto and an income statement
and a statement of cash flows for such fiscal year, all setting forth in
comparative form the corresponding figures from the previous fiscal year, all
prepared in conformity with GAAP in all material respects, and accompanied by
the opinion of independent certified public accountants of recognized national
standing, which shall state that such financial statements present fairly in
all material respects the financial position of such Person and, if such Person
has any Subsidiaries, its consolidated Subsidiaries as of the date thereof and
the results of its operations for the period covered thereby in conformity with
GAAP. As to Borrower only, Annual Financial Statements shall also include
unaudited consolidating financial statements for Borrower and unaudited
consolidated financial statements for Borrower and its Subsidiaries (other than
NATCO Canada), each in Proper Form, certified in each case by the chief
financial officer or other authorized officer of Borrower as presenting fairly
in all material respects the consolidating financial position of the applicable
Person.
Applications means all applications and agreements for Letters of
Credit, or similar instruments or agreements, in Proper Form, now or hereafter
executed by any Person in connection with any Letter of Credit now or hereafter
issued or to be issued under the terms hereof at the request of Borrower.
Assignment and Acceptance shall have the meaning ascribed to such term
in Section 11.6(b) hereof.
Bankruptcy Code means the United States Bankruptcy Code, as amended,
and any successor statute.
Base Rate means for any day a rate per annum equal to the lesser of
(a) the then applicable Margin Percentage from time to time in effect plus the
greater of (1) the Prime Rate for that day and (2) the Federal Funds Rate for
that day plus 1/2 of 1% or (b) the Ceiling Rate. If for any reason Agent
shall have determined (which determination shall be conclusive and binding,
absent manifest error) that it is unable to ascertain the Federal Funds Rate
for any reason, including, without limitation, the inability or failure of
Agent to obtain sufficient quotations in accordance with the terms hereof, the
Base Rate shall, until the circumstances giving rise to such inability no
longer exist, be the lesser
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<PAGE> 8
of (a) the Prime Rate plus the then applicable Margin Percentage from time to
time in effect or (b) the Ceiling Rate.
Base Rate Borrowing means that portion of the principal balance of the
Loans at any time bearing interest at the Base Rate.
Borrowed Money Indebtedness means, with respect to any Person,
without duplication, (i) all obligations of such Person for borrowed money,
(ii) all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments evidencing borrowed money, (iii) all obligations of such
Person under conditional sale or other title retention agreements relating to
Property purchased by such Person, (iv) all obligations of such Person issued
or assumed as the deferred purchase price of Property or services (excluding
obligations of such Person to creditors for raw materials, inventory, services
and supplies and deferred payments for services to employees and former
employees incurred in the ordinary course of such Person's business), (v) all
lease obligations of such Person which have been capitalized on the balance
sheet of such Person in accordance with GAAP, (vi) all obligations of others
secured by any Lien on Property owned or acquired by such Person, whether or
not the obligations secured thereby have been assumed, equal to the lesser of
the amount of such obligation or the fair market value of such Property, (vii)
Interest Rate Risk Indebtedness of such Person, (viii) all obligations of such
Person in respect of outstanding letters of credit issued for the account of
such Person and (ix) all guarantees of such Person.
Borrowing Base means, as at any date, the amount of the Borrowing Base
shown on the Borrowing Base Certificate then most recently delivered pursuant
to Section 7.2(b) hereof, determined by calculating the amount equal to:
(i) the sum of (x) 50% of that portion of Eligible Accounts of
Borrower and its Subsidiaries (other than NATCO Canada) at
said date which consists of Accounts to be repurchased
pursuant to the Purchase Agreement and (y) 80% of the
aggregate amount of all other Eligible Accounts of Borrower
and its Subsidiaries (other than NATCO Canada) at said date,
plus
(ii) the sum of (w) 75% of that portion of Eligible Inventory of
Test, Inc. at said date (determined at the lower of cost or
market on a consistent basis) which consists of costs in
excess of billings and which relate to signed time tickets,
(x) 20% of that portion of Eligible Inventory of Borrower and
its Subsidiaries (other than NATCO Canada) at said date
(determined at the lower of cost or market on a consistent
basis) which consists of used finished goods, (y) 25% of that
portion of Eligible Inventory of Borrower and its Subsidiaries
(other than NATCO Canada) at said date (determined at the
lower of cost or market on a consistent basis) which consists
of work-in-process relating to projects for customers that
are not Account debtors with respect to any Accounts
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<PAGE> 9
owing to Borrower or any of its Subsidiaries (other than NATCO
Canada) which are not Eligible Accounts and (z) 50% of the
aggregate amount of all other Eligible Inventory of Borrower
and its Subsidiaries (other than NATCO Canada) at said date
(determined at the lower of cost or market on a consistent
basis); provided that the amount calculated pursuant to this
clause (ii) shall not exceed 50% of the Borrowing Base.
In the absence of a current Borrowing Base Certificate, Agent shall determine
the Borrowing Base from time to time in its reasonable discretion, taking into
account all information reasonably available to it, and the Borrowing Base from
time to time so determined shall be the Borrowing Base for all purposes of this
Agreement until a current Borrowing Base Certificate, in Proper Form, is
furnished to and accepted by Agent.
Borrowing Base Certificate shall mean a certificate, duly executed by
the chief executive officer, chief financial officer, treasurer or controller
of Borrower, appropriately completed and in substantially the form of Exhibit G
hereto. Each Borrowing Base Certificate shall be effective only as accepted by
Agent (and with such revisions, if any, as Agent may reasonably require as a
condition to such acceptance).
Business Day means any day other than a day on which commercial banks
are authorized or required to close in Houston, Texas.
Capital Expenditures means, with respect to any Person for any period,
expenditures in respect of fixed or capital assets by such Person, including
capital lease obligations incurred during such period (to the extent not
already included), which would be reflected as additions to Property, plant or
equipment on a balance sheet of such Person and its consolidated Subsidiaries,
if any, prepared in accordance with GAAP; but excluding expenditures during
such period for the repair or replacement of any fixed or capital asset which
was destroyed, damaged or taken, in whole or in part, to the extent financed by
the proceeds of an insurance policy maintained by such Person or the proceeds
of a condemnation award.
Ceiling Rate means, on any day, with respect to any Person, the maximum
nonusurious rate of interest permitted for that day by whichever of applicable
federal or Texas (or any jurisdiction whose usury laws are deemed to apply to
the Notes or any other Loan Documents despite the intention and desire of the
parties to apply the usury laws of the State of Texas) laws permits the higher
interest rate, stated as a rate per annum. On each day, if any, that Chapter
One establishes the Ceiling Rate, the Ceiling Rate shall be the "indicated rate
ceiling" (as defined in Chapter One) for that day, to the extent Chapter One
applies. Agent may from time to time, as to current and future balances,
implement any other ceiling under Chapter One by notice to Borrower if and to
the extent permitted by Chapter One. Without notice to Borrower or any other
Person, the Ceiling Rate shall automatically fluctuate upward and downward as
and in the amount by which such maximum nonusurious rate of interest permitted
by applicable law fluctuates.
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<PAGE> 10
Chapter One means Chapter One of Title 79, Texas Revised Civil
Statutes, 1925, as amended.
Code means the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
Collateral means all Property, tangible or intangible, real, personal
or mixed, now or hereafter subject to the Liens created pursuant to any of the
Security Documents.
Commitment Fee Percentage means (i) on any day prior to July 1, 1997,
0.50% and (ii) on and after July 1, 1997, the applicable per annum percentage
set forth at the appropriate intersection in the table shown below, based on
the Debt to Capitalization Ratio as of the last day of the most recently ended
fiscal quarter of Borrower calculated by Agent as soon as practicable after
receipt by Agent of all financial reports required under this Agreement with
respect to such fiscal quarter (including a Compliance Certificate) (provided,
however, that if the Commitment Fee Percentage is increased as a result of the
reported Debt to Capitalization Ratio, such increase shall be retroactive to
the date that Borrower was obligated to deliver such financial reports to Agent
pursuant to the terms of this Agreement and provided further, however, that if
the Commitment Fee Percentage is decreased as a result of the reported Debt to
Capitalization Ratio, and such financial reports are delivered to Agent not
more than ten (10) calendar days after the date required to be delivered
pursuant to the terms of this Agreement, such decrease shall be retroactive to
the date that Borrower was obligated to deliver such financial reports to Agent
pursuant to the terms of this Agreement):
<TABLE>
<CAPTION>
Debt to Commitment
Capitalization Ratio Fee Percentage
-------------------- --------------
<S> <C>
Greater than 50% 0.50
Greater than 40% but
less than or equal to 50% 0.375
Greater than 20% but
less than or equal to 40% 0.25
Less than or equal to 20% 0.20
</TABLE>
Compliance Certificate shall have the meaning given to it in Section
7.2(c) hereof.
Controlled Group means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower, are treated as a single employer
under Section 414 of the Code.
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<PAGE> 11
Corporation means any corporation, limited liability company,
partnership, joint venture, joint stock association, business trust and other
business entity.
Cover for Letter of Credit Liabilities shall be effected by paying to
Agent immediately available funds, to be held by Agent in a collateral account
maintained by Agent at its Principal Office and collaterally assigned as
security for the financial accommodations extended pursuant to this Agreement
using documentation reasonably satisfactory to Agent, in the amount required by
any applicable provision hereof. Such amount shall be retained by Agent in
such collateral account until such time as in the case of the Cover being
provided pursuant to Sections 2.2(a) or 9.3 hereof, the applicable Letter of
Credit shall have expired and the Reimbursement Obligations, if any, with
respect thereto shall have been fully satisfied; provided, however, that at
such time if a Default or Event of Default has occurred and is continuing,
Agent shall not be required to release such amount in such collateral account
until such Default or Event of Default shall have been cured or waived.
Cummings means Cummings Point Industries, Inc., a Delaware
corporation.
Debt Service means, with respect to any Person for any period, the sum
of (i) Interest Expense for such period and (ii) scheduled principal payments
on obligations included within Borrowed Money Indebtedness for such period.
Debt to Capitalization Ratio means, as of any day, the ratio,
expressed as a percentage, of (a) Borrowed Money Indebtedness of Borrower and
its Subsidiaries (other than NATCO Canada) as of such date (exclusive of the
categories of Borrowed Money Indebtedness described in clauses (vii), (viii)
and (ix) of the definition of "Borrowed Money Indebtedness" set forth in this
Section 1.1) to (b) Total Capitalization as of such date.
Default means an Event of Default or an event which with notice or
lapse of time or both would, unless cured or waived, become an Event of
Default.
Dollars and $ means lawful money of the United States of America.
EBITDA means, without duplication, for any period the consolidated net
earnings (excluding any extraordinary gains or losses) of Borrower and its
Subsidiaries (other than NATCO Canada) plus, to the extent deducted in
calculating consolidated net income, depreciation, amortization, other non-cash
items, Interest Expense, federal and state income tax expense and non-operating
and medical retiree expenses of Borrower and minus, to the extent added in
calculating consolidated net income, any non-cash items.
Eligible Accounts shall mean, as at any date of determination thereof,
each Account of Borrower or any of its Subsidiaries (other than NATCO Canada)
which is subject to a Lien created by any Security Document and on which Agent
shall have a first-priority perfected Lien (subject only to Permitted Liens)
which is at said date payable to Borrower or any such Subsidiary and which
complies with the following requirements: (a) (i) the subject goods have been
sold to an account
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<PAGE> 12
debtor on an absolute sale basis on open account and not on consignment, on
approval or on a "sale or return" basis or subject to any other repurchase or
return agreement and no material part of the subject goods has been returned,
rejected, lost or damaged (provided that the foregoing shall not disqualify
accounts arising from goods sold with usual and customary sales warranties or
having warranty claims which are not material), (ii) the Account is stated to
be payable in Dollars and is not evidenced by chattel paper or an instrument of
any kind (unless Agent has a perfected first priority Lien (subject only to
Permitted Liens) on such chattel paper or instrument) and said account debtor
is not insolvent or the subject of any bankruptcy or insolvency proceedings of
any kind unless Borrower or its applicable Subsidiary, as the case may be, has
received a letter of credit, bond or other financial guarantee in an amount
equal to or greater than such Account issued by a Qualified Institution and
otherwise in form and substance satisfactory to Agent or such Account is to be
repurchased pursuant to the Purchase Agreement; (b) the account debtor must be
located in the United States, except for (x) Accounts as to which Borrower or
its applicable Subsidiary, as the case may be, has received a letter of credit,
bond or other financial guarantee in an amount equal to or greater than such
Account issued by a Qualified Institution and otherwise in form and substance
satisfactory to Agent and (y) other Accounts approved in writing by Agent; (c)
it is a valid obligation of the account debtor thereunder and is not subject to
any offset or other defense on the part of such account debtor or to any claim
on the part of such account debtor denying liability thereunder (provided that
the foregoing shall not disqualify accounts arising from goods sold with usual
and customary sales warranties or having warranty claims which are not
material); (d) it is subject to no Lien whatsoever, except for the Liens
created or permitted pursuant to the Loan Documents; (e) it is evidenced by an
invoice submitted to the account debtor in timely fashion and in the normal
course of business; (f) it has not remained unpaid beyond 90 days after the
date of the invoice; (g) it does not arise out of transactions with an
employee, officer, agent, director or stockholder of Borrower or any of its
Subsidiaries or any Affiliate of Borrower or any of its Subsidiaries; (h) not
more than 20% (or such higher percentage as Agent may approve in writing for
any particular account debtor) of the other Accounts of the applicable account
debtor or any of its Affiliates fail to satisfy all of the requirements of an
"Eligible Account"; (i) inclusion of the applicable Account does not cause the
total Eligible Accounts with respect to the applicable account debtor and its
Affiliates, in the aggregate, to exceed 10% of the total Eligible Accounts, and
(j) each of the representations and warranties set forth in the Security
Documents executed by Borrower and its Subsidiaries with respect thereto is
true and correct in all material respects on such date. In the event of any
dispute under the foregoing criteria, about whether an Account is or has ceased
to be an Eligible Account, the decision of Agent, made in good faith, shall be
conclusive and binding, absent manifest error.
Eligible Inventory shall mean, as at any date of determination
thereof, Inventory of Borrower or any of its Subsidiaries (other than NATCO
Canada) which is subject to a Lien created by any Security Documents and on
which Agent shall have a first-priority perfected Lien (subject only to
Permitted Liens) and which complies with the following requirements: (a) such
Inventory shall be valued in accordance with GAAP and consist of (i) eligible
raw materials, (ii) work-in-process and (iii) finished goods, provided that all
such Inventory shall be within the United States of America; (b) it is in good
condition, meets all standards imposed by any Governmental Authority having
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<PAGE> 13
regulatory authority over it, its use and/or sale and is either currently
usable or currently salable in the normal course of business of the Borrower or
its applicable Subsidiary, as the case may be; (c) it is not in the possession
or control of any warehouseman, bailee, or any agent or processor for or
customer of Borrower or any of its Subsidiaries or, if it is, (i) Borrower or
its applicable Subsidiary, as the case may be, shall have notified, in a manner
that effectively under applicable law creates a valid and first priority Lien
in favor of Agent in such Inventory, such warehouseman, bailee, agent,
processor or customer of Agent's Lien and (ii) such warehouseman, bailee,
agent, processor or customer has subordinated any Lien it may claim therein and
agreed to hold all such Inventory during the continuance of an Event of Default
for Agent's account subject to the Agent's instructions, and (d) each of the
representations and warranties set forth in the Security Documents executed by
Borrower and its Subsidiaries with respect thereto is true and correct in all
material respects on such date. In the event of any dispute under the
foregoing criteria, about whether a portion of Inventory is or has ceased to be
Eligible Inventory, the decision of Agent, made in good faith, shall be
conclusive and binding, absent manifest error.
Environmental Claim means any third party (including Governmental
Authorities and employees) action, lawsuit, claim or proceeding (including
claims or proceedings at common law or under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) noise; (ii) pollution or contamination of the air, surface
water, ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) the manufacture, processing, distribution
in commerce or use of Hazardous Substances. An "Environmental Claim" includes,
but is not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit, or to adopt or amend a regulation
to the extent that such a proceeding attempts to redress violations of an
applicable permit, license, or regulation as alleged by any Governmental
Authority.
Environmental Liabilities means all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to Property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and
obligations, and all costs and expenses necessary to cause the issuance,
reissuance or renewal of any Environmental Permit including reasonable
attorneys' fees and court costs.
Environmental Permit means any permit, license, approval or other
authorization under any applicable Legal Requirement relating to pollution or
protection of health or the environment, including laws, regulations or other
requirements relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or
wastes into ambient air, surface water, ground water or land, or otherwise
relating to the manufacture,
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<PAGE> 14
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the U.S. Department
of Labor thereunder.
Eurodollar Rate means for any day during an Interest Period for a
LIBOR Borrowing a rate per annum equal to the lesser of (a) the sum of (1) the
Adjusted LIBOR in effect on the first day of such Interest Period plus (2) the
then applicable Margin Percentage from time to time in effect and (b) the
Ceiling Rate. Each Eurodollar Rate is subject to adjustments as provided for
in Sections 3.3(c) and 11.15 hereof.
Eurodollar Reserve Requirement means, on any day, that percentage
(expressed as a decimal fraction and rounded, if necessary, to the next highest
one ten thousandth [.0001]) which is in effect on such day for determining all
reserve requirements (including, without limitation, basic, supplemental,
marginal and emergency reserves) applicable to "Eurocurrency liabilities," as
currently defined in Regulation D. Each determination of the Eurodollar
Reserve Requirement by Agent shall be conclusive and binding, absent manifest
error, and may be computed using any reasonable averaging and attribution
method.
Event of Default shall have the meaning assigned to it in Section 9.1
hereof.
Excess Cash Flow means, without duplication, for any period, (i) EBITDA
for such period less (ii) the sum of the principal component of all Debt
Service of Borrower and its Subsidiaries (other than NATCO Canada) (other than
mandatory prepayments of the Term Loans calculated on the basis of Excess Cash
Flow), cash Interest Expense of Borrower and its Subsidiaries (other than NATCO
Canada), voluntary prepayments of all Borrowed Money Indebtedness of Borrower
and its Subsidiaries (other than NATCO Canada), federal and state income taxes
allocated to Borrower and its Subsidiaries (other than NATCO Canada), Permitted
Dividends and Capital Expenditures of Borrower and its Subsidiaries (other than
NATCO Canada) for such period.
EXIM Facility means that certain International Revolving Loan
Agreement dated concurrently herewith executed by and between Borrower and TCB
and the other security documents contemplated thereby (as the foregoing may be
amended from time to time).
Existing Letters of Credit means the letters of credit described on
Exhibit H hereto, the obligations in respect of which have been assumed by
Borrower concurrently with the execution of this Agreement.
Federal Funds Rate means, for any day, a fluctuating interest rate per
annum equal for such day to the weighted average of the rates on overnight
Federal funds transactions with members of
9
<PAGE> 15
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any such day which is a Business Day, the average of the
quotations for such day on such transactions received by Agent from three
Federal funds brokers of recognized standing selected by Agent in its sole and
absolute discretion.
Financing Statements means all such Uniform Commercial Code financing
statements as Agent shall reasonably require, in Proper Form, duly executed by
Borrower (or any other applicable Obligor) to give notice of and to perfect or
continue perfection of Agent's Liens in any applicable Collateral, as any of
the foregoing may from time to time be amended, modified, supplemented or
restated.
Fixed Charge Coverage Ratio means, as of any day, the ratio, expressed
as a percentage, of (a) EBITDA for the 12 months ending on such day plus cash
dividends paid to Borrower by NATCO Canada during such 12-month period less
the current portion of federal and state income tax expense recognized during
such 12-month period to (b) the sum of the principal component of Debt Service
plus cash Interest Expense and Capital Expenditures paid by Borrower and its
Subsidiaries (other than NATCO Canada) for such 12-month period plus Permitted
Dividends by Borrower or by any Subsidiary of Borrower to any Person other
than Borrower for such 12-month period.
Foreign Subsidiaries means Subsidiaries which are organized under the
laws of a jurisdiction other than the United States of America, any State of
the United States or any political subdivision thereof.
Funding Loss means, with respect to (a) Borrower's payment of principal
of a LIBOR Borrowing on a day prior to the last day of the applicable Interest
Period; (b) Borrower's failure to borrow a LIBOR Borrowing on the date
specified by Borrower; (c) Borrower's failure to make any prepayment of the
Loans (other than Base Rate Borrowings) on the date specified by Borrower, or
(d) any cessation of a Eurodollar Rate to apply to the Loans or any part
thereof pursuant to Section 3.3, in each case whether voluntary or involuntary,
any loss, expense, penalty, premium or liability actually incurred by any
Lender (including but not limited to any loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain a Loan).
GAAP means, as to a particular Person, such accounting practice as, in
the opinion of independent certified public accountants of recognized national
standing regularly retained by such Person, conforms at the time to generally
accepted accounting principles, consistently applied for all periods after the
Effective Date so as to present fairly the financial condition, and results of
operations and cash flows, of such Person. If any change in any accounting
principle or practice is required by the Financial Accounting Standards Board,
all reports and financial statements required hereunder may be prepared in
accordance with such change so long as Borrower provides to Agent such
disclosures of the impact of such change as Agent may reasonably require. No
such change in
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<PAGE> 16
any accounting principle or practice shall, in itself, cause a Default or Event
of Default hereunder (but Borrower, Agent and Lenders shall negotiate in good
faith to replace any financial covenants hereunder to the extent such
financial covenants are affected by such change in accounting principle or
practice).
Governmental Authority means any foreign governmental authority, the
United States of America, any State of the United States, and any political
subdivision of any of the foregoing, and any central bank, agency, department,
commission, board, bureau, court or other tribunal having jurisdiction over
Agent, any Lender, any Obligor or their respective Property.
Guaranties means, collectively, (i) the Guaranties dated concurrently
herewith executed by Holdings, Cummings and each of the current Subsidiaries of
Borrower (other than Foreign Subsidiaries) in favor of Agent, for the benefit
of Lenders, and (ii) any and all other guaranties hereafter executed in favor
of Agent, for the benefit of Lenders, relating to the Obligations, as any of
them may from time to time be amended, modified, restated or supplemented.
Hazardous Substance means petroleum products and any hazardous or
toxic waste or substance defined or regulated as such from time to time by any
law, rule, regulation or order described in the definition of "Requirements of
Environmental Law".
Holdings means NATCO Holdings, Inc., a Delaware corporation.
Indebtedness means, without duplication, (a) all items which in
accordance with GAAP would be included in the liability section of a balance
sheet (other than trade accounts payable and accrued expenses (other than
Interest Expense) arising in the ordinary course of business) on the date as of
which Indebtedness is to be determined (excluding, to the extent applicable,
capital stock, surplus, surplus reserves and deferred credits); (b) all
guaranties, letter of credit contingent reimbursement obligations and other
contingent obligations in respect of, or any obligations to purchase or
otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by
any Lien existing on any interest of the Person with respect to which
Indebtedness is being determined in Property owned subject to such Lien whether
or not the Indebtedness secured thereby shall have been assumed, equal to the
lesser of the amount of such obligation or the fair market value of such
Property; provided, that the term "Indebtedness" shall not mean or include any
Indebtedness in respect of which monies sufficient to pay and discharge the
same in full (either on the expressed date of maturity thereof or on such
earlier date as such Indebtedness may be duly called for redemption and
payment) shall be deposited with a depository, agency or trustee reasonably
acceptable to Agent in trust for the payment thereof.
Interest Expense means, for any period, total interest expense
accruing on Borrowed Money Indebtedness of Borrower and its Subsidiaries (other
than NATCO Canada) during such period (including interest expense attributable
to capitalized leases and interest incurred under interest rate swap, collar,
cap or similar agreements providing interest rate protection), determined in
accordance with GAAP.
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<PAGE> 17
Interest Options means the Base Rate and each Eurodollar Rate, and
"Interest Option" means any of them.
Interest Payment Dates means (a) for Base Rate Borrowings, June 30,
1997 and the last day of each March, June, September and December thereafter
prior to the Revolving Loan Maturity Date or the Term Loan Maturity Date, as
the case may be, and the Revolving Loan Maturity Date or the Term Loan Maturity
Date, as the case may be; and (b) for LIBOR Borrowings, the end of the
applicable Interest Period (and if such Interest Period exceeds three months'
duration, quarterly, commencing on the first quarterly anniversary of the first
day of such Interest Period) and the Revolving Loan Maturity Date or the Term
Loan Maturity Date, as the case may be.
Interest Period means, for each LIBOR Borrowing, a period commencing on the
date such LIBOR Borrowing began and ending on the numerically corresponding day
which is, subject to availability as set forth in Section 3.3(c)(iii), 1, 2, 3
or 6 months thereafter, as Borrower shall elect in accordance herewith;
provided, (1) unless Agent shall otherwise consent, no Interest Period with
respect to a LIBOR Borrowing shall commence on a date earlier than three (3)
Business Days after this Agreement shall have been fully executed; (2) any
Interest Period with respect to a LIBOR Borrowing which would otherwise end on
a day which is not a LIBOR Business Day shall be extended to the next
succeeding LIBOR Business Day, unless such LIBOR Business Day falls in another
calendar month, in which case such Interest Period shall end on the next
preceding LIBOR Business Day; (3) any Interest Period with respect to a LIBOR
Borrowing which begins on the last LIBOR Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last LIBOR Business
Day of the appropriate calendar month; (4) no Interest Period for a Revolving
Loan shall ever extend beyond the Revolving Loan Maturity Date and no
Interest Period for a Term Loan shall ever extend beyond the Term Loan Maturity
Date, and (5) no Interest Period for a Term Loan may commence before and end
after the due date of any installment of principal on such Term Loan to the
extent that such LIBOR Borrowing would have to be prepaid prior to the end of
such Interest Period in order for such installment to be paid when due.fp
Interest Rate Risk Agreement means an interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar
arrangement entered into by Borrower or any of its Subsidiaries for the purpose
of reducing Borrower's or such Subsidiary's exposure to interest rate
fluctuations and not for speculative purposes, as it may from time to time be
amended, modified, restated or supplemented.
Interest Rate Risk Indebtedness means all obligations of Borrower with
respect to the program for the hedging of interest rate risk provided for in
any Interest Rate Risk Agreement.
Investment means the purchase or other acquisition of any securities
or Indebtedness of, or the making of any loan, advance, transfer of Property
(other than transfers in the ordinary course of business) or capital
contribution to, or the incurring of any liability (other than Accounts arising
in
12
<PAGE> 18
the ordinary course of business), contingently or otherwise, in respect of the
Indebtedness of, any Person.
Issuer means the issuer (or, where applicable, each issuer) of a
Letter of Credit under this Agreement.
Key Agreements means the Purchase Agreement, the EXIM Facility, the
NATCO Canada Credit Facility and any document or paper evidencing, securing or
otherwise relating to any Subordinated Indebtedness.
Legal Requirement means any law, statute, ordinance, decree,
requirement, order, judgment, rule, or regulation (or interpretation of any of
the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, whether presently existing or arising in the future.
Letter of Credit shall have the meaning assigned to such term in
Section 2.2(a) hereof.
Letter of Credit Fee Percentage means (i) on any day prior to July 1,
1997, 1.75% and (ii) on and after July 1, 1997, the applicable per annum
percentage set forth at the appropriate intersection in the table shown below,
based on the Debt to Capitalization Ratio as of the last day of the most
recently ended fiscal quarter of Borrower calculated by Agent as soon as
practicable after receipt by Agent of all financial reports required under this
Agreement with respect to such fiscal quarter (including a Compliance
Certificate) (provided, however, that if the Letter of Credit Fee Percentage is
increased as a result of the reported Debt to Capitalization Ratio, such
increase shall be retroactive to the date that Borrower was obligated to
deliver such financial reports to Agent pursuant to the terms of this Agreement
and provided further, however, that if the Letter of Credit Fee Percentage is
decreased as a result of the reported Debt to Capitalization Ratio, and such
financial reports are delivered to Agent not more than ten (10) calendar days
after the date required to be delivered pursuant to the terms of this
Agreement, such decrease shall be retroactive to the date that Borrower was
obligated to deliver such financial reports to Agent pursuant to the terms of
this Agreement):
<TABLE>
<CAPTION>
Debt to Letter of Credit
Capitalization Ratio Fee Percentage
-------------------- --------------
<S> <C>
Greater than 40% 1.75
Greater than 30% but
less than or equal to 40% 1.50
Greater than 20% but
less than or equal to 30% 1.25
Less than or equal to 20% 1.00
</TABLE>
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<PAGE> 19
Letter of Credit Liabilities means, at any time and in respect of any
Letter of Credit, the sum of (i) the amount available for drawings under such
Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement
Obligations at the time due and payable in respect of previous drawings made
under such Letter of Credit. For the purpose of determining at any time the
amount described in clause (i), in the case of any Letter of Credit payable in
a currency other than Dollars, such amount shall be converted by Agent to
Dollars by any reasonable method, and such converted amount shall be conclusive
and binding, absent manifest error.
LIBOR means, for each Interest Period for any LIBOR Borrowing, the
rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%)
equal to the average of the offered quotations appearing on Telerate Page 3750
(or if such Telerate Page shall not be available, any successor or similar
service as may be selected by Agent and Borrower) as of 11:00 a.m., Houston,
Texas time (or as soon thereafter as practicable) on the day two LIBOR Business
Days prior to the first day of such Interest Period for deposits in United
States dollars having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the LIBOR Borrowing to which such
Interest Period relates. If none of such Telerate Page 3750 nor any successor
or similar service is available, then "LIBOR" shall mean, with respect to any
Interest Period for any applicable LIBOR Borrowing, the rate of interest per
annum, rounded upwards, if necessary, to the nearest 1/16th of 1%, quoted by
Agent at or before 11:00 a.m., Houston, Texas time (or as soon thereafter as
practicable), on the date two LIBOR Business Days before the first day of such
Interest Period, to be the arithmetic average of the prevailing rates per annum
at the time of determination and in accordance with the then existing practice
in the applicable market, for the offering to Agent by one or more prime banks
selected by Agent in its sole discretion, in the London interbank market, of
deposits in United States dollars for delivery on the first day of such
Interest Period and having a maturity equal to the length of such Interest
Period and in an amount equal (or as nearly equal as may be) to the LIBOR
Borrowing to which such Interest Period relates. Each determination by Agent
of LIBOR shall be conclusive and binding, absent manifest error, and may be
computed using any reasonable averaging and attribution method.
LIBOR Borrowing means each portion of the principal balance of the
Loans at any time bearing interest at a Eurodollar Rate.
LIBOR Business Day means a Business Day on which transactions in United
States dollar deposits between lenders may be carried on in the London
interbank market.
Lien means any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien or restriction of any kind,
whether based on common law, constitutional provision, statute or contract, and
shall include reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions and other title exceptions.
Loans means the Revolving Loans and the Term Loans provided for by
Section 2.1 hereof.
14
<PAGE> 20
Loan Documents means, collectively, this Agreement, the Notes, the
Guaranties, all Applications, the Security Documents, the Notice of Entire
Agreement, all instruments, certificates and agreements now or hereafter
executed or delivered by any Obligor to Agent or any Lender pursuant to any of
the foregoing or in connection with the Obligations or any commitment regarding
the Obligations, and all amendments, modifications, renewals, extensions,
increases and rearrangements of, and substitutions for, any of the foregoing.
Majority Lenders means, at any time while no Loans are outstanding,
Lenders having greater than 66-2/3% of the aggregate amount of Revolving Loan
Commitments, and at any time while Loans are outstanding, Lenders having
greater than 66-2/3% of the aggregate amount of Term Loans outstanding plus
Revolving Loan Commitments outstanding.
Margin Percentage means (i) on any day prior to July 1, 1997, 1.00%
with respect to Base Rate Borrowings and 2.75% with respect to LIBOR Borrowings
and (ii) on and after July 1, 1997, the applicable per annum percentage set
forth at the appropriate intersection in the table shown below, based on the
Debt to Capitalization Ratio as of the last day of the most recently ended
fiscal quarter of Borrower calculated by Agent as soon as practicable after
receipt by Agent of all financial reports required under this Agreement with
respect to such fiscal quarter (including a Compliance Certificate) (provided,
however, that if the Margin Percentage is increased as a result of the reported
Debt to Capitalization Ratio, such increase shall be retroactive to the date
that Borrower was obligated to deliver such financial reports to Agent pursuant
to the terms of this Agreement and provided further, however, that if the
Margin Percentage is decreased as a result of the reported Debt to
Capitalization Ratio, and such financial reports are delivered to Agent not
more than ten (10) calendar days after the date required to be delivered
pursuant to the terms of this Agreement, such decrease shall be retroactive to
the date that Borrower was obligated to deliver such financial reports to Agent
pursuant to the terms of this Agreement):
<TABLE>
<CAPTION>
Debt to LIBOR Borrowings Base Rate Borrowings
Capitalization Ratio Margin Percentage Margin Percentage
-------------------- ----------------- -----------------
<S> <C> <C>
Greater than 50% 2.75 1.00
Greater than 40% but
less than or equal to 50% 2.50 1.00
Greater than 30% but
less than or equal to 40% 2.00 0.50
Greater than 20% but
less than or equal to 30% 1.50 0.00
Less than or equal to 20% 1.00 0.00
</TABLE>
15
<PAGE> 21
Material Adverse Effect means any material and adverse effect on the
ability of an Obligor to perform its obligations under any Loan Document to
which it is a party or on the business, condition (financial or otherwise),
results of operations, assets, liabilities or prospects of (i) Borrower and its
Subsidiaries (other than NATCO Canada) on a consolidated basis, (ii) Cummings
or (iii) Holdings.
Maximum Revolving Loan Available Amount means, at any date, an amount
equal to the lesser of (i) the aggregate of the Revolving Loan Commitments or
(ii) the then effective Borrowing Base.
NATCO Canada means NATCO Canada, Ltd., a limited liability company
amalgamated under the laws of the Province of Alberta.
NATCO Canada Credit Facility means that certain Commitment Letter
dated November 24, 1994 executed by The Bank of Nova Scotia in favor of, and
accepted by, Natco Canada (without amendment, other than to increase the
aggregate loans thereunder to a maximum amount of $11,625,000 at any one time
outstanding, except as approved by Agent and the Majority Lenders).
Notes shall have the meaning assigned to such term in Section 2.6
hereof.
Notice of Entire Agreement means a notice of entire agreement, in
Proper Form, executed by Borrower, each other Obligor and Agent, as the same
may from time to time be amended, modified, supplemented or restated.
Obligations means, as at any date of determination thereof, the sum of
the following: (i) the aggregate principal amount of Loans outstanding
hereunder on such date, plus (ii) the aggregate amount of the outstanding
Letter of Credit Liabilities hereunder on such date, plus (iii) all other
outstanding liabilities, obligations and indebtedness of any Obligor under this
Agreement, any Note, the Guaranties, all applications and the Security
Documents on such date.
Obligors means Borrower, Holdings, Cummings, each Person now or
hereafter executing a Guaranty and/or a Security Agreement.
Organizational Documents means, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership and with respect to a trust, the instrument
establishing such trust and with respect to any other Person, the agreements or
instruments pursuant to which such Person was formed; in each case including
any and all modifications thereof and any and all future modifications thereof.
16
<PAGE> 22
Past Due Rate means, on any day, a rate per annum equal to the lesser
of (i) the Ceiling Rate for that day or (ii) the Base Rate plus the Margin
Percentage for Base Rate Borrowings then in effect plus three percent (3%).
PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
Permitted Dividends means (i) dividends or distributions by a
Subsidiary of Borrower to Borrower or any other Subsidiary of Borrower, (ii)
stock dividends and (iii) so long as no Default or Event of Default shall have
occurred and be continuing (or would result therefrom), dividends paid by
Borrower to its shareholders in aggregate amounts not to exceed: (1) for the
fiscal year 1998, amounts to be applied to Subordinated Indebtedness of
Cummings, corporate expenses of Holdings and NATCO (U.K.) Ltd., cash shortages
of NATCO (U.K.) Ltd. and Holdings's cash portion of retiree medical expenses,
such amounts not to exceed, in the aggregate $1,900,000 and (2) for the fiscal
years 1999, 2000, 2001 and 2002, amounts to be applied to Subordinated
Indebtedness of Cummings, corporate expenses of Holdings and Holdings's cash
portion of retiree medical expenses, such amounts not to exceed, in the
aggregate $1,500,000 for the fiscal year 1999, $2,000,000 for the fiscal year
2000 or $2,200,000 for the fiscal year 2001 or the fiscal year 2002.
Permitted Investments means: (a) readily marketable securities issued
or fully guaranteed by the United States of America with maturities of not more
than one year; (b) commercial paper rated "Prime 1" by Moody's Investors
Service, Inc. or "A-1" by Standard and Poor's Ratings Services with maturities
of not more than 180 days, and (c) certificates of deposit or repurchase
obligations issued by any U.S. domestic bank having capital surplus of at least
$100,000,000 or by any other financial institution acceptable to Agent, all of
the foregoing not having a maturity of more than one year from the date of
issuance thereof.
Permitted Liens means each of the following: (a) artisans' or
mechanics' Liens arising in the ordinary course of business, and Liens for
taxes, but only to the extent that payment thereof shall not at the time be due
or if due, the payment thereof is being diligently contested in good faith and
adequate reserves computed in accordance with GAAP have been set aside
therefor; (b) Liens in effect on the Effective Date and disclosed to the
Lenders in the financial statements delivered on or prior to the Effective Date
pursuant to Section 6.2 hereof or in a schedule hereto; (c) normal
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions and encumbrances which do not secure Borrowed Money
Indebtedness and which do not materially impair the value or utility of the
applicable Property; (d) Liens in favor of Agent or any Lender under the Loan
Documents, including, without limitation, Liens securing Interest Rate Risk
Indebtedness owed to one or more of the Lenders (but not to any Person which is
not, at such time, a Lender); (e) Liens incurred or deposits made in the
ordinary course of business (1) in connection with workmen's compensation,
unemployment insurance, social security and other like laws, or (2) to secure
insurance in the ordinary course of business, the performance of bids, tenders,
contracts, leases, licenses, statutory obligations, surety, appeal and
performance bonds and other similar
17
<PAGE> 23
obligations incurred in the ordinary course of business, not, in any of the
cases specified in this clause (2), incurred in connection with the borrowing
of money, the obtaining of advances or the payment of the deferred purchase
price of Property; (f) attachments, judgments and other similar Liens arising
in connection with court proceedings, provided that the execution and
enforcement of such Liens are effectively stayed and the claims secured thereby
are being actively contested in good faith with adequate reserves made therefor
in accordance with GAAP; (g) Liens imposed by law, such as landlords',
carriers', warehousemen's, mechanics', materialmen's and vendors' liens,
incurred in good faith in the ordinary course of business and securing
obligations which are not yet due or which are being contested in good faith by
appropriate proceedings if adequate reserves with respect thereto are
maintained in accordance with GAAP; (h) zoning restrictions, easements,
licenses, reservations, provisions, covenants, conditions, waivers, and
restrictions on the use of Property, and which do not in any case singly or in
the aggregate materially impair the present value or utility of the applicable
Property; (i) Liens securing purchase money Indebtedness permitted under
Section 8.1 hereof and covering the Property so purchased; (j) capital leases
and sale/leaseback transactions permitted under the other provisions of this
Agreement, and (k) extensions, renewals and replacements of Liens referred to
in clauses (a) through (j) of this definition; provided that any such
extension, renewal or replacement Lien shall be limited to the Property or
assets covered by the Lien extended, renewed or replaced and that the Borrowed
Money Indebtedness secured by any such extension, renewal or replacement Lien
shall be in an amount not greater than the amount of the Indebtedness secured
by the Lien extended, renewed or replaced.
Person means any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
Plan means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of
the Code and is either (a) maintained by Borrower or any member of the
Controlled Group for employees of Borrower or any member of the Controlled
Group or (b) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which Borrower or any member of the Controlled Group is then making or accruing
an obligation to make contributions or has within the preceding five plan years
made contributions.
Prime Rate means, on any day, the prime rate for that day as
determined from time to time by TCB. The Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate or a favored rate, and
TCB, Agent and each Lender disclaims any statement, representation or warranty
to the contrary. TCB, Agent or any Lender may make commercial loans or other
loans at rates of interest at, above or below the Prime Rate.
Principal Office means the principal office of Agent, presently
located at 712 Main Street, Houston, Harris County, Texas 77002.
Proper Form means in form and substance reasonably satisfactory to
Agent.
18
<PAGE> 24
Property means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
Purchase Agreement means that certain Stock Purchase Agreement dated
May 7, 1997, executed by and between Enterra Petroleum Equipment Group, Inc.
and Borrower , as the same may from time to time be amended, modified, restated
or supplemented.
Qualified Institution means (a) any bank or trust company which is
organized under the laws of any country which is a member of the Organization
for Economic Cooperation and Development or any political subdivision of any
such country; and having capital, surplus and undivided profits aggregating at
least $100,000,000.00 (or its equivalent in another currency) as of the date of
such Person's most recent financial reports, and (b) any other Person approved
in writing by Agent.
Quarterly Dates means the last day of each March, June, September and
December, provided that if any such date is not a Business Day, then the
relevant Quarterly Date shall be the next succeeding Business Day.
Quarterly Financial Statements means the quarterly financial statements
of a Person, which statements shall include a balance sheet as of the end of
such fiscal quarter and an income statement and a statement of cash flows for
such fiscal quarter and for the fiscal year to date, subject to normal year-end
adjustments, all setting forth in comparative form the corresponding figures as
of the end of and for the corresponding fiscal quarter of the preceding year,
prepared in accordance with GAAP in all material respects except that such
statements are condensed and exclude detailed footnote disclosures and
certified by the chief financial officer or other authorized officer of such
Person as fairly presenting, in all material respects, the financial condition
of such person as of such date. As to Borrower only, Quarterly Financial
Statements shall also include unaudited consolidating financial statements for
Borrower and unaudited consolidated financial statements for Borrower and its
Subsidiaries (other than NATCO Canada), each in Proper Form, certified in each
case by the chief financial officer or other authorized officer of Borrower as
presenting fairly in all material respects the consolidating financial position
of the applicable Person.
Rate Designation Date means that Business Day which is (a) in the case
of Base Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date one
Business Day preceding the date of such borrowing and (b) in the case of LIBOR
Borrowings, 11:00 a.m., Houston, Texas time, on the date three LIBOR Business
Days preceding the first day of any proposed Interest Period.
Rate Designation Notice means a written notice substantially in the
form of Exhibit B.
Regulation D means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and includes any successor
or other regulation relating to reserve requirements applicable to member banks
of the Federal Reserve System.
19
<PAGE> 25
Regulatory Change means, with respect to any Lender, any change on or
after the Effective Date in any Legal Requirement (including, without
limitation, Regulation D) or the adoption or making on or after such date of
any interpretation, directive or request applying to a class of lenders
including such Lender under any Legal Requirements (whether or not having the
force of law) by any Governmental Authority.
Reimbursement Obligations means, as at any date, the obligations of
Borrower then outstanding, or which may thereafter arise, in respect of Letters
of Credit under this Agreement, to reimburse the applicable Issuers for the
amount paid by such Issuers in respect of any drawing under such Letters of
Credit, which obligations shall at all times be payable in Dollars
notwithstanding any such Letter of Credit being payable in a currency other
than Dollars.
Request for Extension of Credit means a request for extension of credit
duly executed by any responsible officer, which may include the president, the
chief executive officer, the chief financial officer, any vice president or the
treasurer of Borrower, appropriately completed and substantially in the form of
Exhibit A attached hereto.
Requirements of Environmental Law means all requirements imposed by
any law (including for example and without limitation The Resource Conservation
and Recovery Act and The Comprehensive Environmental Response, Compensation,
and Liability Act), rule, regulation, or order of any federal, state or local
executive, legislative, judicial, regulatory or administrative agency, board or
authority in effect at the applicable time which relate to (i) noise; (ii)
pollution, protection or clean-up of the air, surface water, ground water or
land; (iii) solid, gaseous or liquid waste generation, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) regulation of the manufacture,
processing, distribution in commerce, use, discharge or storage of Hazardous
Substances.
Revolving Loan means a Loan made pursuant to Section 2.1(b) hereof.
Revolving Loan Availability Period means, for each Revolving Loan
Lender, the period from and including the Effective Date to (but not including)
the Revolving Loan Termination Date.
Revolving Loan Commitment means, as to any Lender, the obligation, if
any, of such Lender to make Revolving Loans and incur or participate in Letter
of Credit Liabilities in an aggregate principal amount at any one time
outstanding up to (but not exceeding) the amount, if any, set forth opposite
such Lender's name on the signature pages hereof under the caption "Revolving
Loan Commitment", or otherwise provided for in an Assignment and Acceptance
Agreement (as the same may be reduced from time to time pursuant to Section 2.3
hereof).
Revolving Loan Commitment Percentage means, as to any Revolving Loan
Lender, the percentage equivalent of a fraction the numerator of which is the
amount of such Lender's Revolving
20
<PAGE> 26
Loan Commitment and the denominator of which is the aggregate amount of the
Revolving Loan Commitments of all Lenders.
Revolving Loan Lender means each Lender with (i) prior to the Revolving
Loan Termination Date, a Revolving Loan Commitment and (ii) on and after the
Revolving Loan Termination Date, any outstanding Revolving Loan Obligations.
Revolving Loan Maturity Date means the maturity of the Revolving
Notes, June 30, 2000.
Revolving Loan Obligations means, as at any date of determination
thereof, the sum of the following (determined without duplication): (i) the
aggregate principal amount of Revolving Loans outstanding hereunder plus (ii)
the aggregate amount of the Letter of Credit Liabilities hereunder.
Revolving Loan Termination Date means the earlier of (a) the Revolving
Loan Maturity Date or (b) the date specified or deemed specified by Agent in
accordance with Section 9.1 hereof.
Revolving Notes means the Notes of Borrower evidencing the Revolving
Loans, in substantially the form of Exhibit D hereto.
Secretary's Certificate means a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation certifying (a) that
attached thereto are true and correct copies of resolutions of the Board of
Directors of such corporation authorizing the execution, delivery and
performance of the Loan Documents to be executed by such corporation; (b) the
incumbency and signature of the officer of such corporation executing such Loan
Documents on behalf of such corporation, and (c) that attached thereto are true
and correct copies of the Organizational Documents of such corporation.
Security Agreements means security agreements, each in Proper Form,
executed or to be executed by Borrower (or any other applicable Obligor) in
favor of Agent covering all of the real Property (other than real Property
owned as of the Effective Date) and material personal Property of Borrower and
its Subsidiaries (other than Foreign Subsidiaries), as the same may from time
to time be amended, modified, restated or supplemented. Notwithstanding the
foregoing, Borrower shall not be required to grant a Lien to Agent on more than
65% of the issued and outstanding equity interests owned by Borrower in its
Foreign Subsidiaries.
Security Documents means, collectively, the Security Agreements, the
Financing Statements and any and all other security documents now or hereafter
executed and delivered by any Obligor to secure all or any part of the
Obligations, as any of them may from time to time be amended, modified,
restated or supplemented.
Stated Rate means, with respect to any Lender, the effective weighted
per annum rate of interest applicable to the Loans made by such Lender;
provided, that if on any day such rate shall
21
<PAGE> 27
exceed the Ceiling Rate for that day, the Stated Rate shall be fixed at the
Ceiling Rate on that day and on each day thereafter until the total amount of
interest accrued at the Stated Rate on the unpaid principal balances of the
Notes plus the Additional Interest equals the total amount of interest which
would have accrued if there had been no Ceiling Rate. If the Notes mature (or
are prepaid) before such equality is achieved, then, in addition to the unpaid
principal and accrued interest then owing pursuant to the other provisions of
the Loan Documents, Borrower promises to pay on demand to the order of the
holder of each Note interest in an amount equal to the excess (if any) of (a)
the lesser of (i) the total interest which would have accrued on such Note if
the Stated Rate had been defined as equal to the Ceiling Rate from time to time
in effect and (ii) the total interest which would have accrued on such Note if
the Stated Rate were not so prohibited from exceeding the Ceiling Rate, over
(b) the total interest actually accrued on such Note to such maturity (or
prepayment) date. Without notice to Borrower or any other Person, the Stated
Rate shall automatically fluctuate upward and downward in accordance with the
provisions of this definition.
Subordinated Indebtedness means all Indebtedness of Borrower and its
Subsidiaries which has been subordinated on terms and conditions satisfactory
to the Majority Lenders, in their sole discretion, to the Obligations, whether
now existing or hereafter incurred. Indebtedness shall not be considered as
"Subordinated Indebtedness" unless and until Agent shall have received copies
of the documentation evidencing or relating to such Indebtedness together with
a subordination agreement, in Proper Form, duly executed by the holder or
holders of such Indebtedness and evidencing the terms and conditions of
subordination required by the Majority Lenders.
Subsidiary means, as to a particular parent Corporation, any
Corporation of which more than 50% of the indicia of equity rights (whether
outstanding capital stock or otherwise) is at the time directly or indirectly
owned by, such parent Corporation.
Tangible Net Worth means, with respect to Borrower and its
Subsidiaries, the sum of preferred stock (if any), par value of common stock,
capital in excess of par value of common stock and retained earnings, less
treasury stock (if any), minus (i) goodwill and (ii) all other assets that are
properly classified as intangible assets, but plus the amount of noncash write
downs of long-lived assets in compliance with generally accepted accounting
principles or guidelines of the Securities Exchange Commission, and plus or
minus, as appropriate, foreign currency translation adjustments, all as
determined on a consolidated basis.
Taxes shall have the meaning ascribed to it in Section 4.1(d) hereof.
Term Loan means a Loan made pursuant to Section 2.1(a) hereof.
Term Loan Lender means each Lender with any outstanding Term Loans.
Term Loan Maturity Date means June 30, 2002.
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<PAGE> 28
Term Notes means the Notes of Borrower evidencing the Term Loans, in
substantially the form of Exhibit C hereto.
Texas Credit Code means Title 79, Texas Revised Civil Statutes, 1925,
as amended.
Total Capitalization means the sum of, without duplication, the
Borrowed Money Indebtedness of Borrower and its Subsidiaries, on a consolidated
basis, and preferred stock and the consolidated stockholders' equity (including
paid-in capital and retained earnings) of Borrower and its Subsidiaries,
determined in accordance with GAAP.
Unfunded Liabilities means, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent actuarial valuation report
for such Plan, but only to the extent that such excess represents a potential
liability of any member of the Controlled Group to the PBGC or a Plan under
Title IV of ERISA. With respect to multi-employer Plans, the term "Unfunded
Liabilities" shall also include contingent liability for withdrawal liability
under Section 4201 of ERISA to all multi-employer Plans to which Borrower or
any member of a Controlled Group for employees of Borrower contributes in the
event of complete withdrawal from such plans.
1.2 Miscellaneous. The words "hereof," "herein," and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement.
2. Commitments and Loans.
2.1 Loans. Each Lender severally agrees, subject to all of the
terms and conditions of this Agreement (including, without limitation, Sections
5.1 and 5.2 hereof), to make Loans as follows:
(a) Term Loans. On the Effective Date, each Term Loan Lender
shall make a loan to Borrower in the amount set forth opposite such Term Loan
Lender's name on the signature pages hereof under the caption "Term Loans".
(b) Revolving Loans. From time to time on or after the Effective
Date and during the Revolving Loan Availability Period, each Revolving Loan
Lender shall make loans under this Section 2.1(b) to Borrower in an aggregate
principal amount at any one time outstanding (including its Revolving Loan
Commitment Percentage of all Letter of Credit Liabilities at such time) up to
but not exceeding such Lender's Revolving Loan Commitment Percentage of the
Maximum Revolving Loan Available Amount. Subject to the conditions in this
Agreement, any such Revolving Loan repaid prior to the Revolving Loan
Termination Date may be reborrowed pursuant to the terms of this Agreement;
provided, that any and all such Revolving Loans shall be due and payable in
full on the Revolving Loan Termination Date. Borrower, Agent and the Lenders
agree that Chapter 15
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of the Texas Credit Code shall not apply to this Agreement, the Revolving Notes
or any Revolving Loan Obligation. The aggregate of all Revolving Loans to be
made by the Lenders in connection with a particular borrowing shall be equal to
the lesser of (a) the remaining unused portion of the Revolving Loan
Commitments or (b) a multiple of $100,000.
2.2 Letters of Credit.
(a) Letters of Credit. Subject to the terms and conditions of
this Agreement, and on the condition that aggregate Letter of Credit
Liabilities shall never exceed $5,000,000, (i) Borrower shall have the right
to, in addition to Loans provided for in Section 2.1 hereof, utilize the
Revolving Loan Commitments from time to time during the Revolving Loan
Availability Period by obtaining the issuance of letters of credit for the
account of Borrower if Borrower shall so request in the notice referred to in
Section 2.2(b)(i) hereof (such letters of credit, together with the Existing
Letters of Credit, as any of them may be amended, supplemented, extended or
confirmed from time to time, being herein collectively called the "Letters of
Credit)" and (ii) TCB agrees to issue such Letters of Credit. Upon the date of
the issuance of a Letter of Credit, the applicable Issuer shall be deemed,
without further action by any party hereto, to have sold to each Revolving Loan
Lender, and each such Lender shall be deemed, without further action by any
party hereto, to have purchased from the applicable Issuer, a participation, to
the extent of such Lender's Revolving Loan Commitment Percentage, in such
Letter of Credit and the related Letter of Credit Liabilities, which
participation shall terminate on the earlier of the expiration date of such
Letter of Credit or the Revolving Loan Termination Date. Any Letter of Credit
that shall have an expiration date after the Revolving Loan Termination Date
shall be subject to Cover or backed by a letter of credit in Proper Form issued
by a Qualified Institution to Agent. TCB or, with the prior approval of
Borrower and Agent, another Lender shall be the Issuer of each Letter of
Credit.
(b) Additional Provisions. The following additional provisions
shall apply to each Letter of Credit:
(i) Borrower shall give Agent notice requesting each
issuance of a Letter of Credit hereunder as provided in Section 4.3
hereof and shall furnish such additional information regarding such
transaction as Agent may reasonably request. Upon receipt of such
notice, Agent shall promptly notify each Revolving Loan Lender of the
contents thereof and of such Lender's Revolving Loan Commitment
Percentage of the amount of such proposed Letter of Credit.
(ii) No Letter of Credit may be issued if after giving
effect thereto the sum of (A) the aggregate outstanding principal
amount of Revolving Loans plus (B) the aggregate Letter of Credit
Liabilities would exceed the Maximum Revolving Loan Available Amount.
On each day during the period commencing with the issuance of any
Letter of Credit and until such Letter of Credit shall have expired or
been terminated, the Revolving Loan Commitment of each Revolving Loan
Lender shall be deemed to be utilized for all purposes
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hereof, including Section 2.4(a), in an amount equal to such Lender's
Revolving Loan Commitment Percentage of the amount then available for
drawings under such Letter of Credit (or any unreimbursed drawings
under such Letter of Credit).
(iii) Upon receipt from the beneficiary of any Letter of
Credit of any demand for payment thereunder, Agent shall promptly
notify Borrower and each Lender as to the amount to be paid as a
result of such demand and the payment date therefor. If at any time
prior to the earlier of the expiration date of a Letter of Credit or
the Revolving Loan Termination Date any Issuer shall have made a
payment to a beneficiary of a Letter of Credit in respect of a drawing
under such Letter of Credit, each Revolving Loan Lender will pay to
Agent immediately upon demand by such Issuer at any time during the
period commencing after such payment until reimbursement thereof in
full by Borrower, an amount equal to such Lender's Revolving Loan
Commitment Percentage of such payment, together with interest on such
amount for each day from the date of demand for such payment (or, if
such demand is made after 11:00 a.m. Houston time on such date, from
the next succeeding Business Day) to the date of payment by such
Lender of such amount at a rate of interest per annum equal to the
Federal Funds Rate for such period. To the extent that it is
ultimately determined that the Borrower is relieved of its obligation
to reimburse the applicable Issuer because of such Issuer's gross
negligence or willful misconduct in determining that documents
received under any applicable Letter of Credit comply with the terms
thereof, the applicable Issuer shall be obligated to refund to the
paying Lenders all amounts paid to such Issuer to reimburse Issuer for
the applicable drawing under such Letter of Credit.
(iv) Borrower shall be irrevocably and unconditionally
obligated forthwith to reimburse Agent, on the date on which the Agent
notifies Borrower of the date and amount of any payment by the Issuer
of any drawing under a Letter of Credit, for the amount paid by any
Issuer upon such drawing, without presentment, demand, protest or
other formalities of any kind, all of which are hereby waived. Such
reimbursement may, subject to satisfaction of the conditions in
Sections 5.1 and 5.2 hereof, the limitation on size contained in
Section 2.1(b) and to the Maximum Revolving Loan Available Amount
(after adjustment in the same to reflect the elimination of the
corresponding Letter of Credit Liability), be made by the borrowing of
Revolving Loans. Agent will pay to each Revolving Loan Lender such
Lender's Revolving Loan Commitment Percentage of all amounts received
from Borrower for application in payment, in whole or in part, of the
Reimbursement Obligation in respect of any Letter of Credit, but only
to the extent such Lender has made payment to Agent in respect of such
Letter of Credit pursuant to clause (iii) above.
(v) Borrower will pay to Agent at the Principal Office
for the account of each Revolving Loan Lender a letter of credit fee
with respect to each Letter of Credit equal to the greater of (x) $300
or (y) the Letter of Credit Fee Percentage multiplied by the daily
average amount available for drawings under each Letter of Credit (and
computed on the basis of the actual number of days elapsed in a year
composed of 360 days), in each case for the period
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from and including the date of issuance of such Letter of Credit to
and including the date of expiration or termination thereof, such fee
to be due and payable quarterly in advance on the date of the issuance
thereof and on each three (3) month anniversary of such issuance (with
any unearned fees to be refunded upon the termination of or draw under
the applicable Letter of Credit). Agent will pay to each Revolving
Loan Lender, promptly after receiving any payment in respect of letter
of credit fees referred to in this clause (v), an amount equal to the
product of such Lender's Revolving Loan Commitment Percentage times
the amount of such fees. In addition to and cumulative of the above
described fees, Borrower shall pay to Agent, for the account of the
applicable Issuer, in advance on the date of the issuance of the
applicable Letter of Credit, a fronting fee in an amount equal to 1/8%
of the face amount of the applicable Letter of Credit (such fronting
fee to be retained by the applicable Issuer for its own account).
(vi) The issuance by the applicable Issuer of each Letter
of Credit shall, in addition to the conditions precedent set forth in
Section 5 hereof, be subject to the conditions precedent (A) that such
Letter of Credit shall be in such form and contain such terms as shall
be reasonably satisfactory to Agent, and (B) that Borrower shall have
executed and delivered such Applications and other instruments and
agreements relating to such Letter of Credit as Agent shall have
reasonably requested and are not inconsistent with the terms of this
Agreement. In the event of a conflict between the terms of this
Agreement and the terms of any Application, the Agent, each Issuer,
the Borrower and each Lender agree that the terms hereof shall
control.
(vii) Issuer will send to the Borrower and each Lender,
immediately upon issuance of any Letter of Credit issued by Issuer or
any amendment thereto, a true and correct copy of such Letter of
Credit or amendment.
(c) Indemnification; Release. Borrower hereby indemnifies and
holds harmless Agent, each Revolving Loan Lender and each Issuer from and
against any and all claims, damages, losses, liabilities, costs or expenses
which Agent, such Lender or such Issuer may incur (or which may be claimed
against Agent, such Lender or such Issuer by any Person whatsoever), REGARDLESS
OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE
INDEMNIFIED PARTIES, in connection with the execution and delivery of any
Letter of Credit or transfer of or payment or failure to pay under any Letter
of Credit; provided that Borrower shall not be required to indemnify or hold
harmless any party seeking indemnification for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by
(i) the willful misconduct or gross negligence of the party seeking
indemnification or exoneration, or (ii) the failure by the party seeking
indemnification to pay under any Letter of Credit after the presentation to it
of a request required to be paid under applicable law. Borrower hereby
releases, waives and discharges Agent, each Revolving Loan Lender and each
Issuer from any claims, causes of action, damages, losses, liabilities,
reasonable costs or expenses which may now exist or may hereafter arise,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE
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NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES, by reason of or in connection
with the failure of Agent, any Issuer or any other Revolving Loan Lender to
fulfill or comply with its obligations to the other parties hereunder (but
nothing herein contained shall affect any rights Borrower may have against such
defaulting party). Nothing in this Section 2.2(c) is intended to limit the
obligations of Borrower under any other provision of this Agreement.
(d) Additional Costs in Respect of Letters of Credit. Subject to
Sections 11.7 and 11.15 hereof, if as a result of any Regulatory Change there
shall be imposed, modified or deemed applicable any tax (other than any tax
based on or measured by net income), reserve, special deposit or similar
requirement against or with respect to or measured by reference to Letters of
Credit issued or to be issued hereunder or participations in such Letters of
Credit, and the result shall be to increase the cost to any Revolving Loan
Lender of issuing or maintaining any Letter of Credit or any participation
therein, or materially reduce any amount receivable by any Revolving Loan
Lender hereunder in respect of any Letter of Credit or any participation
therein (which increase in cost, or reduction in amount receivable, shall be
the result of such Lender's reasonable allocation of the aggregate of such
increases or reductions resulting from such event), then such Lender shall
notify Borrower through Agent (which notice shall be accompanied by a statement
setting forth in reasonable detail the basis for the determination of the
amount due), and within 15 Business Days after demand therefor by such Lender
through Agent, Borrower shall pay to such Lender, from time to time as
specified by such Lender, such additional amounts as shall be sufficient to
compensate such Lender for such increased costs or reductions in amount. Such
statement as to such increased costs or reductions in amount incurred by such
Lender, submitted by such Lender to Borrower, shall be conclusive as to the
amount thereof, absent manifest error, and may be computed using any reasonable
averaging and attribution method. Each Lender will notify Borrower through
Agent of any event occurring after the date of this Agreement which will
entitle such Lender to compensation pursuant to this Section as promptly as
practicable after any executive officer of such Lender obtains knowledge
thereof and determines to request such compensation, and (if so requested by
Borrower through Agent) will designate a different lending office of such
Lender for the issuance or maintenance of Letters of Credit by such Lender or
will take such other action as Borrower may reasonably request if such
designation or action is consistent with the internal policy of such Lender and
legal and regulatory restrictions, can be undertaken at no additional cost
(unless Borrower agrees to pay such costs), will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole opinion of such
Lender, be disadvantageous to such Lender (provided that such Lender shall have
no obligation so to designate a different lending office which is not located
in the United States of America).
2.3 Terminations or Reductions of Commitments.
(a) Mandatory. On the Revolving Loan Termination Date, all
Revolving Loan Commitments shall be terminated in their entirety.
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(b) Optional. Borrower shall have the right to terminate or
reduce the unused portion of the Revolving Loan Commitments at any time or from
time to time, provided that (i) Borrower shall give notice of each such
termination or reduction to Agent as provided in Section 4.3 hereof and (ii)
each such partial reduction shall be in an integral multiple of $500,000.
(c) No Reinstatement. No termination or reduction of the
Revolving Loan Commitments may be reinstated without the written approval of
Agent and the Lenders.
2.4 Commitment Fees.
(a) Borrower shall pay to Agent for the account of each Revolving
Loan Lender revolving loan commitment fees for the Revolving Loan Availability
Period at a rate per annum equal to the Commitment Fee Percentage. Such
revolving loan commitment fees shall be computed (on the basis of the actual
number of days elapsed in a year composed of 360 days) on each day and shall be
based on the excess of (x) the aggregate amount of each Revolving Loan Lender's
Revolving Loan Commitment for such day over (y) the sum of (i) the aggregate
unpaid principal balance of such Lender's Revolving Note on such day plus (ii)
the aggregate Letter of Credit Liabilities as to such Lender for such day.
Accrued revolving loan commitment fees shall be payable in arrears on the
Quarterly Dates prior to the Revolving Loan Termination Date and on the
Revolving Loan Termination Date.
(b) All past due fees payable under this Section shall bear
interest at the Past Due Rate.
2.5 Several Obligations. The failure of any Lender to make any
Loan to be made by it on the date specified therefor shall not relieve any
other Lender of its obligation to make its Loan on such date, but neither Agent
nor any Lender shall be responsible or liable for the failure of any other
Lender to make a Loan to be made by such other Lender or to participate in, or
co-issue, any Letter of Credit. Notwithstanding anything contained herein to
the contrary, (a) no Lender shall be required to make or maintain Revolving
Loans at any time outstanding if as a result the total Revolving Loan
Obligations to such Lender shall exceed the lesser of (1) such Lender's
Revolving Loan Commitment Percentage of all Revolving Loan Obligations and (2)
such Lender's Revolving Loan Commitment Percentage of the Maximum Revolving
Loan Available Amount and (b) if a Revolving Loan Lender fails to make a
Revolving Loan as and when required hereunder, then upon each subsequent event
which would otherwise result in funds being paid to the defaulting Lender, the
amount which would have been paid to the defaulting Lender shall be divided
among the non-defaulting Lenders ratably according to their respective shares
of the outstanding Revolving Loan Commitment Percentages until the Revolving
Loan Obligations of each Revolving Loan Lender (including the defaulting
Lender) are equal to such Lender's Revolving Loan Commitment Percentage of the
total Revolving Loan Obligations.
2.6 Notes. The Revolving Loans made by each Lender shall be
evidenced by a single Revolving Note of Borrower in substantially the form of
Exhibit D hereto payable to the order of
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such Lender in a principal amount equal to the Revolving Loan Commitment of
such Lender, and otherwise duly completed. The Term Loans made by each Lender
shall be evidenced by a single Term Note of Borrower in substantially the form
of Exhibit C hereto payable to the order of such Lender in a principal amount
equal to the sum of the outstanding principal balance of the Term Loans made by
such Lender, and otherwise duly completed. The promissory notes described in
this Section are each, together with all renewals, extensions, modifications
and replacements thereof and substitutions therefor, called a "Note" and
collectively called the "Notes". Each Lender is hereby authorized by Borrower
to endorse on the schedule (or a continuation thereof) that may be attached to
each Note of such Lender, to the extent applicable, the date, amount, type of
and the applicable period of interest for each Loan made by such Lender to
Borrower hereunder, and the amount of each payment or prepayment of principal
of such Loan received by such Lender, provided that any failure by such Lender
to make any such endorsement shall not affect the obligations of Borrower under
such Note or hereunder in respect of such Loan.
2.7 Use of Proceeds. The proceeds of the Loans shall be used to
refinance existing Borrowed Money Indebtedness of Borrower, to finance the
acquisition and related costs contemplated by the Purchase Agreement and for
other working capital and general corporate purposes. Neither Agent nor any
Lender shall have any responsibility as to the use of any proceeds of the
Loans.
3. Borrowings, Payments, Prepayments and Interest Options.
3.1 Borrowings. Borrower shall give Agent notice of each
borrowing to be made hereunder as provided in Section 4.3 hereof and Agent
shall promptly notify each Lender of such request. Not later than 11:00 a.m.
Houston time on the date specified for each such borrowing hereunder, each
Lender shall make available the amount of the Loan, if any, to be made by it on
such date to Agent at its Principal Office, in immediately available funds, for
the account of Borrower. Such amounts received by Agent will be held in an
account maintained by Borrower with Agent. The amounts so received by Agent
shall, subject to the terms and conditions of this Agreement, be made available
to Borrower by wiring or otherwise transferring, in immediately available
funds, such amount to an account designated by Borrower and approved by Agent.
3.2 Prepayments.
(a) Optional Prepayments. Except as provided in Section 3.3
hereof, Borrower shall have the right to prepay, on any Business Day, in whole
or in part, without the payment of any premium, penalty or fee, any Loans at
any time or from time to time, provided that Borrower shall give Agent notice
of each such prepayment as provided in Section 4.3 hereof. Each optional
prepayment on a Loan shall be in an amount equal to an integral multiple of
$500,000. Such optional prepayments of Term Loans shall be applied ratably
(based on outstanding principal balances) to all Term Notes and shall be
applied to scheduled principal installments in inverse order of their
maturities.
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(b) Mandatory Prepayments and Cover. Except, in each case, as
provided in Section 3.3 hereof,
(1) Insurance Proceeds and Condemnation Awards.
(i) Promptly following the receipt thereof by
Borrower or any of its Subsidiaries (other than Foreign
Subsidiaries), Borrower shall deposit or cause to be deposited
with Agent in an interest bearing account (but without any
obligation to maximize such interest) all of the net cash
proceeds of any payment or award in excess of $500,000 made to
any such Person under any policy of Property insurance with
respect to any Property owned by such Person or pursuant to
any condemnation award with respect to any such Property;
provided such amounts have not theretofore been reasonably
expended for the restoration or replacement of the asset in
respect of which such payment or award was made. Such amounts
shall be collaterally assigned to Agent as security for the
Obligations in a manner reasonably acceptable to Agent. Upon
delivery to Agent of written certification by Borrower that
the applicable Obligor has reasonably expended amounts or
committed in writing to expend amounts for the restoration or
replacement of the asset in respect of which such payment or
award was made, specifying the amount expended or committed,
so long as no Default or Event of Default shall have occurred
and be continuing any such amount deposited with Agent shall
be released by Agent to Borrower; provided, however, that, in
the event that within 180 days of receipt of such payment or
award by Borrower, to the extent Borrower shall not have
actually spent or certified to Agent its intention to expend a
substantially equivalent amount for the restoration or
replacement of the asset in respect of which such payment or
award was made or to purchase other assets that may be
productively used in the business of the Borrower or the
applicable Subsidiary, Borrower shall make a prepayment on the
Term Loans (using any funds deposited with Agent pursuant to
this Section 3.2(b)(1) or other funds) in the amount of the
excess of the amount of such payment or award over the amount
of such expenditures and/or commitment on such 180th day.
Such prepayment shall be applied to the Term Notes secured by
the applicable Collateral and shall be applied to scheduled
principal installments in inverse order of their maturities.
(ii) In cases where the amount of the net cash
proceeds of any payment or award is equal to or less than
$500,000 and no Default or Event of Default has occurred and
is continuing, such proceeds may be paid to any Obligor, and
if received by Agent shall be paid by Agent to Borrower, for
use in paying for replacements or repairs of or substitutes
for the damaged, destroyed or taken assets or in a manner
otherwise consistent with this Agreement.
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(2) Excess Cash Flow. Within fifteen (15)
Business Days after the delivery of the Annual Financial
Statements pursuant to Section 7.2 hereof with respect to each
fiscal year of Borrower (commencing with the fiscal year
ending on March 31, 1998), Borrower shall make a prepayment on
the Term Loans in an amount equal to (i) Excess Cash Flow for
such fiscal year times 50% less (ii) optional prepayments made
on the Term Loans during such fiscal year. Such prepayment
shall be applied ratably to the Term Notes (based on
outstanding principal balances) and shall be applied to
scheduled principal installments in inverse order of their
maturities.
(3) Borrowing Base. Borrower shall from time to
time on demand by Agent prepay the Revolving Loans (or provide
Cover for Letter of Credit Liabilities) in such amounts as
shall be necessary so that at all times the aggregate
outstanding amount of all Revolving Loan Obligations shall be
less than or equal to the Maximum Revolving Loan Available
Amount.
(4) Sale of Assets. Borrower shall make the
payments required by Section 8.4(c) hereof.
(c) Term Loan Amortization. The principal of the Term Notes
shall be due and payable in quarterly installments, each due on a Quarterly
Date, beginning on September 30, 1997, equal to $357,143 (in the aggregate for
all Term Notes) and allocated among the Term Loan Lenders pro rata in
accordance with the unpaid principal balances of the Term Notes held by the
Term Loan Lenders. On the Term Loan Maturity Date, the entire unpaid principal
balance of each Term Note and all accrued and unpaid interest on the unpaid
principal balance of each Term Note shall be finally due and payable.
(d) Interest Payments. Accrued and unpaid interest on the unpaid
principal balance of the Loans shall be due and payable on the Interest Payment
Dates.
(e) Payments and Interest on Reimbursement Obligations. Borrower
will pay to Agent for the account of each Lender the amount of each
Reimbursement Obligation as set forth in Section 2.2(b)(iv). Subject to
Section 11.7 hereof, Borrower will pay to Agent for the account of each Lender
interest at the applicable Past Due Rate on any Reimbursement Obligation and on
any other amount payable by Borrower hereunder to or for the account of such
Lender (but, if such amount is interest, only to the extent legally allowed),
which shall not be paid in full within five (5) days after the date due
(whether at stated maturity, by acceleration or otherwise), for the period
commencing on the expiration of such five (5) day period until the same is paid
in full.
3.3 Interest Options
(a) Options Available. The outstanding principal balance of the
Notes shall bear interest at the Base Rate; provided, that (1) all past due
amounts, both principal and accrued interest, shall
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bear interest at the Past Due Rate, and (2) subject to the provisions hereof,
Borrower shall have the option of having all or any portion of the principal
balances of the Notes from time to time outstanding bear interest at a
Eurodollar Rate. The records of Agent and each of the Lenders with respect to
Interest Options, Interest Periods and the amounts of Loans to which they are
applicable shall be binding and conclusive, absent manifest error. Interest on
the Loans shall be calculated at the Base Rate except where it is expressly
provided pursuant to this Agreement that a Eurodollar Rate is to apply.
Interest on the amount of each advance against the Notes shall be computed on
the amount of that advance and from the date it is made. Notwithstanding
anything in this Agreement to the contrary, for the full term of the Notes the
interest rate produced by the aggregate of all sums paid or agreed to be paid
to the holders of the Notes for the use, forbearance or detention of the debt
evidenced thereby (including all interest on the Notes at the Stated Rate plus
the Additional Interest) shall not exceed the Ceiling Rate.
(b) Designation and Conversion. Borrower shall have the right to
designate or convert its Interest Options in accordance with the provisions
hereof. Provided no Event of Default has occurred and is continuing and
subject to the last sentence of Section 3.3(a) and the provisions of Section
3.3(c), Borrower may elect to have a Eurodollar Rate apply or continue to apply
to all or any portion of the principal balance of the Notes. Each change in
Interest Options shall be a conversion of the rate of interest applicable to
the specified portion of the Loans, but such conversion shall not change the
respective outstanding principal balances of the Notes. The Interest Options
shall be designated or converted in the manner provided below:
(i) Borrower shall give Agent telephonic notice, promptly
confirmed by a Rate Designation Notice (and Agent shall
promptly inform each Lender thereof). Each such telephonic
and written notice shall specify the amount of the Loan and
type (i.e. Revolving Loan or Term Loan) which is the subject
of the designation, if any; the amount of borrowings into
which such borrowings are to be converted or for which an
Interest Option is designated; the proposed date for the
designation or conversion and the Interest Period or Periods,
if any, selected by Borrower. Such telephonic notice shall be
irrevocable and shall be given to Agent no later than the
applicable Rate Designation Date.
(ii) No more than three (3) LIBOR Borrowings shall be in effect
with respect to the Revolving Loans at any time. No more than
three (3) LIBOR Borrowings shall be in effect with respect to
the Term Loans at any time.
(iii) Each designation or conversion of a LIBOR Borrowing shall
occur on a LIBOR Business Day.
(iv) Except as provided in Section 3.3(c) hereof, no LIBOR
Borrowing may be converted to a Base Rate Borrowing or another
LIBOR Borrowing on any day other than the last day of the
applicable Interest Period.
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(v) Each request for a LIBOR Borrowing shall be in the amount
equal to $500,000 or an integral multiple of $100,000 in
excess thereof.
(vi) Each designation of an Interest Option with respect to the
Revolving Notes shall apply to all of the Revolving Notes
ratably in accordance with their respective outstanding
principal balances. Each designation of an Interest Option
with respect to the Term Notes shall apply to all of the Term
Notes ratably in accordance with their respective outstanding
principal balances. If any Lender assigns an interest in any
of its Notes when any LIBOR Borrowing is outstanding with
respect thereto, then such assignee shall have its ratable
interest in such LIBOR Borrowing.
(c) Special Provisions Applicable to LIBOR Borrowings.
(i) Options Unlawful. If the adoption of any applicable Legal
Requirement after the Effective Date or any change after the Effective Date in
any applicable Legal Requirement or in the interpretation or administration
thereof by any Governmental Authority or compliance by any Lender with any
request or directive (whether or not having the force of law) issued after the
Effective Date by any central bank or other Governmental Authority shall at any
time make it unlawful or impossible for any Lender to permit the establishment
of or to maintain any LIBOR Borrowing, the commitment of such Lender to
establish such LIBOR Borrowing shall forthwith be canceled and Borrower shall
on the last day the Interest Period relating to any outstanding LIBOR Borrowing
(or within such earlier period as may be required by applicable law) (1)
convert the LIBOR Borrowing of such Lender to a Base Rate Borrowing; (2) pay
all accrued and unpaid interest to date on the amount so converted; and (3) pay
any amounts required to compensate each Lender for any additional cost or
expense which any Lender may incur as a result of such adoption of or change in
such Legal Requirement or in the interpretation or administration thereof and
any Funding Loss which any Lender may incur as a result of such conversion.
If, when Agent so notifies Borrower, Borrower has given a Rate Designation
Notice specifying a LIBOR Borrowing but the selected Interest Period has not
yet begun, as to the applicable Lender such Rate Designation Notice shall be
deemed to be of no force and effect, as if never made, and the balance of the
Loans made by such Lender specified in such Rate Designation Notice shall bear
interest at the Base Rate until a different available Interest Option shall be
designated in accordance herewith.
(ii) Increased Cost of Borrowings. Subject to Section 11.15, if
the adoption after the Effective Date of any applicable Legal Requirement or
any change after the Effective Date in any applicable Legal Requirement or in
the interpretation or administration thereof by any Governmental Authority or
compliance by any Lender with any request or directive (whether or not having
the force of law) issued after the Effective Date by any central bank or
Governmental Authority shall at any time as a result of any portion of the
principal balances of the Notes being maintained on the basis of a Eurodollar
Rate:
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<PAGE> 39
(1) subject any Lender to any Taxes, or any deduction or
withholding for any Taxes, on or from any payment due
under any LIBOR Borrowing or other amount due
hereunder, other than income and franchise taxes of
the United States or its political subdivisions or
such other jurisdiction in which the applicable
Lender has its principal office or applicable lending
office; or
(2) change the basis of taxation of payments due from
Borrower to any Lender under any LIBOR Borrowing
(otherwise than by a change in the rate of taxation
of the overall net income of such Lender); or
(3) impose, modify, increase or deem applicable any
reserve requirement (excluding that portion of any
reserve requirement included in the calculation of
the applicable Eurodollar Rate), special deposit
requirement or similar requirement (including, but
not limited to, state law requirements) against
assets of any Lender, or against deposits with any
Lender, or against loans made by any Lender, or
against any other funds, obligations or other
Property owned or held by any Lender; or
(4) impose on any Lender any other condition regarding
any LIBOR Borrowing;
and the result of any of the foregoing is to increase the cost to any Lender of
agreeing to make or of making, renewing or maintaining such LIBOR Borrowing, or
reduce the amount of principal or interest received by any Lender, then, within
15 Business Days after demand by Agent (accompanied by a statement setting
forth in reasonable detail the applicable Lender's basis therefor), Borrower
shall pay to Agent additional amounts which shall compensate each Lender for
such increased cost or reduced amount. The determination by any Lender of the
amount of any such increased cost, increased reserve requirement or reduced
amount shall be conclusive and binding, absent manifest error. Borrower shall
have the right, if it receives from Agent any notice referred to in this
paragraph, upon three Business Days' notice to Agent (which shall notify each
affected Lender), either (i) to repay in full (but not in part) any borrowing
with respect to which such notice was given, together with any accrued interest
thereon, or (ii) to convert the LIBOR Borrowing which is the subject of the
notice to a Base Rate Borrowing; provided, that any such repayment or
conversion shall be accompanied by payment of (x) the amount required to
compensate each Lender for the increased cost or reduced amount referred to in
the preceding paragraph; (y) all accrued and unpaid interest to date on the
amount so repaid or converted, and (z) any Funding Loss which any Lender may
incur as a result of such repayment or conversion. Each Lender will notify
Borrower through Agent of any event occurring after the date of this Agreement
which will entitle such Lender to compensation pursuant to this Section as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation, and (if so requested by Borrower through Agent) will
designate a different lending office of such Lender for the applicable LIBOR
Borrowing or will take such other action as Borrower may reasonable request if
such designation or action is consistent with the internal policy of such
Lender and legal and regulatory restrictions, will avoid the need for, or
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<PAGE> 40
reduce the amount of, such compensation and will not, in the sole opinion of
such Lender, be disadvantageous to such Lender (provided that such Lender shall
have no obligation so to designate a different lending office which is located
in the United States of America).
(iii) Inadequacy of Pricing and Rate Determination. If, for any
reason with respect to any Interest Period, Agent (or, in the case of clause 3
below, the applicable Lender) shall have determined (which determination shall
be conclusive and binding upon Borrower, absent manifest error) that:
(1) Agent is unable through its customary general
practices to determine any applicable Eurodollar
Rate, or
(2) by reason of circumstances affecting the applicable
market, generally, Agent is not being offered
deposits in United States dollars in such market, for
the applicable Interest Period and in an amount equal
to the amount of any applicable LIBOR Borrowing
requested by Borrower, or
(3) any applicable Eurodollar Rate will not adequately
and fairly reflect the cost to any Lender of making
and maintaining such LIBOR Borrowing hereunder for
any proposed Interest Period,
then Agent shall give Borrower notice thereof and thereupon, (A) any Rate
Designation Notice previously given by Borrower designating the applicable
LIBOR Borrowing which has not commenced as of the date of such notice from
Agent shall be deemed for all purposes hereof to be of no force and effect, as
if never given, and (B) until Agent shall notify Borrower that the
circumstances giving rise to such notice from Agent no longer exist, each Rate
Designation Notice requesting the applicable Eurodollar Rate shall be deemed a
request for a Base Rate Borrowing, and any applicable LIBOR Borrowing then
outstanding shall be converted, without any notice to or from Borrower, upon
the termination of the Interest Period then in effect with respect to it, to a
Base Rate Borrowing.
(iv) Funding Losses. Borrower shall indemnify each Lender against
and hold each Lender harmless from any Funding Loss. Subject to Section 11.15,
this indemnity shall survive the payment of the Notes. Within 15 Business Days
after demand by Agent (accompanied by a certificate of such Lender setting
forth in reasonable detail the amount and calculation of the amount claimed as
to any Funding Losses, which shall be conclusive and binding upon Borrower,
absent manifest error), Borrower shall pay to Agent, for the account of such
Lender, the amount of such Funding Losses.
(d) Funding Offices; Adjustments Automatic; Calculation Year. Any
Lender may, if it so elects, fulfill its obligation as to any LIBOR Borrowing
by causing a branch or affiliate of such Lender to make such Loan and may
transfer and carry such Loan at, to or for the account of any branch office or
affiliate of such Lender; provided, that in such event for the purposes of this
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<PAGE> 41
Agreement such Loan shall be deemed to have been made by such Lender and the
obligation of Borrower to repay such Loan shall nevertheless be to such Lender
and shall be deemed held by it for the account of such branch or affiliate.
Without notice to Borrower or any other Person, each rate required to be
calculated or determined under this Agreement shall automatically fluctuate
upward and downward in accordance with the provisions of this Agreement.
Interest at the Prime Rate shall be computed on the basis of the actual number
of days elapsed in a year consisting of 365 or 366 days, as the case may be.
All other interest required to be calculated or determined under this Agreement
shall be computed on the basis of the actual number of days elapsed in a year
consisting of 360 days, unless the Ceiling Rate would thereby be exceeded, in
which event, to the extent necessary to avoid exceeding the Ceiling Rate, the
applicable interest shall be computed on the basis of the actual number of days
elapsed in the applicable calendar year in which accrued.
(e) Funding Sources. Notwithstanding any provision of this
Agreement to the contrary, each Lender shall be entitled to fund and maintain
its funding of all or any part of the Loans in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement all determinations
hereunder shall be made as if each Lender had actually funded and maintained
each LIBOR Borrowing during each Interest Period through the purchase of
deposits having a maturity corresponding to such Interest Period and bearing an
interest rate equal to the Eurodollar Rate for such Interest Period.
4. Payments; Pro Rata Treatment; Computations, Etc.
4.1 Payments.
(a) Except to the extent otherwise provided herein, all payments
of principal, interest, Reimbursement Obligations and other amounts to be made
by Borrower hereunder, under the Notes and under the other Loan Documents shall
be made in Dollars, in immediately available funds, to Agent at the Principal
Office (or in the case of a successor Agent, at the principal office of such
successor Agent in the United States), not later than 11:00 a.m. Houston time
on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day).
(b) Borrower shall, at the time of making each payment hereunder,
under any Note or under any other Loan Document, specify to Agent the Loans or
other amounts payable by Borrower hereunder or thereunder to which such payment
is to be applied. Each payment received by Agent hereunder, under any Note or
under any other Loan Document for the account of a Lender shall be paid
promptly to such Lender, in immediately available funds. If Agent fails to
send to any Lender the applicable amount by the close of business on the date
any such payment is received by Agent if such payment is received prior to
11:00 a.m. Houston time (or on the next succeeding Business Day with respect to
payments which are received after 11:00 a.m. Houston time), Agent shall pay to
the applicable Lender interest on such amount from such date at the Federal
Funds Rate. Borrower, the Lenders and Agent acknowledge and agree that this
provision and each other
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<PAGE> 42
provision of this Agreement or any of the other Loan Documents relating to the
application of amounts in payment of the Obligations shall be subject to the
provisions of Section 4.2(d) regarding pro rata application of amounts after an
Event of Default shall have occurred and be continuing.
(c) If the due date of any payment hereunder or under any Note
falls on a day which is not a Business Day, the due date for such payments
(except as otherwise provided in clause (2) of the definition of "Interest
Period") shall be extended to the next succeeding Business Day and interest
shall be payable for any principal so extended for the period of such
extension.
(d) All payments by the Borrower hereunder or under any other Loan
Document shall be made free and clear of and without deduction for or on
account of any present or future income, stamp, or other taxes, fees, duties,
withholding or other charges of any nature whatsoever imposed by any taxing
authority excluding in the case of Agent, each Issuer and each Lender taxes
imposed on or measured by its net income or franchise taxes imposed by the
jurisdiction in which it is organized or through which it acts for purposes of
this Agreement (such non-excluded items being hereinafter referred to as
"Taxes"). If as a result of any change in law (or the interpretation thereof)
after the date that Agent, the applicable Issuer or the applicable Lender
became a party to this Agreement, any withholding or deduction from any payment
to be made to, or for the account of, such Person by any Obligor hereunder or
under any other Loan Document is required in respect of any Taxes pursuant to
any applicable law, rule, or regulation, then the Borrower will (i) pay to the
relevant authority the full amount required to be so withheld or deducted; (ii)
to the extent available, promptly forward to the Agent an official receipt or
other documentation reasonably satisfactory to the Agent evidencing such
payment to such authority; and (iii) pay to the Agent, for the account of each
affected Person, such additional amount or amounts as are necessary to ensure
that the net amount actually received by such Lender will equal the full amount
such Person would have received had no such withholding or deduction been
required. Each such Person shall determine such additional amount or amounts
payable to it (which determination shall, in the absence of manifest error, be
conclusive and binding on the Borrower). If Agent, any Issuer or any Lender
becomes aware that any such withholding or deduction from any payment to be
made by any Obligor hereunder or under any other Loan Document is required,
then such Person shall promptly notify the Agent and the Borrower thereof
stating the reasons therefor and the additional amount required to be paid
under this Section. Each Lender shall execute and deliver to the Agent and
Borrower such forms as it may be required to execute and deliver pursuant to
Section 11.13 hereof. To the extent that any such withholding or deduction
results from the failure of a Lender to provide a form required by Section
11.13 hereof (unless such failure is due to some prohibition under applicable
Legal Requirements), the Borrower shall have no obligation to pay the
additional amount required by clause (iii) above. Anything in this Section
notwithstanding, if any Lender elects to require payment by the Borrower of any
material amount under this Section, the Borrower may, within 60 days after the
date of receiving notice thereof and so long as no Default shall have occurred
and be continuing, elect to terminate such Lender as a party to this Agreement;
provided that, concurrently with such termination the Borrower shall (i) if the
Agent and each of the other Lenders shall consent, pay that Lender all
principal, interest and fees and other amounts owed to such Lender through such
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<PAGE> 43
date of termination or (ii) have arranged for another financial institution
approved by the Agent (such approval not to be unreasonably withheld or
delayed) as of such date, to become a substitute Lender for all purposes under
this Agreement in the manner provided in Section 11.6; provided further that,
prior to substitution for any Lender, the Borrower shall have given written
notice to the Agent of such intention and the Lenders shall have the option,
but no obligation, for a period of 60 days after receipt of such notice, to
increase their Commitments in order to replace the affected Lender in lieu of
such substitution.
4.2 Pro Rata Treatment. Except to the extent otherwise provided
herein: (a) each borrowing from the Lenders under Section 2.1 hereof shall be
made (x) in the case of Term Loans, ratably from the Term Loan Lenders in
accordance with the amounts set forth opposite their signature lines hereto
under the heading "Term Loans" and (y) in the case of Revolving Loans, ratably
from the Revolving Loan Lenders in accordance with their respective Revolving
Loan Commitments; (b) each payment of revolving loan commitment fees shall be
made for the account of the Revolving Loan Lenders, and each termination or
reduction of the Revolving Loan Commitments of the Revolving Loan Lenders under
Section 2.3 hereof shall be applied, pro rata, according to the Revolving Loan
Lenders' respective Revolving Loan Commitments; (c) each payment by Borrower of
principal of or interest on the Term Loans or Revolving Loans, as the case may
be, prior to the occurrence of an Event of Default (or after the applicable
Event of Default shall have been fully cured or waived) shall be made to Agent
for the account of the Lenders pro rata in accordance with the respective
unpaid principal amounts of such Term Loans or Revolving Loans, as the case may
be, held by the Lenders; (d) each payment by Borrower of principal of or
interest on the Term Loans or Revolving Loans, as the case may be, while an
Event of Default shall have occurred and be continuing shall be made to Agent
for the account of the Lenders pro rata in accordance with the respective
unpaid principal amounts of the Obligations held by the Lenders (i.e. such
payments shall be shared by all of the Lenders and not restricted to the
holders of Revolving Notes or Term Notes, regardless of any attempted contrary
designation by Borrower), and (e) the Revolving Loan Lenders (other than the
applicable Issuer) shall purchase from the applicable Issuer participations in
each Letter of Credit to the extent of their respective Revolving Loan
Commitment Percentages.
4.3 Certain Actions, Notices, Etc. Notices to Agent of any
termination or reduction of Revolving Loan Commitments and of borrowings and
optional prepayments of Loans and requests for issuances of Letters of Credit
shall be irrevocable and shall be effective only if received by Agent not later
than 11:00 a.m. Houston time on the number of Business Days prior to the date
of the relevant termination, reduction, borrowing and/or prepayment specified
below:
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<TABLE>
<CAPTION>
Number of Business Days
Prior Notice
------------
<S> <C>
Termination or Reduction of
Revolving Loan Commitments 5
Revolving Loan repayment same day
Borrowing at the Base Rate 1
Letter of Credit issuance 2
Prepayments required pursuant to
Section 3.2(b) same day
--------------
Optional prepayment of
Term Loan 5
Selection of a Eurodollar Rate 3 LIBOR
Business Days
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
applicable Revolving Loan Commitment to be terminated or reduced. Each such
notice of borrowing or prepayment shall specify the amount of the Loans to be
borrowed or prepaid and the date of borrowing or prepayment (which shall be a
Business Day). Agent shall promptly notify the affected Lenders of the
contents of each such notice.
4.4 Non-Receipt of Funds by Agent. Unless Agent shall have been
notified by a Lender or Borrower (the "Payor") prior to the date on which such
Lender is to make payment to Agent of the proceeds of a Loan (or funding of a
drawing under a Letter of Credit or reimbursement with respect to any drawing
under a Letter of Credit) to be made by it hereunder or Borrower is to make a
payment to Agent for the account of one or more of the Lenders, as the case may
be (such payment being herein called the "Required Payment"), which notice
shall be effective upon receipt, that the Payor does not intend to make the
Required Payment to Agent, Agent may assume that the Required Payment has been
made and may, in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient on such date and,
if the Payor has not in fact made the Required Payment to Agent, the recipient
of such payment (or, if such recipient is the beneficiary of a Letter of
Credit, Borrower and, if Borrower fails to pay the amount thereof to Agent
forthwith upon demand, the Lenders ratably in proportion to their respective
Revolving Loan Commitment Percentages) shall, on demand, pay to Agent the
amount made available by Agent, together with interest thereon in respect of
the period commencing on the date such amount was so
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<PAGE> 45
made available by Agent until the date Agent recovers such amount at a rate per
annum equal to the Federal Funds Rate for such period.
4.5 Sharing of Payments, Etc. If a Lender shall obtain payment of
any principal of or interest on any Loan made by it under this Agreement, on
any Reimbursement Obligation or on any other Obligation then due to such Lender
hereunder, through the exercise of any right of set-off (including, without
limitation, any right of setoff or Lien granted under Section 9.2 hereof),
banker's lien, counterclaim or similar right or otherwise, it shall promptly
purchase from the other Lenders participations in the Loans made, or
Reimbursement Obligations or other Obligations held, by the other Lenders in
such amounts, and make such other adjustments from time to time as shall be
equitable to the end that all the Lenders shall share the benefit of such
payment (net of any expenses which may be incurred by such Lender in obtaining
or preserving such benefit) pro rata in accordance with the unpaid Obligations
then due to each of them. To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be restored.
Borrower agrees, to the fullest extent it may effectively do so under
applicable law, that any Lender so purchasing a participation in the Loans
made, or Reimbursement Obligations or other Obligations held, by other Lenders
may exercise all rights of set-off, bankers' lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender were a
direct holder of Loans, Reimbursement Obligations or other Obligations in the
amount of such participation. Nothing contained herein shall require any
Lender to exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness or obligation of Borrower.
5. Conditions Precedent.
5.1 Initial Loans and Letters of Credit. The obligation of each
Lender or each Issuer to make its initial Loans or issue or participate in a
Letter of Credit (if such Letter of Credit is issued prior to the funding of
the initial Loans) hereunder is subject to the following conditions precedent,
each of which shall have been fulfilled or waived to the satisfaction of Agent:
(a) Authorization and Status. Agent shall have received (i)
copies of the Organizational Documents of each Obligor certified as true and
correct by its secretary, assistant secretary or other equivalent officer, (ii)
evidence reasonably satisfactory to Agent of all action taken by each Obligor
authorizing the execution, delivery and performance of the Loan Documents and
all other documents related to this Agreement to which it is a party
(including, without limitation, a certificate of the secretary, assistant
secretary or other equivalent officer of each such party which is a corporation
setting forth the resolutions of its Board of Directors authorizing the
transactions contemplated thereby), and (iii) such certificates as may be
appropriate to demonstrate the qualification and good standing of each Obligor
in the jurisdiction of its organization and in each other jurisdiction where
the failure in which to qualify could reasonably be expected to have a Material
Adverse Effect.
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(b) Incumbency. Each Obligor shall have delivered to Agent a
certificate in respect of the name and signature of each of the officers (i)
who is authorized to sign on its behalf the applicable Loan Documents to which
it is a party related to any Loan or the issuance of any Letter of Credit and
(ii) who will, until replaced by another officer or officers duly authorized
for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection with any
Loan or the issuance of any Letter of Credit. Agent and each Lender may
conclusively rely on such certificates until they receive notice in writing
from the applicable Obligor to the contrary.
(c) Notes. Agent shall have received the appropriate Notes of
Borrower for each Lender, duly completed and executed.
(d) Loan Documents. Each Obligor shall have duly executed and
delivered the Loan Documents to which it is a party (in such number of copies
as Agent shall have requested). Each such Loan Document shall be in
substantially the form furnished to the Lenders prior to their execution of
this Agreement, together with such changes therein as Agent may approve.
(e) Security Matters. All such action as Agent shall have
requested to perfect the Liens created pursuant to the Security Documents which
are in effect as of the Effective Date shall have been taken, including,
without limitation, where applicable, the filing and recording of the Security
Documents with the appropriate Governmental Authorities. Agent shall also have
received evidence satisfactory to it that the Liens created by the Security
Documents constitute first priority Liens, except for the exceptions expressly
provided for herein or therein, including, without limitation, Uniform
Commercial Code search reports, satisfactory title evidence in form and
substance acceptable to Agent, and executed releases of any prior Liens (except
as permitted by Section 8.2).
(f) Fees and Expenses. Borrower shall have paid to Agent all
unpaid fees in the amounts previously agreed upon in writing among Borrower and
Agent.
(g) Insurance. Borrower shall have delivered to Agent
certificates of insurance satisfactory to Agent evidencing the existence of all
insurance required to be maintained by each Obligor by this Agreement and the
Security Documents.
(h) Opinions of Counsel. Agent shall have received such opinions
of counsel to Obligors as Agent shall reasonably request with respect to
Obligors and the Loan Documents.
(i) Consents. Agent shall have received evidence satisfactory to
the Majority Lenders that all material consents of each Governmental Authority
and of each other Person, if any, reasonably required in connection with (a)
the Loans and the Letters of Credit and (b) the execution, delivery and
performance of this Agreement and the other Loan Documents have been
satisfactorily obtained.
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<PAGE> 47
(j) Key Agreements. Agent shall have received copies of the Key
Agreements (other than the documents relating to the EXIM Facility, which shall
be delivered as soon as available), in Proper Form, and, where applicable,
shall have received evidence satisfactory to Agent that the transactions
contemplated therein have been consummated, subject only to the requested
funding of Loans. Upon request of Agent or the Majority Lenders, the copies of
any designated Key Agreements shall be certified as true, correct and complete
by Borrower.
(k) Equity. Borrower shall have received (through equity
contributions by Holdings to Borrower) not less than $10,000,000 in proceeds
from the sale of equity interests in Holdings.
(l) Purchase Agreement. Agent shall have received evidence
satisfactory to the Majority Lenders that, concurrently with the initial Loan
made hereunder, the acquisition contemplated by the Purchase Agreement shall be
consummated, including the delivery to Borrower of an indemnity regarding
environmental liabilities, in Proper Form, from Weatherford Enterra, Inc.
(m) Other Documents. Agent shall have received such other
documents consistent with the terms of this Agreement and relating to the
transactions contemplated hereby as Agent may reasonably request.
5.2 All Loans and Letters of Credit. The obligation of each
Lender to make any Loan to be made by it hereunder or to issue or participate
in any Letter of Credit is subject to: (a) the accuracy, in all material
respects, on the date of such Loan or such issuance of all representations and
warranties of each Obligor contained in this Agreement and the other Loan
Documents; (b) Agent shall have received the following, all of which shall be
duly executed and in Proper Form: (1) a Request for Extension of Credit as to
the Loan or the Letter of Credit, as the case may be, no later than 11:00 a.m.
Houston time on the Business Day on which such Request for Extension of Credit
must be given under Section 4.3 hereof, (2) in the case of a Letter of Credit,
an Application, and (3) such other documents as Agent may reasonably require;
(c) prior to the making of such Loan or the issuance of such Letter of Credit,
there shall have occurred no event which could reasonably be expected to have a
Material Adverse Effect; (d) no Default or Event of Default shall have occurred
and be continuing, and (e) the making of such Loan or the issuance of such
Letter of Credit shall not be illegal or prohibited by any Legal Requirement.
The submission by the Borrower of a Request for Extension of Credit shall be
deemed to be a representation and warranty that the conditions precedent to the
applicable Loan or Letter of Credit have been satisfied.
6. Representations and Warranties.
To induce Agent, the Issuers and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, Borrower represents and warrants (such representations and warranties
to survive any investigation and the making of the Loans and the issuance of
any Letters of Credit) to the Lenders, the Issuers and Agent as follows:
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<PAGE> 48
6.1 Organization. Each Obligor (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all necessary power and authority to conduct its business
as presently conducted, and (c) is duly qualified to do business and in good
standing in the jurisdiction of its organization and in all jurisdictions in
which the failure to so qualify could reasonably be expected to have a Material
Adverse Effect.
6.2 Financial Statements. Borrower has furnished to Agent (i)
audited financial statements (including a balance sheet) as to Borrower which
fairly present in all material respects, in accordance with GAAP, the
consolidated financial condition and the results of operations of (a) Borrower
and its Subsidiaries, (b) NATCO Canada, (c) Cummings and (d) Holdings,
respectively, as at the end of the fiscal year ended March 31, 1996, (ii)
unaudited consolidating financial statements (including a balance sheet) as to
Borrower and its Subsidiaries which fairly present in all material respects, in
accordance with GAAP, the financial condition and the results of operations of
Borrower and its Subsidiaries, on a consolidating basis, as at the end of the
fiscal year ended March 31, 1996 and (iii) unaudited financial statements
(including a balance sheet) as to Borrower and its Subsidiaries which fairly
present in all material respects, in accordance with GAAP, the consolidated
financial condition and the results of operations of Borrower and its
Subsidiaries as at the end of the fiscal quarter ended December 31, 1996. No
events, conditions or circumstances have occurred from the date that the
financial statements were delivered to Agent through the Effective Date which
would cause said financial statements to be misleading in any material respect.
There are no material instruments or liabilities which should be reflected in
such financial statements provided to Agent which are not so reflected.
6.3 Enforceable Obligations; Authorization. The Loan Documents to
which the applicable Obligors are parties are legal, valid and binding
obligations of each applicable Obligor, enforceable in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency and other
similar laws and judicial decisions affecting creditors' rights generally and
by general equitable principles. The execution, delivery and performance of
the Loan Documents by the respective Obligors (a) have all been duly authorized
by all necessary action; (b) are within the power and authority of each
applicable Obligor; (c) do not and will not contravene or violate any Legal
Requirement applicable to any applicable Obligor or the Organizational
Documents of any applicable Obligor, the contravention or violation of which
could reasonably be expected to have a Material Adverse Effect; (d) do not and
will not result in the breach of, or constitute a default under, any material
agreement or instrument by which any Obligor or any of its Property may be
bound, and (e) do not and will not result in the creation of any Lien upon any
Property of any Obligor, except in favor of Agent or as expressly contemplated
herein or therein. All necessary permits, registrations and consents for such
making and performance have been obtained. Except as otherwise expressly
stated in the Loan Documents, the Liens of the Security Documents, will
constitute valid and perfected first and prior Liens on the Property described
therein, subject to no other Liens whatsoever except Permitted Liens.
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<PAGE> 49
6.4 Other Debt. No Obligor is in default in the payment of any
other Indebtedness or under any agreement, mortgage, deed of trust, security
agreement or lease to which it is a party and which default could reasonably be
expected to have a Material Adverse Effect.
6.5 Litigation. There is no litigation or administrative
proceeding, to the knowledge of any executive officer of Borrower, pending or
threatened against, nor any outstanding judgment, order or decree against, any
Obligor before or by any Governmental Authority which does or could reasonably
be expected to have a Material Adverse Effect. No Obligor is in default with
respect to any judgment, order or decree of any Governmental Authority where
such default could reasonably be expected to have a Material Adverse Effect.
6.6 Title. Each Obligor has good and marketable title to the
Collateral, if any, pledged (or purported to be pledged) by such Obligor
pursuant to the Security Documents, free and clear of all Liens except
Permitted Liens.
6.7 Taxes. Each Obligor has filed all tax returns required to
have been filed and paid all taxes shown thereon to be due, except those for
which extensions have been obtained and those which are being contested in good
faith or where the failure to make required filings or pay required taxes could
not reasonably be expected to have a Material Adverse Effect.
6.8 Regulations G, U and X. None of the proceeds of any Loan will
be used for the purpose of purchasing or carrying directly or indirectly any
margin stock or for any other purpose would constitute this transaction a
"purpose credit" within the meaning of Regulations G, U and X of the Board of
Governors of the Federal Reserve System, as any of them may be amended from
time to time.
6.9 Subsidiaries. As of the Effective Date, Borrower has no
Subsidiaries other than NATCO Canada, NATCO Japan Co., Inc., a Japanese
corporation, National Tank Company, S.A., a Venezuelan corporation, Total
Engineering Services Team, Inc., a Louisiana corporation, Test, Inc., a
Louisiana corporation, Test International, Inc., a Cayman Islands company, and
Test International E.C., a Bahranian company.
6.10 No Untrue or Misleading Statements. No document, instrument
or other writing furnished to the Lenders by or on behalf of any Obligor in
connection with the transactions contemplated in any Loan Document contains any
untrue material statement of fact or omits to state any such fact necessary to
make the representations, warranties and other statements contained herein or
in such other document, instrument or writing not misleading in any material
respect.
6.11 ERISA. With respect to each Plan, Borrower and each member of
the Controlled Group have fulfilled their obligations, including obligations
under the minimum funding standards of ERISA and the Code and are in compliance
in all material respects with the provisions of ERISA and the Code. No event
has occurred which could result in a liability of Borrower or any member
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of the Controlled Group to the PBGC or a Plan (other than to make contributions
in the ordinary course) could reasonably be expected to have a Material Adverse
Effect. There have not been any nor are there now existing any events or
conditions that would cause the Lien provided under Section 4068 of ERISA to
attach to any Property of Borrower or any member of the Controlled Group.
Unfunded Liabilities as of the date hereof do not exceed $500,000. No
"prohibited transaction" has occurred with respect to any Plan.
6.12 Investment Company Act. No Obligor is an investment company
within the meaning of the Investment Company Act of 1940, as amended, or,
directly or indirectly, controlled by or acting on behalf of any Person which
is an investment company, within the meaning of said Act.
6.13 Public Utility Holding Company Act. No Obligor is an
"affiliate" or a "subsidiary company" of a "public utility company," or a
"holding company," or an "affiliate" or a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended.
6.14 Solvency. After giving effect to the equity contributions
required under the provisions of Section 5.1(k), none of Borrower, any Obligor,
or Borrower and its Subsidiaries, on a consolidated basis, is "insolvent," as
such term is used and defined in (i) the Bankruptcy Code and (ii) the
fraudulent conveyance statutes of the State of Texas or of any jurisdiction in
which any of the Collateral may be located.
6.15 Fiscal Year. The fiscal year of each Obligor ends on March 31.
6.16 Compliance. Each Obligor is in compliance with all Legal
Requirements applicable to it, except to the extent that the failure to comply
therewith could not reasonably be expected to have a Material Adverse Effect.
6.17 Environmental Matters. Each Obligor has, to the best
knowledge of their respective executive officers, obtained and maintained in
effect all Environmental Permits (or the applicable Person has initiated the
necessary steps to transfer the Environmental Permits into its name or obtain
such permits), the failure to obtain which could reasonably be expected to have
a Material Adverse Effect. Each Obligor and its Properties, business and
operations have been and are, to the best knowledge of their respective
executive officers, in compliance with all applicable Requirements of
Environmental Law and Environmental Permits the failure to comply with which
could reasonably be expected to have a Material Adverse Effect. Each Obligor
and its Properties, business and operations are not subject to any (A)
Environmental Claims or (B), to the best knowledge of their respective
executive officers (after making reasonable inquiry of the personnel and
records of their respective Corporations), Environmental Liabilities, in either
case direct or contingent, arising from or based upon any act, omission, event,
condition or circumstance occurring or existing on or prior to the date hereof
which could reasonably be expected to have a Material Adverse Effect. None of
the officers of any Obligor has received any notice of any violation or alleged
violation of any
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Requirements of Environmental Law or Environmental Permit or any Environmental
Claim in connection with its Properties, liabilities, condition (financial or
otherwise), business or operations which could reasonably be expected to have a
Material Adverse Effect. Borrower does not know of any event or condition with
respect to currently enacted Requirements of Environmental Laws presently
scheduled to become effective in the future with respect to any of the
Properties of any Obligor which could reasonably be expected to have a Material
Adverse Effect, for which the applicable Obligor has not made good faith
provisions in its business plan and projections of financial performance.
6.18 Collateral Covered. As of the Effective Date, the Collateral
covered by the Security Documents constitutes substantially all material
personal Property owned by the Borrower and its Subsidiaries (other than
Foreign Subsidiaries).
7. Affirmative Covenants.
Borrower covenants and agrees with Agent and the Lenders that prior to
the termination of this Agreement it will do or cause to be done, and cause
each other Obligor (unless limited by the language of the applicable provision
to less than all of the Obligors) to do or cause to be done, each and all of
the following:
7.1 Taxes, Existence, Regulations, Property, Etc. At all times,
except where failure or noncompliance could not reasonably be expected to have
a Material Adverse Effect: (a) pay when due all taxes and governmental charges
of every kind upon it or against its income, profits or Property, unless and
only to the extent that the same shall be contested diligently in good faith
and adequate reserves in accordance with GAAP have been established therefor;
(b) do all things necessary to preserve its existence, qualifications, rights
and franchises; (c) comply with all applicable Legal Requirements (including
without limitation Requirements of Environmental Law) in respect of the conduct
of its business and the ownership of its Property, and (d) cause its Property
to be protected, maintained and kept in good repair and make all replacements
and additions to such Property as may be reasonably necessary to conduct its
business properly and efficiently.
7.2 Financial Statements and Information. Furnish to Agent and
each Lender each of the following: (a) as soon as available and in any event
within 120 days after the end of each applicable fiscal year, beginning with
the fiscal year ending on March 31, 1998, Annual Financial Statements of
Borrower, NATCO Canada, Holdings and Cummings; (b) as soon as available and in
any event within 45 days after the end of each fiscal quarter (other than the
last fiscal quarter) of each applicable fiscal year, Quarterly Financial
Statements of Borrower, NATCO Canada, Holdings and Cummings; (c) concurrently
with the financial statements provided for in Subsections 7.2(a) and (b)
hereof, such schedules, computations and other information, in reasonable
detail, as may be reasonably required by Agent to demonstrate compliance with
the covenants set forth herein or reflecting any non-compliance therewith as of
the applicable date, all certified and signed by a duly authorized officer of
Borrower as true and correct in all material respects to the best knowledge of
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such officer and, commencing with the quarterly financial statement prepared as
of June 30, 1997, a compliance certificate ("Compliance Certificate")
substantially in the form of Exhibit F hereto, duly executed by such authorized
officer; (d) by June 30 of each fiscal year, Borrower's annual business plan
for the next fiscal year (including its proforma balance sheet and income and
cash flow projections for such fiscal year); (e) promptly upon their becoming
publicly available, each financial statement, report, notice or definitive
proxy statements sent by any Obligor to shareholders generally and each regular
or periodic report and each registration statement, prospectus or written
communication (other than transmittal letters) in respect thereof filed by any
Obligor with, or received by any Obligor in connection therewith from, any
securities exchange or the Securities and Exchange Commission or any successor
agency; (f) (1) as of the Effective Date and (2) within 10 days after (i) the
end of each calendar month or (ii) receipt of a request therefor (which may be
given from time to time) from Agent, a Borrowing Base Certificate as at the
Effective Date or the last day of such calendar month or the date of such
receipt, as the case may be, together with such supporting information as Agent
may reasonably request; (g) within 20 days after (i) the end of each calendar
quarter or (ii) receipt of a request therefor (which may be given from time to
time) from Agent, (1) a listing and aging of the Accounts of Borrower and its
Subsidiaries (other than NATCO Canada) as of the end of the most recently ended
calendar month, prepared in reasonable detail and containing such other
information as Agent may reasonably request and (2) a summary of the Inventory
of Borrower and its Subsidiaries (other than NATCO Canada) as of the end of the
most recently ended calendar month, prepared in reasonable detail and
containing such other information as Agent may reasonably request; (h) from
time to time, at any time upon the request of Agent, but at the cost of
Borrower, a report of an independent collateral field examiner approved by
Agent in writing and reasonably acceptable to Borrower (which may be, or be
affiliated with, Agent or one of the Banks) with respect to the Accounts and
Inventory components included in the Borrowing Base (provided, however, that so
long as no Event of Default has occurred and is continuing, Agent shall not
require such a report more than once per calendar year and during the
continuance of an Event of Default, Agent shall not require such a report more
than once per calendar quarter), and (i) such other information relating to the
condition (financial or otherwise), operations, prospects or business of any
Obligor as from time to time may be reasonably requested by Agent. Each
delivery of a financial statement pursuant to this Section 7.2 shall constitute
a restatement of the representations contained in the last two sentences of
Section 6.2.
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7.3 Financial Tests. Have and maintain:
(a) Tangible Net Worth - Tangible Net Worth of not less
than (1) at all times during the period commencing on the Effective
Date through and including June 30, 1997, an amount equal to
$9,400,000 and (2) at all times during each fiscal quarter
thereafter, the minimum Tangible Net Worth required as of the end of
the immediately preceding fiscal quarter plus 50% of the net income of
Borrower and its Subsidiaries, on a consolidated basis (if positive),
for the period from March 31, 1997 through the last day of the fiscal
quarter ending immediately prior to the date of such calculation plus
100% of the net proceeds realized from the issuance of any equity
securities by Borrower or its Subsidiaries during that period.
(b) Debt to Capitalization Ratio - a Debt to
Capitalization Ratio of not greater than (1) 60% at all times during
the period commencing on the Effective Date through and including June
30, 1998; (2) 50% at all times during the period commencing on July 1,
1998 through and including June 30, 1999, and (3) 45% at all times
thereafter.
(c) Fixed Charge Coverage Ratio - a Fixed Charge Coverage
Ratio of not less than 1.25 to 1.00 at all times.
7.4 Inspection. Permit Agent and each Lender upon 3 days' prior
notice (unless a Default or an Event of Default has occurred which is
continuing, in which case no prior notice is required) to inspect its Property
in a manner consistent with applicable safety requirements and policies of
insurance, to examine its files, books and records, except classified
governmental material, and make and take away copies thereof, and to discuss
its affairs with its officers and accountants, all during normal business hours
and at such intervals and to such extent as Agent may reasonably desire.
7.5 Further Assurances. Promptly execute and deliver, at
Borrower's expense, any and all other and further instruments which may be
reasonably requested by Agent to cure any defect in the execution and delivery
of any Loan Document in order to effectuate the transactions contemplated by
the Loan Documents, and in order to grant, preserve protect and perfect the
validity and priority of the Liens created by the Security Documents.
7.6 Books and Records. Maintain books of record and account which
permit financial statements to be prepared in accordance with GAAP.
7.7 Insurance. Maintain insurance on its Property with
responsible companies in such amounts, with such deductibles and against such
risks as are usually carried by owners of similar businesses and Properties in
the same general areas in which Borrower or such Subsidiary operates or as
Agent may otherwise reasonably require, and furnish Agent satisfactory evidence
thereof promptly upon request. These insurance provisions are cumulative of
the insurance provisions of the Security Documents. Agent shall be provided
with a certificate showing coverages provided under the policies of insurance
and such policies shall be endorsed to the effect that they will not be
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canceled for nonpayment of premium, reduced or affected in any material manner
without thirty (30) days' prior written notice to Agent.
7.8 Notice of Certain Matters. Give Agent written notice of the
following promptly after any executive officer of Borrower shall become aware
of the same:
(a) the issuance by any court or governmental agency or authority
of any injunction, order or other restraint prohibiting, or having the effect
of prohibiting, the performance of this Agreement, any other Loan Document, or
the making of the Loans or the initiation of any litigation, or any claim or
controversy which would reasonably be expected to result in the initiation of
any litigation, seeking any such injunction, order or other restraint;
(b) the filing or commencement of any action, suit or proceeding,
whether at law or in equity or by or before any court or any Governmental
Authority involving claims in excess of $250,000 or which could reasonably be
expected to result in a Default hereunder; and
(c) any Event of Default or Default, specifying the nature and
extent thereof and the action (if any) which is proposed to be taken with the
respect thereto.
Borrower will also notify Agent in writing at least 30 days prior to the date
that it or any of its Subsidiaries changes its name or the location of its
chief executive office or principal place of business or the place where it
keeps its books and records. After the Effective Date, Borrower will notify
Agent in writing at least 45 days prior to Borrower's or any of its
Subsidiaries' (other than Foreign Subsidiaries) acquisition of any real
Property or any material personal Property having aggregate fair market value
in excess of $1,000,000, wherever located, other than the Collateral covered by
the Security Documents (such acquisition or ownership being herein called an
"Additional Collateral Event" and the Property so acquired or owned being
herein called "Additional Collateral").
7.9 Capital Adequacy. If any Lender shall have determined that
the adoption after the Effective Date or effectiveness after the Effective Date
(whether or not previously announced) of any applicable law, rule, regulation
or treaty regarding capital adequacy, or any change therein after the Effective
Date, or any change in the interpretation or administration thereof after the
Effective Date by any Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender with any request or directive after the Effective Date regarding capital
adequacy (whether or not having the force of law) of any such Governmental
Authority, central bank or comparable agency has or would have the effect of
reducing the rate of return on such Lender's capital as a consequence of its
obligations hereunder, under the Letters of Credit, the Notes or other
Obligations held by it to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, upon satisfaction of the
conditions precedent set forth in this Section, after demand by such Lender
(with a copy to Agent) as provided below, pay (subject to
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Sections 11.7 and 11.15 hereof) to such Lender such additional amount or
amounts as will compensate such Lender for such reduction. The certificate of
any Lender setting forth such amount or amounts as shall be necessary to
compensate it and the basis thereof and reasons therefor shall be delivered as
soon as practicable to Borrower and shall be conclusive and binding, absent
manifest error. Borrower shall pay the amount shown as due on any such
certificate within fifteen (15) Business Days after the delivery of such
certificate. In preparing such certificate, a Lender may employ such
assumptions and allocations of costs and expenses as it shall in good faith
deem reasonable and may use any reasonable averaging and attribution method.
7.10 ERISA Information and Compliance. Promptly furnish to Agent
(i) immediately upon receipt, a copy of any notice of complete or partial
withdrawal liability under Title IV of ERISA and any notice from the PBGC under
Title IV of ERISA of an intent to terminate or appoint a trustee to administer
any Plan, (ii) if requested by Agent, promptly after the filing thereof with
the United States Secretary of Labor or the PBGC or the Internal Revenue
Service, copies of each annual and other report with respect to each Plan or
any trust created thereunder, (iii) immediately upon becoming aware of the
occurrence of any "reportable event," as such term is defined in Section 4043
of ERISA, for which the disclosure requirements of Regulation Section 2615.3
promulgated by the PBGC have not been waived, or of any "prohibited
transaction," as such term is defined in Section 4975 of the Code, in
connection with any Plan or any trust created thereunder, a written notice
signed by an authorized officer of Borrower or the applicable member of the
Controlled Group specifying the nature thereof, what action Borrower or the
applicable member of the Controlled Group is taking or proposes to take with
respect thereto, and, when known, any action taken by the PBGC, the Internal
Revenue Service or the Department of Labor with respect thereto, (iv) promptly
after the filing or receiving thereof by Borrower or any member of the
Controlled Group of any notice of the institution of any proceedings or other
actions which may result in the termination of any Plan, and (v) each request
for waiver of the funding standards or extension of the amortization periods
required by Sections 303 and 304 of ERISA or Section 412 of the Code promptly
after the request is submitted by Borrower or any member of the Controlled
Group to the Secretary of the Treasury, the Department of Labor or the Internal
Revenue Service, as the case may be. To the extent required under applicable
statutory funding requirements, Borrower will fund, or will cause the
applicable member of the Controlled Group to fund, all current service pension
liabilities as they are incurred under the provisions of all Plans from time to
time in effect, and comply with all applicable provisions of ERISA, in each
case, except to the extent that failure to do the same could not reasonably be
expected to have a Material Adverse Effect. Borrower covenants that it shall
and shall cause each member of the Controlled Group to (1) make contributions
to each Plan in a timely manner and in an amount sufficient to comply with the
contribution obligations under such Plan and the minimum funding standards
requirements of ERISA; (2) prepare and file in a timely manner all notices and
reports required under the terms of ERISA including but not limited to annual
reports; and (3) pay in a timely manner all required PBGC premiums, in each
case, except to the extent that failure to do the same could not reasonably be
expected to have a Material Adverse Effect.
7.11 Additional Security Documents. As soon as practicable and in
any event within 30 days after an Additional Collateral Event, Borrower shall
(a) execute and deliver or cause to be
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executed and delivered Security Documents, in Proper Form, in favor of Agent
and duly executed by the applicable Obligor, granting a first-priority Lien
(except for Permitted Liens and except for Liens securing the EXIM Facility
covering the "International Collateral", as such term is defined in the
Security Agreements) upon the applicable Additional Collateral securing all of
the Obligations (except as Agent may otherwise agree in order to limit
recording taxes or similar charges based upon the amount secured), and such
other documents (including, without limitation, all items reasonably required
by Agent in connection with the applicable Security Documents previously
executed hereunder, all in Proper Form) as may be reasonably required by Agent
in connection with the execution and delivery of such Security Documents; (b)
deliver or cause to be delivered such other documents or certificates
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as Agent may reasonably request, and (c) pay in full all
documentary stamps, filing and recording fees, taxes and other fees and charges
payable in connection with the filing and recording of any such Security
Document.
8. Negative Covenants.
Borrower covenants and agrees with Agent and the Lenders that prior to
the termination of this Agreement it will not, and will not suffer or permit
any of its Subsidiaries to, do any of the following:
8.1 Borrowed Money Indebtedness. Create, incur, suffer or permit
to exist, or assume or guarantee, directly or indirectly, or become or remain
liable with respect to any Borrowed Money Indebtedness, whether direct,
indirect, absolute, contingent or otherwise, except the following: (a)
Indebtedness under this Agreement and the other Loan Documents and Indebtedness
secured by Liens permitted by Section 8.2 hereof; (b) the liabilities existing
on the date of this Agreement and disclosed in the financial statements
delivered on or prior to the Effective Date pursuant to Section 6.2 hereof, and
subject to Section 8.10 hereof, all renewals, extensions and replacements (but
not increases) of any of the foregoing; (c) the Interest Rate Risk
Indebtedness; (d) purchase money Indebtedness to acquire Equipment obtained by
Borrower or any of its Subsidiaries in the ordinary course of business not
exceeding $2,000,000 at any one time outstanding, in the aggregate for all such
Indebtedness; (e) Indebtedness of NATCO Canada and its Subsidiaries under the
NATCO Canada Credit Facility; (f) Subordinated Indebtedness; (g) Indebtedness
of Borrower and its Subsidiaries under the EXIM Facility; (h) Indebtedness
created under leases which, in accordance with GAAP have been recorded or
should be recorded as capital leases, in an aggregate amount not to exceed
$500,000 at any one time outstanding, and (i) without limitation of any other
part of this Section, Indebtedness of Borrower or any of its Subsidiaries
created, incurred or assumed after the Effective Date, in an aggregate amount
not to exceed $500,000 at any one time outstanding.
8.2 Liens. Create or suffer to exist any Lien upon any of its
Property now owned or hereafter acquired, or acquire any Property upon any
conditional sale or other title retention device or arrangement or any purchase
money security agreement; or in any manner directly or indirectly sell, assign,
pledge or otherwise transfer any of its Accounts or General Intangibles;
except: (a) Liens created pursuant to any Loan Document; (b) Permitted Liens;
(c) Liens upon Property of NATCO
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Canada or its Subsidiaries securing the NATCO Canada Credit Facility; (d) Liens
upon "International Collateral" (as defined in the EXIM Facility) securing the
EXIM Facility, (e) other Liens securing the EXIM Facility which are subordinate
and inferior to the Liens created pursuant to the Loan Documents and (f) Liens
evidenced by capital leases permitted hereunder.
8.3 Contingent Liabilities. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume or
contingently agree to become or be secondarily liable in respect of, any
obligation or liability of any other Person except for (a) the endorsement of
checks or other negotiable instruments in the ordinary course of business; (b)
obligations disclosed to Agent in the financial statements delivered on or
prior to the Effective Date pursuant to Section 6.2 hereof (and all renewals,
extensions and replacements--but not increases--of such obligations after the
Effective Date), (c) those liabilities permitted under Sections 8.1 or 8.2
hereof, (d) accounts payable incurred in the ordinary course of business and
(e) other contingent liabilities not exceeding $500,000 at any one time
outstanding.
8.4 Mergers, Consolidations and Acquisitions and Dispositions of
Assets. In any single transaction or series of transactions, directly or
indirectly: (a) liquidate or dissolve provided that any Subsidiary of Borrower
may liquidate, dissolve or take action to wind-up its operations if (i)
Borrower determines such action to be in the best interests of Borrower and its
Subsidiaries (other than NATCO Canada), (ii) liquidating dividends are paid to
Borrower, and (iii) Borrower gives Agent written notice of such action at least
thirty (30) days prior to taking such action, and (iv) with respect to the
liquidation, dissolution or taking of action to wind-up the operations of any
Subsidiary other than NATCO Canada, the aggregate amounts realized therefrom in
any fiscal year in excess of $1,000,000 shall be used to make a prepayment on
the Term Loans pro rata based on their outstanding principal balances (with
such payments to be credited to installments in inverse order of their
maturity); (b) be a party to any merger or consolidation unless and so long as
(i) no Default or Event of Default has occurred that is then continuing, (ii)
immediately thereafter and giving effect thereto, no event will occur and be
continuing which constitutes a Default or an Event of Default, (iii) an Obligor
is the surviving Person; (iv) the surviving Person ratifies and assumes each
Loan Document to which any party to such merger was a party, and (v) Agent is
given at least 30 days' prior notice of such merger or consolidation; (c) sell,
convey or lease all or any part of its assets, except for (i) sales of
Inventory in the ordinary course of business, (ii) sales of other Property in
the ordinary course of business, (iii) sales or reassignments of bad Accounts
to Weatherford Enterra pursuant to the terms of the Purchase Agreement, (iv)
sales or other dispositions of Property not constituting Inventory or other
Collateral in the ordinary course of business; (v) sales or other dispositions
of Property not constituting Collateral outside the ordinary course of
business; provided the fair market value of all such Property does not exceed
$500,000 during any fiscal year; (vi) sales or other dispositions of Property
(whether or not Collateral) expressly permitted by the other terms of this
Agreement or any Loan Document, (vii) the sale or other disposition of the
Property described on Exhibit I hereto and (viii) subject to the Borrower'
compliance with Section 3.2(b), dispositions occurring as the result of a
casualty event or condemnation; provided, however, that, unless the Majority
Lenders shall have otherwise consented in writing, the net proceeds realized
from such sales or dispositions permitted under subclauses (iii), (iv), (v),
(vi) and (vii) of this clause (c) must,
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within ninety (90) days after the applicable sale or disposition, either (I) be
used to make a prepayment on the Term Loans pro rata based on their outstanding
principal balances (with such payments to be credited to installments in
inverse order of their maturity) or (II) be reinvested in assets that may be
productively used in the business of the Borrower or the applicable Subsidiary
of Borrower, or (d) except for Liens in favor of Agent, pledge, transfer or
otherwise dispose of any equity interest in any of Borrower's Subsidiaries or
any Indebtedness of any of Borrower's Subsidiaries or issue or permit any
Subsidiary of Borrower to issue any additional equity interest other than stock
dividends subject to a Lien in favor of Agent.
8.5 Redemption, Dividends and Distributions. At any time: (a)
redeem, retire or otherwise acquire, directly or indirectly, any equity
interest in any Obligor or (b) make any distributions of any Property or cash
to the owner of any of the equity interests in any Obligor other than Permitted
Dividends.
8.6 Nature of Business. Change the nature of its business or
enter into any business which is substantially different from the business in
which it is presently engaged.
8.7 Transactions with Related Parties. Enter into any transaction
or agreement with any officer, director or holder of any equity interest in any
Obligor (or any Affiliate of any such Person) unless the same is upon terms
substantially similar to those obtainable from wholly unrelated sources (to the
best knowledge of Borrower, after making reasonable inquiry).
8.8 Loans and Investments. Make any loan, advance, extension of
credit or capital contribution to, or make or have any Investment in, any
Person, or make any commitment to make any such extension of credit or
Investment, except (a) Permitted Investments; (b) normal and reasonable
advances in the ordinary course of business to officers and employees; (c)
accounts receivable and accounts payable arising in the ordinary course of
business; (d) deposits in money market funds investing exclusively in Permitted
Investments; (e) Investments disclosed in the financial statements delivered
pursuant to Section 6.1; (f) routine advances by any Obligor to another Obligor
(or any Subsidiary of an Obligor) in the ordinary course of business other than
Investments, not to exceed $500,000 in the aggregate at any time; and (g) other
Investments not to exceed $500,000 in the aggregate at any time.
8.9 Subsidiaries. Form, create or acquire any Subsidiary, except
that Borrower may form, create or acquire a wholly-owned Subsidiary so long as
(a) immediately thereafter and giving effect thereto, no event will occur and
be continuing which constitutes a Default; (c) if such Subsidiary is not a
Foreign Subsidiary, such Subsidiary (and, where applicable, Borrower) shall
execute and deliver a Guaranty and such Security Documents as the Majority
Lenders may reasonably require, and (b) Agent is given at least 30 days' prior
notice of such formation, creation or acquisition.
8.10 Key Agreements. Terminate or agree to the termination of any
Key Agreement or amend, modify or obtain or grant a waiver of any provision of
any of the Key Agreements if such action could reasonably be expected to have a
Material Adverse Effect; provided, however, that the
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EXIM Facility may, with contemporaneous notice to the Agent but without any
necessity for consent by Agent or any Lender, be amended to increase the
aggregate loans thereunder to a maximum amount of $5,000,000 at any one time
outstanding.
8.11 Organizational Documents. Amend, modify, restate or
supplement any of its Organizational Documents if such action could reasonably
be expected to have a Material Adverse Effect.
8.12 Unfunded Liabilities. Incur any Unfunded Liabilities after
the Effective Date or allow any Unfunded Liabilities in excess of $500,000, in
the aggregate, to arise or exist.
8.13 Operating Lease Expenses. Aggregate operating lease expenses
(excluding lease payments under capital leases) shall not exceed, for Borrower
and its Subsidiaries (other than NATCO Canada) in the aggregate in any fiscal
year, $2,500,000.
8.14 Sale/Leasebacks. Borrower will not (and will not permit any
of its Subsidiaries, other than NATCO Canada, to) enter into any sale/leaseback
transactions without the prior written consent of the Majority Lenders.
Without limiting the foregoing, any leasehold estate acquired pursuant to a
permitted sale/leaseback shall constitute Additional Collateral, and the
closing of such sale/leaseback transaction shall constitute an Additional
Collateral Event, for all purposes hereunder.
8.15 Subordinated Indebtedness. Except as expressly permitted in
writing by the Majority Lenders, Borrower will not (a) amend, modify or obtain
or grant a waiver of any provision of any document or instrument evidencing any
Subordinated Indebtedness or (b) purchase, redeem, retire or otherwise acquire
for value, deposit any monies with any Person with respect to or make any
payment or prepayment of the principal of or any other amount owing in respect
of, any Subordinated Indebtedness.
8.16 Negative Pledges. Except for (a) any of the Loan Documents,
(b) the NATCO Canada Credit Facility, (c) the EXIM Facility, (d) agreements
permitted by Section 8.1(h) but only with respect to the Property subject to
the Lien permitted thereby; (e) customary provisions in leases, licenses, asset
sale agreements and other customary agreements not related to the Borrowed
Money Indebtedness and entered into in the ordinary course of business, and (f)
restrictions imposed by agreements governing Permitted Liens, enter into any
agreement or contract which limits or restricts in any way the granting of
Liens by Borrower or any of its Subsidiaries securing any of the Obligations.
9. Defaults.
9.1 Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur, then Agent may (and at the
direction of the Majority Lenders, shall) do any or all of the following: (1)
without notice to Borrower or any other Person, declare the Revolving Loan
Commitments terminated (whereupon the Revolving Loan Commitments shall be
terminated)
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and/or accelerate the Revolving Loan Termination Date to a date as early as the
date of termination of the Revolving Loan Commitments; (2) terminate any Letter
of Credit allowing for such termination, by sending a notice of termination as
provided therein and require Borrower to provide Cover for outstanding Letters
of Credit; (3) declare the principal amount then outstanding of and the unpaid
accrued interest on the Loans and Reimbursement Obligations and all fees and
all other amounts payable hereunder, under the Notes and under the other Loan
Documents to be forthwith due and payable, whereupon such amounts shall be and
become immediately due and payable, without notice (including, without
limitation, notice of acceleration and notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Borrower; provided that in the case of the
occurrence of an Event of Default with respect to any Obligor referred to in
clause (f), (g) or (h) of this Section 9.1, the Revolving Loan Commitments
shall be automatically terminated and the principal amount then outstanding of
and unpaid accrued interest on the Loans and the Reimbursement Obligations and
all fees and all other amounts payable hereunder, under the Notes and under the
other Loan Documents shall be and become automatically and immediately due and
payable, without notice (including, without limitation, notice of acceleration
and notice of intent to accelerate), presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by Borrower,
and (4) exercise any or all other rights and remedies available to Agent or any
of the Lenders under the Loan Documents, at law or in equity:
(a) Payments - (i) any Obligor shall fail to make any
payment or required prepayment of any installment of principal on the
Loans or any Reimbursement Obligation payable under the Notes, this
Agreement or the other Loan Documents when due or (ii) any Obligor
fails to make any payment or required payment of interest with respect
to the Loans, any Reimbursement Obligation or any other fee or amount
under the Notes, this Agreement or the other Loan Documents when due
and such failure to pay continues unremedied for a period of five
days; or
(b) Other Obligations - any Obligor shall default in the
payment when due of any principal of or interest on any Indebtedness
having an outstanding principal amount of at least $3,000,000 (other
than the Loans and Reimbursement Obligations) and such default shall
continue beyond any applicable period of grace and shall give rise to
a right on the part of the holder of such Indebtedness to accelerate
such Indebtedness; or any event or condition shall occur which results
in the acceleration of the maturity of any such Indebtedness or
enables (or, with the giving of notice or lapse of time or both, would
enable) the holder of any such Indebtedness or any Person acting on
such holder's behalf to accelerate the maturity thereof and such event
or condition shall not be cured within any applicable period of grace;
or
(c) Representations and Warranties - any representation
or warranty made or deemed made by or on behalf of any Obligor in this
Agreement or any other Loan Document or in any certificate furnished
or made by any Obligor to Agent or the Lenders in connection herewith
or therewith shall prove to have been incorrect, false or misleading
in any material
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respect as of the date thereof or as of the date as of which the facts
therein set forth were stated or certified or deemed stated or
certified; or
(d) Affirmative Covenants - (i) default shall be made in
the due observance or performance of any of the covenants or
agreements contained in Section 7.3 hereof or (ii) default is made in
the due observance or performance of any of the other covenants and
agreements contained in Section 7 hereof or any other affirmative
covenant of any Obligor contained in this Agreement or any other Loan
Document and such default continues unremedied for a period of 30 days
after (x) notice thereof is given by Agent to Borrower or (y) such
default otherwise becomes known to any executive officer of Borrower,
whichever is earlier; or
(e) Negative Covenants - default is made in the due
observance or performance by Borrower of any of the other covenants or
agreements contained in Section 8 of this Agreement or of any other
negative covenant of any Obligor contained in this Agreement or any
other Loan Document; or
(f) Involuntary Bankruptcy or Receivership Proceedings -
a receiver, conservator, liquidator or trustee of any Obligor or of
any of its Property is appointed by the order or decree of any court
or agency or supervisory authority having jurisdiction, and such
decree or order remains in effect for more than 90 days; or any
Obligor is adjudicated bankrupt or insolvent; or any of such Person's
Property is sequestered by court order and such order remains in
effect for more than 90 days; or a petition is filed against any
Obligor under any state or federal bankruptcy, reorganization,
arrangement, insolvency, readjustment or debt, dissolution,
liquidation or receivership law or any jurisdiction, whether now or
hereafter in effect, and is not dismissed within 90 days after such
filing; or
(g) Voluntary Petitions or Consents - any Obligor
commences a voluntary case or other proceeding or order seeking
liquidation, reorganization, arrangement, insolvency, readjustment of
debt, dissolution, liquidation or other relief with respect to itself
or its debts or other liabilities under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its Property, or
consents to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or fails generally to, or cannot, pay
its debts generally as they become due or takes any corporate action
to authorize or effect any of the foregoing; or
(h) Assignments for Benefit of Creditors or Admissions of
Insolvency - any Obligor makes an assignment for the benefit of its
creditors, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of a
receiver, trustee, or liquidator of such Obligor or of all or any
substantial part of its Property; or
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(i) Undischarged Judgments - a final non-appealable
judgment or judgments for the payment of money exceeding, in the
aggregate, $1,000,000 (exclusive of amounts covered by insurance) is
rendered by any court or other governmental body against any Obligor
and such Obligor does not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution
thereof within 30 days from the date of entry thereof; or
(j) Security Documents - any Security Document after
delivery thereof, shall for any reason, except to the extent permitted
by the terms of this Agreement or such Security Document, ceases to
create a valid and perfected Lien of the first priority (subject to
the Permitted Liens), required thereby on any of the Collateral
individually or in the aggregate having a fair market value in excess
of $750,000 purported to be covered thereby and securing that portion
of the Obligations which is therein designated as being secured, or
any Obligor (or any other Person who may have granted or purported to
grant such Lien) will so state in writing or, after the creation
thereof as herein provided, Agent shall cease to have a first priority
Lien (subject to Permitted Liens) upon 65% of the equity interests in
and to Foreign Subsidiaries of Borrower securing the Obligations; or
(k) Ownership Change or Encumbrance - (i) any Person
other than Borrower shall own any equity interest in any Subsidiary of
Borrower (other than a 15% equity interest in NATCO Japan Co., Inc.
currently owned by Persons other than Borrower) or any Person other
than Agent shall acquire any Lien on Borrower's interest in and to
the equity interest in any Subsidiary of Borrower (other than a
subordinate Lien in favor of the holder(s) of the EXIM Facility); or
(ii) Holdings shall cease to be the beneficial owner, directly or
indirectly, of all of the equity interests in Borrower; or (iii)
Cummings shall cease to be the beneficial owner, directly or
indirectly, of all of the equity interests in Holdings, or (iv) The
Capricorn Group (Cap I, II and Affiliates) shall cease to be the
beneficial owners, directly or indirectly, of at least 20% of the
equity interests in Cummings or any Person other than The Capricorn
Group (Cap I, II and Affiliates) shall own, directly or indirectly,
more than 20% of the equity interests in Cummings.
(l) Uninsured Loss - any Obligor shall be the subject of
any uninsured or unindemnified casualty losses exceeding, in the
aggregate, $750,000 in any fiscal year.
9.2 Right of Setoff. Upon the occurrence and during the
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, without notice to any Obligor (any such notice
being expressly waived by Borrower and the other Obligors), to setoff and apply
any and all deposits, whether general or special, time or demand, provisional
or final (but excluding the funds held in accounts clearly designated as escrow
or trust accounts held by Borrower or any other Obligor for the benefit of
Persons which are not Affiliates of any Obligor), whether or not such setoff
results in any loss of interest or other penalty, and including without
limitation all certificates of deposit, at any time held, and any other funds
or Property at any time held, and other Indebtedness at any time owing by such
Lender to or for the credit or the account of Borrower or any
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other Obligor against any and all of the Obligations irrespective of whether or
not such Lender or Agent will have made any demand under this Agreement, the
Notes or any other Loan Document. Should the right of any Lender to realize
funds in any manner set forth hereinabove be challenged and any application of
such funds be reversed, whether by court order or otherwise, the Lenders shall
make restitution or refund to Borrower pro rata in accordance with their
Revolving Loan Commitments. Each Lender agrees to promptly notify Borrower and
Agent after any such setoff and application, provided that the failure to give
such notice will not affect the validity of such setoff and application. The
rights of Agent and the Lenders under this Section are in addition to other
rights and remedies (including without limitation other rights of setoff) which
Agent or the Lenders may have. This Section is subject to the terms and
provisions of Sections 4.5 and 11.7 hereof.
9.3 Collateral Account. Borrower hereby agrees, in addition to
the provisions of Section 9.1 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by Agent or the
Majority Lenders (through Agent), pay to Agent an amount in immediately
available funds equal to the then aggregate amount available for drawings under
all Letters of Credit issued for the account of Borrower, which funds shall be
held by Agent as Cover.
9.4 Preservation of Security for Letter of Credit Liabilities. In
the event that, following (i) the occurrence of an Event of Default and the
exercise of any rights available to Agent or any Lender under the Loan
Documents, and (ii) payment in full of the principal amount then outstanding of
and the accrued interest on the Loans and Reimbursement Obligations and fees
and all other amounts payable hereunder and under the Notes and all other
amounts secured by the Security Documents, any Letter of Credit Liabilities
shall remain outstanding, Agent shall be entitled to hold (and Borrower and
each other Obligor hereby grants and conveys to Agent a security interest in
and to) all cash or other Property ("Proceeds of Remedies") realized or arising
out of the exercise of any rights available under the Loan Documents, at law or
in equity, including, without limitation, the proceeds of any foreclosure, as
collateral for the payment of such Letter of Credit Liabilities. Such Proceeds
of Remedies shall be held for the ratable benefit of the Lenders. The rights,
titles, benefits, privileges, duties and obligations of Agent with respect
thereto shall be governed by the terms and provisions of this Agreement and, to
the extent not inconsistent with this Agreement, the applicable Security
Documents. Agent may, but shall have no obligation to, invest any such
Proceeds of Remedies in such manner as Agent, in the exercise of its sole
discretion, deems appropriate. Such Proceeds of Remedies shall be applied to
Reimbursement Obligations arising in respect of any such Letters of Credit
and/or the payment of any Lender's obligations under any such Letter of Credit
when such Letter of Credit is drawn upon. Nothing in this Section shall cause
or permit an increase in the maximum amount of the Revolving Loan Obligations
permitted to be outstanding from time to time under this Agreement.
9.5 Remedies Cumulative. No remedy, right or power conferred upon
Agent or any Lender is intended to be exclusive of any other remedy, right or
power given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be cumulative.
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10. Agent.
10.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes Agent to act as its agent hereunder, under
the Letters of Credit and under the other Loan Documents with such powers as
are specifically delegated to Agent by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. Any Loan
Documents executed in favor of Agent shall be held by Agent for the ratable
benefit of the Lenders. Agent ("Agent" as used in this Section 10 shall include
reference to its Affiliates and its own and its Affiliates' respective
officers, shareholders, directors, employees and agents) (a) shall not have any
duties or responsibilities except those expressly set forth in this Agreement,
the Letters of Credit, and the other Loan Documents, and shall not by reason of
this Agreement or any other Loan Document be a trustee or fiduciary for any
Lender; (b) shall not be responsible to any Lender for any recitals,
statements, representations or warranties contained in this Agreement, the
Letters of Credit or any other Loan Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement, the Letters of Credit or any other Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability, execution, filing,
registration, collectibility, recording, perfection, existence or sufficiency
of this Agreement, the Letters of Credit, or any other Loan Document or any
other document referred to or provided for herein or therein or any Property
covered thereby or for any failure by any Obligor or any other Person to
perform any of its obligations hereunder or thereunder, and shall not have any
duty to inquire into or pass upon any of the foregoing matters; (c) shall not
be required to initiate or conduct any litigation or collection proceedings
hereunder or under the Letters of Credit or any other Loan Document except to
the extent requested by the Majority Lenders; (d) shall not be responsible for
any mistake of law or fact or any action taken or omitted to be taken by it
hereunder or under the Letters or Credit or any other Loan Document or any
other document or instrument referred to or provided for herein or therein or
in connection herewith or therewith, INCLUDING, WITHOUT LIMITATION, PURSUANT TO
ITS OWN NEGLIGENCE, except for its own gross negligence or willful misconduct;
(e) shall not be bound by or obliged to recognize any agreement among or
between Borrower and any Lender to which Agent is not a party, regardless of
whether Agent has knowledge of the existence of any such agreement or the terms
and provisions thereof; (f) shall not be charged with notice or knowledge of
any fact or information not herein set out or provided to Agent in accordance
with the terms of this Agreement or any other Loan Document; (g) shall not be
responsible for any delay, error, omission or default of any mail, telegraph,
cable or wireless agency or operator, and (h) shall not be responsible for the
acts or edicts of any Governmental Authority. Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
Without in any way limiting any of the foregoing, each Lender acknowledges that
each Issuer shall have no greater responsibility in the operation of the
Letters of Credit than is specified in the Uniform Customs and Practice for
Documentary Credits (1993 Revision, International Chamber of Commerce
Publication No. 500). In any foreclosure proceeding concerning any Collateral,
each holder of an Obligation if bidding for its own account or for its own
account and the accounts of other Lenders is prohibited from including in the
amount of its bid an amount to be applied as a credit against the Obligations
held by it or the Obligations held by the
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other Lenders; instead, such holder must bid in cash only. However, in any
such foreclosure proceeding, Agent may (but shall not be obligated to) submit a
bid for all Lenders (including itself) in the form of a credit against the
Obligations, and Agent or its designee may (but shall not be obligated to)
accept title to such Collateral for and on behalf of all Lenders.
10.2 Reliance. Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telegram or cable) believed by it to be genuine and correct and to
have been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel (which may be counsel for
Borrower), independent accountants and other experts selected by Agent. Agent
shall not be required in any way to determine the identity or authority of any
Person delivering or executing the same. As to any matters not expressly
provided for by this Agreement, the Letters of Credit, or any other Loan
Document, Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder and thereunder in accordance with
instructions of the Majority Lenders, and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders. Pursuant to
instructions of the Majority Lenders, Agent shall have the authority to execute
releases of the Security Documents on behalf of the Lenders without the joinder
of any Lender. If any order, writ, judgment or decree shall be made or entered
by any court affecting the rights, duties and obligations of Agent under this
Agreement or any other Loan Document, then and in any of such events Agent is
authorized, in its sole discretion, to rely upon and comply with such order,
writ, judgment or decree which it is advised by legal counsel of its own
choosing is binding upon it under the terms of this Agreement, the relevant
Loan Document or otherwise; and if Agent complies with any such order, writ,
judgment or decree, then it shall not be liable to any Lender or to any other
Person by reason of such compliance even though such order, writ, judgment or
decree may be subsequently reversed, modified, annulled, set aside or vacated.
10.3 Defaults. Agent shall not be deemed to have knowledge of the
occurrence of a Default or Event of Default (other than the non-payment of
principal of or interest on Loans or Reimbursement Obligations) unless Agent
has received notice from a Lender or Borrower specifying such Default or Event
of Default and stating that such notice is a "Notice of Default." In the event
that Agent receives such a Notice of Default, Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender prompt notice of each such
non-payment). Agent shall (subject to Section 10.7 hereof) take such action
with respect to such Notice of Default as shall be directed by the Majority
Lenders and within its rights under the Loan Documents and at law or in equity,
provided that, unless and until Agent shall have received such directions,
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, permitted hereby with respect to such Notice of Default as
it shall deem advisable in the best interests of the Lenders and within its
rights under the Loan Documents, at law or in equity.
10.4 Material Written Notices. In the event that Agent receives
any written notice of a material nature from the Borrower or any Obligor under
the Loan Documents, Agent shall promptly inform each of the Lenders thereof.
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10.5 Rights as a Lender. With respect to its Revolving Loan
Commitments and the Loans made by it and Letter of Credit Liabilities, TCB in
its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting in its agency capacity, and the term "Lender" or "Lenders" shall, unless
the context otherwise indicates, include Agent in its individual capacity.
Agent may (without having to account therefor to any Lender) accept deposits
from, lend money to and generally engage in any kind of banking, trust, letter
of credit, agency or other business with Borrower (and any of its Affiliates)
as if it were not acting as Agent; and Agent may accept fees and other
consideration from Borrower (in addition to the fees heretofore agreed to
between Borrower and Agent) for services in connection with this Agreement or
otherwise without having to account for the same to the Lenders.
10.6 Indemnification. The Lenders agree to indemnify Agent (to the
extent not reimbursed under Section 2.2(c), Section 11.3 or Section 11.4
hereof, but without limiting the obligations of Borrower under said Sections
2.2(c), 11.3 and 11.4), ratably in accordance with the sum of the Lenders'
respective Revolving Loan Commitments and Term Loans, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature whatsoever,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
INDEMNIFIED PARTIES, which may be imposed on, incurred by or asserted against
Agent in any way relating to or arising out of this Agreement, the Letters of
Credit or any other Loan Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses which Borrower
is obligated to pay under Sections 2.2(c), 11.3 and 11.4 hereof, interest,
penalties, attorneys' fees and amounts paid in settlement, but excluding,
unless a Default has occurred and is continuing, normal administrative costs
and expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other
documents; provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified. The obligations of the Lenders under this Section
10.6 shall survive the termination of this Agreement and the repayment of the
Obligations.
10.7 Non-Reliance on Agent and Other Lenders. Each Lender agrees
that it has received current financial information with respect to Borrower and
each other Obligor that it has, independently and without reliance on Agent or
any other Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrower and each other Obligor
and decision to enter into this Agreement and that it will, independently and
without reliance upon Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or any of the other Loan Documents. Agent shall not be required to keep itself
informed as to the performance or observance by any Obligor of this Agreement,
the Letters of Credit or any of the other Loan Documents or any other document
referred to or provided for herein or therein or to inspect the Properties or
books of any Obligor. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by Agent
hereunder,
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under the Letters of Credit or the other Loan Documents, Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of any
Obligor (or any of their affiliates) which may come into the possession of
Agent.
10.8 Failure to Act. Except for action expressly required of Agent
hereunder, under the Letters of Credit or under the other Loan Documents, Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction
by the Lenders of their indemnification obligations under Section 10.6 hereof
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
10.9 Resignation or Removal of Agent. Subject to the appointment
and acceptance of a successor Agent as provided below, Agent may resign at any
time by giving notice thereof to the Lenders and Borrower, and Agent may be
removed at any time with or without cause by the Majority Lenders; provided,
that Agent shall continue as Agent until such time as any successor shall have
accepted appointment as Agent hereunder. Upon any such resignation or removal,
(i) the Majority Lenders without the consent of Borrower shall have the right
to appoint a successor Agent so long as such successor Agent is also a Lender
at the time of such appointment and (ii) the Majority Lenders shall have the
right to appoint a successor Agent that is not a Lender at the time of such
appointment so long as Borrower consents to such appointment (which consent
shall not be unreasonably withheld). If no successor Agent shall have been so
appointed by the Majority Lenders and accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent. Any successor Agent shall be a bank
which has an office in the United States and a combined capital and surplus of
at least $250,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties and
obligations hereunder and under any other Loan Documents. Such successor Agent
shall promptly specify by notice to Borrower its Principal Office referred to
in Section 3.1 and Section 4 hereof. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 10 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Agent.
10.10 No Partnership. Neither the execution and delivery of this
Agreement nor any of the other Loan Documents nor any interest the Lenders,
Agent or any of them may now or hereafter have in all or any part of the
Obligations shall create or be construed as creating a partnership, joint
venture or other joint enterprise between the Lenders or among the Lenders and
Agent. The relationship between the Lenders, on the one hand, and Agent, on
the other, is and shall be that of principals and agent only, and nothing in
this Agreement or any of the other Loan Documents shall
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be construed to constitute Agent as trustee or other fiduciary for any Lender
or to impose on Agent any duty, responsibility or obligation other than those
expressly provided for herein and therein.
10.11 Authority of Agent. Each Lender acknowledges that the rights
and responsibilities of Agent under this Agreement and the Loan Documents with
respect to any action taken by Agent or the exercise or non-exercise by Agent
of any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement and/or the other Loan
Documents shall, as between Agent and the Lenders, be governed by this
Agreement and by such other agreements with respect thereto as may exist from
time to time among them, but, as between Agent and the Obligors, Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting; and each Obligor shall not be under
any obligation, or entitlement, to make any inquiry respecting such authority.
11. Miscellaneous.
11.1 Waiver. No waiver of any Default or Event of Default shall be
a waiver of any other Default or Event of Default. No failure on the part of
Agent or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under any Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law or in equity.
11.2 Notices. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made by telegraph, telecopy
(confirmed by mail), cable or other writing and telecopied, telegraphed,
cabled, mailed or delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof (or provided
for in an Assignment and Acceptance); or, as to any party hereto, at such other
address as shall be designated by such party in a notice (given in accordance
with this Section) (i) as to Borrower, to Agent, (ii) as to Agent, to Borrower
and to each Lender, and (iii) as to any Lender, to Borrower and Agent. Except
as otherwise provided in this Agreement, all such notices or communications
shall be deemed to have been duly given when (i) transmitted by telecopier or
delivered to the telegraph or cable office, (ii) personally delivered (iii) one
Business Day after deposit with an overnight mail or delivery service, postage
prepaid or (iv) three Business Days' after deposit in a receptacle maintained
by the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested, in each case given or addressed as aforesaid.
11.3 Expenses, Etc. Whether or not any Loan is ever made or any
Letter of Credit ever issued, Borrower shall pay or reimburse within 10
Business Days after written demand (a) Agent for paying the reasonable fees and
expenses of legal counsel to Agent, together with the reasonable fees and
expenses of each local counsel to Agent, in connection with the preparation,
negotiation, execution and delivery of this Agreement (including the exhibits
and schedules hereto), the Security
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Documents and the other Loan Documents and the making of the Loans and the
issuance of Letters of Credit hereunder, and any modification, supplement or
waiver of any of the terms of this Agreement, the Letters of Credit or any
other Loan Document; (b) Agent for any reasonable and customary lien search
fees, collateral audit fees, appraisal fees, survey fees, environmental study
fees, and title insurance costs and premiums; (c) Agent for reasonable
out-of-pocket expenses incurred in connection with the preparation,
documentation, administration and syndication of the Loans or any of the Loan
Documents (including, without limitation, the advertising, marketing, printing,
publicity, duplicating, mailing and similar expenses) of the Loans and Letter
of Credit Liabilities; (d) Agent for paying all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement, any Letter of Credit or any
other Loan Document or any other document referred to herein or therein; (e)
Agent for paying all costs, expenses, taxes, assessments and other charges
incurred in connection with any filing, registration, recording or perfection
of any Lien contemplated by this Agreement, any Security Document or any
document referred to herein or therein, and (f) following the occurrence and
during the continuation of an Event of Default, any Lender or Agent for paying
all amounts reasonably expended, advanced or incurred by such Lender or Agent
to satisfy any obligation of any Obligor under this Agreement or any other Loan
Document, to protect the Collateral, to collect the Obligations or to enforce,
protect, preserve or defend the rights of the Lenders or Agent under this
Agreement or any other Loan Document, including, without limitation, fees and
expenses incurred in connection with such Lender's or Agent's participation as
a member of a creditor's committee in a case commenced under the Bankruptcy
Code or other similar law, fees and expenses incurred in connection with
lifting the automatic stay prescribed in Section 362 of the Bankruptcy Code
and fees and expenses incurred in connection with any action pursuant to
Section 1129 of the Bankruptcy Code and all other reasonable and customary
out-of-pocket expenses incurred by such Lender or Agent in connection with such
matters, together with interest thereon at the Past Due Rate on each such
amount from the due date until the date of reimbursement to such Lender or
Agent.
11.4 Indemnification. Borrower shall indemnify each of Agent, the
Lenders, and each affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims or damages to which any of them may become subject,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages
arise out of or result from any (i) actual or proposed use by Borrower of the
proceeds of any extension of credit (whether a Loan or a Letter of Credit) by
any Lender hereunder; (ii) breach by any Obligor of this Agreement or any other
Loan Document; (iii) violation by any Obligor of any Legal Requirement, or (iv)
investigation, litigation or other proceeding relating to any of the foregoing,
and Borrower shall reimburse Agent, each Lender, and each Affiliate thereof and
their respective directors, officers, employees and agents, upon demand for any
reasonable and customary expenses (including reasonable and customary legal
fees) incurred in connection with any such investigation or proceeding;
provided, however, that Borrower shall not have any obligations pursuant to
this Section with respect to any losses, liabilities, claims, damages or
expenses incurred by the Person seeking indemnification by reason of the gross
negligence or willful misconduct of that Person or with respect to any disputes
between or among any of Agent, Lenders and Issuers.
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<PAGE> 70
Nothing in this Section is intended to limit the obligations of Borrower under
any other provision of this Agreement. Agent and each Lender, respectively,
shall indemnify Borrower and hold Borrower harmless from and against the gross
negligence or willful misconduct of Agent or such Lender, as the case may be.
In the case of any indemnification hereunder, Agent or the respective Lender,
as appropriate, shall give written notice to Borrower of any such claim or
demand being made against an indemnified person and Borrower shall have the
non-exclusive right to join in the defense against any such claim or demand,
provided that if Borrower provides a defense, the indemnified person shall bear
its own cost of defense unless there is a conflict of interests between
Borrower and such indemnified person. No Indemnified Person may settle any
claim to be indemnified without the consent of the Borrower, such consent not
to be unreasonably withheld or delayed.
11.5 Amendments, Etc. No amendment or modification of this
Agreement, the Notes or any other Loan Document shall in any event be effective
against Borrower or any Obligor party thereto unless the same shall be agreed
or consented to in writing by such Person. No amendment, modification or
waiver of any provision of this Agreement, the Notes or any other Loan
Document, nor any consent to any departure by any Obligor therefrom, shall in
any event be effective against the Lenders unless the same shall be agreed or
consented to in writing by the Majority Lenders, and each such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, that no amendment, modification, waiver or
consent shall, unless in writing and signed by each Lender affected thereby, do
any of the following: (a) increase any Revolving Loan Commitment of any of the
Lenders (or reinstate any termination or reduction of the Revolving Loan
Commitments) or subject any of the Lenders to any additional obligations; (b)
reduce the principal of, or interest on, any Loan, Reimbursement Obligation or
fee hereunder; (c) postpone or extend the Revolving Loan Maturity Date, the
Term Loan Maturity Date, the Revolving Loan Termination Date, the Revolving
Loan Availability Period or any scheduled date fixed for any payment of
principal of, or interest on, any Loan, Reimbursement Obligation, fee or other
sum to be paid hereunder or waive any Event of Default described in Section
9.1(a) hereof; (d) change the percentage of any of the Revolving Loan
Commitments or of the aggregate unpaid principal amount of any of the Loans and
Letter of Credit Liabilities, or the percentage of Lenders, which shall be
required for the Lenders or any of them to take any action under this
Agreement; (e) change any provision contained in Sections 2.2(c), 7.9, 11.3 or
11.4 hereof or this Section 11.5; (f) release any Person from liability under a
Guaranty or release all or substantially all of the security for the
Obligations or release Collateral (exclusive of Collateral with respect to
which Agent is obligated to provide a release pursuant to this Agreement or any
of the other Loan Documents or by law) in any one (1) calendar year ascribed an
aggregate value on the most recent financial statements of Borrower delivered
to Agent in excess of $1,000,000; (g) increase any of the fixed percentages to
be multiplied by the aggregate amounts of the components comprising the
Borrowing Base that are described in (i) and (ii) of the definition of
Borrowing Base herein, or (h) modify the provisions of Sections 4.1(b) or 4.2
hereof regarding pro rata application of amounts after an Event of Default
shall have occurred and be continuing. Notwithstanding anything in this
Section 11.5 to the contrary, no amendment, modification, waiver or consent
shall be made with respect to Section 10 without the consent of Agent to the
extent it affects Agent, as Agent.
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11.6 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit
of Borrower, Agent and the Lenders and their respective successors and assigns;
provided, however, that, except as permitted by Section 8.4 hereof, Borrower
may not assign or transfer any of its rights or obligations hereunder without
the prior written consent of all of the Lenders, and any such assignment or
transfer without such consent shall be null and void. Each Lender may sell
participations to any Person in all or part of any Loan, or all or part of its
Notes, Revolving Loan Commitments or interests in Letters of Credit, in which
event, without limiting the foregoing, the provisions of the Loan Documents
shall inure to the benefit of each purchaser of a participation; provided,
however, the pro rata treatment of payments, as described in Section 4.2 hereof
and rights to compensation under Section 3.3 hereof, shall be determined as if
such Lender had not sold such participation. Any Lender that sells one or more
participations to any Person shall not be relieved by virtue of such
participation from any of its obligations to Borrower under this Agreement
relating to the Loans. In the event any Lender shall sell any participation,
such Lender shall retain the sole right and responsibility to enforce the
obligations of Borrower relating to the Loans, including, without limitation,
the right to approve any amendment, modification or waiver of any provision of
this Agreement other than amendments, modifications or waivers with respect to
(i) any fees payable hereunder to the Lenders, (ii) the amount of principal or
the rate of interest payable on, or the dates fixed for the scheduled repayment
of principal of, the Loans and (iii) the release of the Liens on all or
substantially all of the Collateral.
(b) Each Lender may assign to one or more Lenders or any other
Person all or a portion of its interests, rights and obligations under this
Agreement; provided, however, that (i) the aggregate amount of the Revolving
Loan Commitments and the Term Loans of the assigning Lender subject to each
such assignment shall in no event be less than $5,000,000; (ii) other than in
the case of an assignment to another Lender (that is, at the time of the
assignment, a party hereto) or to an Affiliate of such Lender or to a Federal
Reserve Bank, Agent and, so long as no Event of Default shall have occurred and
be continuing, Borrower must each give its prior written consent, which
consents shall not be unreasonably withheld, and (iii) the parties to each such
assignment shall execute and deliver to Agent, for its acceptance an Assignment
and Acceptance in substantially the form of Exhibit E hereto (each an
"Assignment and Acceptance") with blanks appropriately completed, together with
any Note or Notes subject to such assignment and a processing and recording fee
of $3,000 paid by the assignee (for which Borrower will have no liability).
Upon such execution, delivery and acceptance, from and after the effective date
specified in each Assignment and Acceptance, (A) the assignee thereunder shall
be a party hereto and, to the extent provided in such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (B) the
Lender thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of
an assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto except in respect of provisions of this
Agreement which survive payment of the Obligations and termination of the
Commitments). Notwithstanding anything contained in this Agreement to the
contrary, any Lender may at any time assign all or any portion of
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its rights under this Agreement and the Notes issued to it as collateral to a
Federal Reserve Bank; provided that no such assignment shall release such
Lender from any of its obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such
Lender assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any of the other Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement or any of the other Loan Documents or any other
instrument or document furnished pursuant thereto; (ii) such Lender assignor
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of Borrower or any Obligor or the performance or
observance by Borrower or any Obligor of any of its obligations under this
Agreement or any of the other Loan Documents to which it is a party or any
other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the financial statements most recently delivered under either Section 6.2 or
Section 7.2 hereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon Agent, such Lender assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents; (v) such assignee appoints and
authorizes Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all obligations that by the terms of this Agreement
and the other Loan Documents are required to be performed by it as a Lender.
(d) The entries in the records of Agent as to each Assignment and
Acceptance delivered to it and the names and addresses of the Lenders and the
Revolving Loan Commitments of, and principal amount of the Loans owing to, each
Lender from time to time shall be conclusive, in the absence of manifest error,
and Borrower, Agent and the Lenders may treat each Person the name of which is
recorded in the books and records of Agent as a Lender hereunder for all
purposes of this Agreement and the other Loan Documents.
(e) Upon Agent's receipt of an Assignment and Acceptance executed
by an assigning Lender and the assignee thereunder, together with any Note or
Notes subject to such assignment and the written consent to such assignment (to
the extent consent is required), Agent shall, if such Assignment and Acceptance
has been completed with blanks appropriately filled, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in its records
and (iii) give prompt notice thereof to Borrower. Within five Business Days
after receipt of notice, Borrower, at its own expense, shall execute and
deliver to Agent in exchange for the surrendered Notes new Notes
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<PAGE> 73
to the order of such assignee in an amount equal to the Revolving Loan
Commitments and the Term Loans (or any of them) assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained Revolving
Loan Commitments and Term Loans (or any of them) hereunder, new Notes to the
order of the assigning Lender in an amount equal to the Revolving Loan
Commitment and the Term Loans (or any of them) retained by it hereunder. Such
new Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Notes, shall be dated the effective date
of such Assignment and Acceptance and shall otherwise be in substantially the
form of the respective Note. Thereafter, such surrendered Notes shall be
marked renewed and substituted and the originals thereof delivered to Borrower
(with copies to be retained by Agent).
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.6, disclose to the assignee or participant or proposed assignee or
participant, any information relating to Borrower furnished to such Lender by
or on behalf of Borrower; provided such Person agrees to maintain the
confidentiality of such information in accordance with Section 11.16.
11.7 Limitation of Interest. The parties hereto intend to strictly
comply with all applicable federal and Texas laws, including applicable usury
laws (or the usury laws of any jurisdiction whose usury laws are deemed to
apply to the Notes or any other Loan Documents despite the intention and desire
of the parties to apply the usury laws of the State of Texas). Accordingly,
the provisions of this Section 11.7 shall govern and control over every other
provision of this Agreement or any other Loan Document which conflicts or is
inconsistent with this Section, even if such provision declares that it
controls. As used in this Section, the term "interest" includes the aggregate
of all charges, fees, benefits or other compensation which constitute interest
under applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Obligations.
In no event shall Borrower or any other Person be obligated to pay, or Agent,
any Issuer or any Lender have any right or privilege to reserve, receive or
retain, (a) any interest in excess of the maximum amount of nonusurious
interest permitted under the laws of the State of Texas or the applicable laws
(if any) of the United States or of any other jurisdiction, or (b) total
interest in excess of the amount which such Person could lawfully have
contracted for, reserved, received, retained or charged had the interest been
calculated for the full term of the Obligations at the Ceiling Rate. The daily
interest rates to be used in calculating interest at the Ceiling Rate shall be
determined by dividing the applicable Ceiling Rate per annum by the number of
days in the calendar year for which such calculation is being made. None of
the terms and provisions contained in this Agreement or in any other Loan
Document (including, without limitation, Section 9.1 hereof) which directly or
indirectly relate to interest shall ever be construed without reference to this
Section 11.7, or be construed to create a contract to pay for the use,
forbearance or detention of money at an interest rate in excess of the Ceiling
Rate. If the term of any Obligation is shortened by reason of acceleration of
maturity as a result of any Default or by any other cause, or by reason of any
required
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or permitted prepayment, and if for that (or any other) reason Agent, any
Issuer or any Lender at any time, including but not limited to, the stated
maturity, is owed or receives (and/or has received) interest in excess of
interest calculated at the Ceiling Rate, then and in any such event all of any
such excess interest shall be canceled automatically as of the date of such
acceleration, prepayment or other event which produces the excess, and, if such
excess interest has been paid to such Person, it shall be credited pro tanto
against the then-outstanding principal balance of Borrower's obligations to
such Person, effective as of the date or dates when the event occurs which
causes it to be excess interest, until such excess is exhausted or all of such
principal has been fully paid and satisfied, whichever occurs first, and any
remaining balance of such excess shall be promptly refunded to its payor.
11.8 Survival. The obligations of Borrower under Sections 2.2(c),
2.2(d), 7.9, 11.3 and 11.4 hereof and all other obligations of Borrower in any
other Loan Document (to the extent stated therein), the obligations of each
Issuer under the last sentence of Section 2.2(b)(iii) and the obligations of
the Lenders under Sections 4.1(d), 10.6, 11.7, 11.13 and 11.16 hereof, shall,
notwithstanding anything herein to the contrary, survive the repayment of the
Loans and Reimbursement Obligations and the termination of the Revolving Loan
Commitments and the Letters of Credit.
11.9 Captions. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.11 Governing Law. THIS AGREEMENT AND (EXCEPT AS THEREIN
PROVIDED) THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES
OF AMERICA FROM TIME TO TIME IN EFFECT.
11.12 Severability. Whenever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid
under applicable law. If any provision of any Loan Document shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions of such Loan Document
shall not be affected or impaired thereby.
11.13 Tax Forms. Each Lender which is organized under the laws of a
jurisdiction outside the United States shall, on the day of the initial
borrowing from each such Lender hereunder and from time to time thereafter if
requested by Borrower or Agent, provide Agent and Borrower with the forms
prescribed by the Internal Revenue Service of the United States certifying as
to such Lender's status for purposes of determining exemption from United
States withholding taxes with
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respect to all payments to be made to such Lender hereunder or other documents
satisfactory to such Lender, Borrower and Agent indicating that all payments to
be made to such Lender hereunder are not subject to United States withholding
tax or are subject to such tax at a rate reduced by an applicable tax treaty.
If a Lender determines, as a result of any change in either (i) applicable law,
regulation or treaty, or in any official application thereof or (ii) its
circumstances, that it is unable to submit any form or certificate that it is
obligated to submit pursuant to this Section, or that it is required to
withdraw or cancel any such form or certificate previously submitted, it shall
promptly notify Borrower and Agent of such fact. Unless Borrower and Agent
shall have received such forms or such documents indicating that payments
hereunder are not subject to United States withholding tax or are subject to
such tax at a rate reduced by an applicable tax treaty, Borrower or Agent shall
withhold taxes from such payments at the applicable statutory rate. Each
Lender agrees to indemnify and hold harmless from any United States taxes,
penalties, interest and other expenses, costs and losses incurred or payable by
(i) Agent as a result of such Lender's failure to submit any form or
certificate that it required to provide pursuant to this Section or (ii)
Borrower or Agent as a result of their reliance on any representation, form or
certificate which such Lender has provided to them pursuant to this Section.
11.14 Conflicts Between This Agreement and the Other Loan Documents.
In the event of any conflict between the terms of this Agreement and the terms
of any of the other Loan Documents, the terms of this Agreement shall control.
11.15 Limitation on Charges; Substitute Lenders; Non-Discrimination.
Anything in Sections 2.2(d), 3.3(c) or 7.9 notwithstanding:
(1) Borrower shall not be required to pay to any Lender
reimbursement or indemnification with regard to any costs or expenses
described in such Sections, unless such Lender notifies Borrower of
such costs or expenses within 90 days after the date paid or incurred;
(2) none of the Lenders shall be permitted to pass
through to Borrower charges and costs under such Sections on a
discriminatory basis (i.e., which are not also passed through by such
Lender to other customers of such Lender similarly situated where such
customer is subject to documents providing for such pass through); and
(3) if any Lender elects to pass through to Borrower any
material charge or cost under such Sections or elects to terminate the
availability of LIBOR Borrowings for any material period of time,
Borrower may, within 60 days after the date of such event and so long
as no Default shall have occurred and be continuing, elect to
terminate such Lender as a party to this Agreement; provided that,
concurrently with such termination Borrower shall (i) if Agent and
each of the other Lenders shall consent, pay that Lender all
principal, interest and fees and other amounts owed to such Lender
through such date of termination or (ii) have arranged for another
financial institution approved by Agent (such approval not to be
unreasonably withheld or delayed) as of such date, to become a
substitute Lender for all
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purposes under this Agreement in the manner provided in Section 11.6;
provided further that, prior to substitution for any Lender, Borrower
shall have given written notice to Agent of such intention and the
Lenders shall have the option, but no obligation, for a period of 60
days after receipt of such notice, to increase their Revolving Loan
Commitments in order to replace the affected Lender in lieu of such
substitution.
11.16 Confidentiality. Each Lender agrees to exercise its best
efforts to keep any information delivered or made available by any Obligor
which is clearly indicated to be confidential information, confidential from
anyone other than Persons employed or retained by such Lender or any of its
Affiliates who are or are expected to become engaged in evaluating, approving,
structuring or administering the Loans; provided that nothing herein shall
prevent any Lender from disclosing such information (a) to any other Lender;
(b) pursuant to subpoena or upon the order of any court or administrative
agency; (c) upon the request or demand of any regulatory agency or authority
having jurisdiction over such Lender; (d) which has been publicly disclosed;
(e) to the extent reasonably required in connection with any litigation to
which Agent, any Lender, any Obligor or their respective Affiliates may be a
party; (f) to the extent reasonably required in connection with the exercise of
any remedy hereunder; (g) to such Lender's bank counsel and independent
auditors; and (h) to any actual or proposed participant or assignee of all or
part of its rights hereunder which has agreed in writing to be bound by the
provisions of this Section.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
NATIONAL TANK COMPANY,
a Delaware corporation
By: /s/ WILLIAM B. WIENER, III
------------------------------------
William B. Wiener, III,
Senior Vice President
Address for Notices:
Brookhollow Central III
2950 North Loop West, Suite 750
Houston, Texas 77092
Attention: William B. Wiener, III
Telecopy No.: (713) 683-7841
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TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent, Issuer and as a
Lender
By: /s/ MONA M. FOCH
-----------------------------------
Mona M. Foch, Vice President
Address for Notices:
Revolving Loan Commitment: 712 Main Street
Houston, Texas 77002
$9,642,857.14 Attention: Manager, Structured
Finance - Oil Service
Telecopy No.: (713) 216-6710
Term Loans:
$5,357,142.86
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FIRST NATIONAL BANK OF COMMERCE
By: /s/ JOSHUA C. CUMMINGS
------------------------------------
Name: Joshua C. Cummings
----------------------------------
Title: Assistant Vice President
---------------------------------
First National Bank of Commerce
---------------------------------
Address for Notices:
Revolving Loan Commitment: 201 St. Charles Street, 28th Floor
New Orleans, Louisiana 70170
$8,357,142.86 Attention: Mr. Josh Cummings
Telecopy No.: (504) 623-1361
Term Loans:
$4,642,857.14
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Cummings Point Industries, Inc. and NATCO Holdings, Inc. join in the
execution hereof for the purpose of (i) acknowledging the representations,
warranties, covenants and agreements set forth herein which relate to them,
respectively, (ii) agreeing to be bound by the covenants and agreements set
forth herein which relate to them, respectively, and (iii) confirming the
accuracy of the representations and warranties set forth herein which relate to
them, respectively.
CUMMINGS POINT INDUSTRIES, INC.,
a Delaware corporation
By: /s/ WILLIAM B. WIENER, III
-----------------------------------
William B. Wiener, III,
Senior Vice President
NATCO HOLDINGS, INC.,
a Delaware corporation
By: /s/ WILLIAM B. WIENER, III
-----------------------------------
William B. Wiener, III,
Senior Vice President
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[LETTERHEAD OF THE BORROWER]
REQUEST FOR EXTENSION OF CREDIT
________________, 199____
Texas Commerce Bank National
Association, as Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Structured Finance - Oil Service
Gentlemen:
The undersigned hereby certifies that he is the
_________________________________ of NATIONAL TANK COMPANY, a Delaware
corporation (the "Borrower"), and that as such he is authorized to execute
this Request for Extension of Credit (the "Request") on behalf of the Borrower
pursuant to the Loan Agreement (as it may be amended, supplemented or restated
from time to time, the "Agreement") dated as of June 30, 1997, by and among the
Borrower, Texas Commerce Bank National Association, as Agent, and the Lenders
therein named. The (check one) [___] Loan [___] Letter of Credit being
requested hereby is to be in the amount set forth in (b) below and is requested
to be made on __________________, which is a Business Day. The undersigned
further certifies, represents and warrants that to his knowledge, after due
inquiry (each capitalized term used herein having the same meaning given to it
in the Agreement unless otherwise specified herein):
<TABLE>
<S> <C> <C>
(a) As of the date hereof:
(1) The Borrowing Base is: $
===================
(2) The aggregate Revolving Loan Commitments are: $
===================
(3) The Maximum Revolving Loan Available Amount
(Lesser of (a)(1) and (a)(2)) is: $
-------------------
</TABLE>
EXHIBIT A
to Loan Agreement
1
<PAGE> 81
<TABLE>
<S> <C> <C>
(4) The aggregate outstanding principal of Revolving
Notes, before giving effect to the Loan, if any,
requested hereby, is: ( )
-------------------
(5) The amount of Letter of Credit Liabilities as of
the date hereof, before giving effect to the Letter of
Credit, if any, requested hereby, is: ( )
-------------------
(6) The aggregate unused Revolving Loan
Commitments of all Lenders [A(3) minus sum of
A(4) and A(5)], if positive, is: $
===================
</TABLE>
(b) If and only if the aggregate unused Revolving Loan Commitments
of all Lenders [A(6)] is positive, the Borrower hereby
requests under this Request a Loan or Letter of Credit (as
indicated above) in the amount of $____________ (which is no
more than the aggregate unused Revolving Loan Commitments of
all Lenders).
(c) If a Letter of Credit is requested hereby, it should be issued
for the benefit of ___________________________________ and
should have an expiration date of ____________________ and any
special language to be incorporated into such Letter of Credit
is attached hereto. The sum of the face amount of the
requested Letter of Credit plus the Letter of Credit
Liabilities as the date hereof as specified in item (a)(5)
above does not exceed $5,000,000.
(d) The representations and warranties made in each Loan Document
are true and correct in all material respects on and as of the
time of delivery hereof, with the same force and effect as if
made on and as of the time of delivery hereof unless otherwise
limited to an earlier date.
(e) No event which could reasonably be expected to have a Material
Adverse Effect has occurred.
(g) No Default or Event of Default has occurred and is continuing.
Thank you for your attention to this matter.
Very truly yours,
[SIGNATURE OF AUTHORIZED OFFICER]
Page 2
EXHIBIT A
<PAGE> 82
RATE DESIGNATION NOTICE
NATIONAL TANK COMPANY, Texas Commerce Bank National Association, as
Agent, and certain financial institutions executed and delivered that certain
Loan Agreement (as amended, supplemented and restated, the "Loan Agreement")
dated as of June 30, 1997. Any term used herein and not otherwise defined
herein shall have the meaning herein ascribed to it in the Loan Agreement. In
accordance with the Loan Agreement, Borrower hereby notifies Agent of the
exercise of an Interest Option.
A. Current borrowings
<TABLE>
<S> <C>
1. Interest Options now in effect:
-----------------------
2. Amounts: $
---------------------
3. Expiration of current Interest Periods, if applicable:
-------------------------
</TABLE>
B. Proposed election
<TABLE>
<S> <C>
1. Total Amount: $
----------------------
2. Date Interest Option is to be effective:
--------------------------
3. Interest Option to be applicable (check one):
[ ] Base Rate
----
[ ] Eurodollar Rate
----
4. Interest Period: months (if available and if applicable)
------
</TABLE>
EXHIBIT B
1
<PAGE> 83
Borrower represents and warrants that the Interest Option and Interest
Period selected above comply with all provisions of the Loan Agreement and that
there exists no Event of Default or any event which, with the passage of time,
the giving of notice or both, would be an Event of Default.
Date:
--------------------
NATIONAL TANK COMPANY,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXHIBIT B
2
<PAGE> 84
TERM NOTE
Houston, Texas
$__________________ ______________, 199___
FOR VALUE RECEIVED, NATIONAL TANK COMPANY, a Delaware corporation
("Maker"), promises to pay to the order of _______________________ ("Payee"),
at the principal office of Texas Commerce Bank National Association, a national
banking association, 712 Main Street, Houston, Harris County, Texas 77002, in
immediately available funds and in lawful money of the United States of
America, the principal sum of ________________________________ Dollars
($_____________) (or the unpaid balance of all principal advanced against this
note, if that amount is less), together with interest on the unpaid principal
balance of this note from time to time outstanding at the rate or rates
provided in that certain Loan Agreement (as amended, supplemented, restated or
replaced from time to time, the "Loan Agreement") dated as of June 30, 1997
among Maker, certain signatory banks named therein, and Texas Commerce Bank
National Association, as Agent; provided, that for the full term of this note
the interest rate produced by the aggregate of all sums paid or agreed to be
paid to the holder of this note for the use, forbearance or detention of the
debt evidenced hereby (including, but not limited to, all interest on this note
at the Stated Rate plus the Additional Interest) shall not exceed the Ceiling
Rate. Any term defined in the Loan Agreement which is used in this note and
which is not otherwise defined in this note shall have the meaning ascribed to
it in the Loan Agreement.
1. Loan Agreement; Advances; Security. This note has been issued
pursuant to the terms of the Loan Agreement, and is one of the Term Notes
referred to in the Loan Agreement. Advances against this note by Payee or
other holder hereof shall be governed by the terms and provisions of the Loan
Agreement. Reference is hereby made to the Loan Agreement for all purposes.
Payee is entitled to the benefits of and security provided for in the Loan
Agreement. The unpaid principal balance of this note at any time shall be the
total of all amounts lent or advanced against this note less the amount of all
payments or prepayments made on this note and by or for the account of Maker.
All Term Loans and advances and all payments and prepayments made hereon may be
endorsed by the holder of this note on a schedule which may be attached hereto
(and thereby made a part hereof for all purposes) or otherwise recorded in the
holder's records; provided, that any failure to make notation of (a) any Loan
or advance shall not cancel, limit or otherwise affect Maker's obligations or
any holder's rights with respect to that Loan or advance, or (b) any payment or
prepayment of principal shall not cancel, limit or otherwise affect Maker's
entitlement to credit for that payment as of the date received by the holder.
EXHIBIT C
to Loan Agreement
-1-
<PAGE> 85
2. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal balance of
this note shall be due and payable on the Interest Payment Dates.
(b) The principal of this note shall be due and payable as
provided in Section 3.2(c) of the Loan Agreement. On the Term Loan Maturity
Date, the entire unpaid principal balance of this note and all accrued and
unpaid interest on the unpaid principal balance of this note shall be finally
due and payable.
(c) All payments hereon made pursuant to this Paragraph shall be
applied first to accrued interest, the balance to principal.
(d) The Loan Agreement provides for required prepayments of the
indebtedness evidenced hereby upon terms and conditions specified therein.
3. No Usury Intended; Spreading. Notwithstanding any provision
to the contrary contained in this note or any of the other Loan Documents, it
is expressly provided that in no case or event shall the aggregate of (a) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (b) the aggregate of any Additional Interest, ever exceed the
Ceiling Rate. In this connection, Maker and Payee stipulate and agree that it
is their common and overriding intent to contract in strict compliance with
applicable federal and Texas usury laws (and the usury laws of any other
jurisdiction whose usury laws are deemed to apply to this note or any of the
other Loan Documents despite the intention and desire of the parties to apply
the usury laws of the State of Texas). In furtherance thereof, none of the
terms of this note or any of the other Loan Documents shall ever be construed
to create a contract to pay, as consideration for the use, forbearance or
detention of money, interest at a rate in excess of the Ceiling Rate. Maker or
other parties now or hereafter becoming liable for payment of the indebtedness
evidenced by this note shall never be liable for interest in excess of the
Ceiling Rate. If, for any reason whatever, the interest paid or received on
this note during its full term produces a rate which exceeds the Ceiling Rate,
the holder of this note shall credit against the principal of this note (or, if
such indebtedness shall have been paid in full, shall refund to the payor of
such interest) such portion of said interest as shall be necessary to cause the
interest paid on this note to produce a rate equal to the Ceiling Rate. All
sums paid or agreed to be paid to the holder of this note for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread in equal parts throughout the full term of this note, so that the
interest rate is uniform throughout the full term of this note. The provisions
of this Paragraph shall control all agreements, whether now or hereafter
existing and whether written or oral, between Maker and Payee.
EXHIBIT C
to Loan Agreement
-2-
<PAGE> 86
4. Default. The Loan Agreement provides for the acceleration of
the maturity of this note and other rights and remedies upon the occurrence of
certain events specified therein.
5. Waivers by Maker and Others. Except to the extent, if any,
that notice of default is expressly required herein or in any of the other Loan
Documents, Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting
and the filing of suit for the purpose of fixing liability and consent that the
time of payment hereof may be extended and re-extended from time to time
without notice to any of them. Each such Person agrees that its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect
or to maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
6. Paragraph Headings. Paragraph headings appearing in this note
are for convenient reference only and shall not be used to interpret or limit
the meaning of any provision of this note.
7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
8. Successors and Assigns. This note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and assigns
of Maker and Payee.
9. Records of Payments. The records of Payee shall be prima
facie evidence of the amounts owing on this note.
10. Severability. If any provision of this note is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this note shall not
be affected thereby, and this note shall be liberally construed so as to carry
out the intent of the parties to it.
EXHIBIT C
to Loan Agreement
-3-
<PAGE> 87
11. Business Loans. Maker warrants and represents to Payee and
all other holders of this note that all loans evidenced by this note are and
will be for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter One.
NATIONAL TANK COMPANY,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXHIBIT C
to Loan Agreement
-4-
<PAGE> 88
REVOLVING NOTE
Houston, Texas
$__________________ ______________, 199___
FOR VALUE RECEIVED, NATIONAL TANK COMPANY, a Delaware corporation
("Maker"), promises to pay to the order of _______________________ ("Payee"),
at the principal office of Texas Commerce Bank National Association, a national
banking association, 712 Main Street, Houston, Harris County, Texas 77002, in
immediately available funds and in lawful money of the United States of
America, the principal sum of ________________________________ Dollars
($_____________) (or the unpaid balance of all principal advanced against this
note, if that amount is less), together with interest on the unpaid principal
balance of this note from time to time outstanding at the rate or rates
provided in that certain Loan Agreement (as amended, supplemented, restated or
replaced from time to time, the "Loan Agreement") dated as of June 30, 1997
among Maker, certain signatory banks named therein, and Texas Commerce Bank
National Association, as Agent; provided, that for the full term of this note
the interest rate produced by the aggregate of all sums paid or agreed to be
paid to the holder of this note for the use, forbearance or detention of the
debt evidenced hereby (including, but not limited to, all interest on this note
at the Stated Rate plus the Additional Interest) shall not exceed the Ceiling
Rate. Any term defined in the Loan Agreement which is used in this note and
which is not otherwise defined in this note shall have the meaning ascribed to
it in the Loan Agreement.
1. Loan Agreement; Advances; Security. This note has been issued
pursuant to the terms of the Loan Agreement, and is one of the Revolving Notes
referred to in the Loan Agreement. Advances against this note by Payee or
other holder hereof shall be governed by the terms and provisions of the Loan
Agreement. Reference is hereby made to the Loan Agreement for all purposes.
Payee is entitled to the benefits of and security provided for in the Loan
Agreement. The unpaid principal balance of this note at any time shall be the
total of all amounts lent or advanced against this note less the amount of all
payments or prepayments made on this note and by or for the account of Maker.
All Revolving Loans and advances and all payments and prepayments made hereon
may be endorsed by the holder of this note on a schedule which may be attached
hereto (and thereby made a part hereof for all purposes) or otherwise recorded
in the holder's records; provided, that any failure to make notation of (a) any
Loan or advance shall not cancel, limit or otherwise affect Maker's obligations
or any holder's rights with respect to that Loan or advance, or (b) any payment
or prepayment of principal shall not cancel, limit or otherwise affect Maker's
entitlement to credit for that payment as of the date received by the holder.
EXHIBIT D
to Loan Agreement
-1-
<PAGE> 89
2. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal balance of
this note shall be due and payable on the Interest Payment Dates.
(b) On the Revolving Loan Maturity Date, the entire unpaid
principal balance of this note and all accrued and unpaid interest on the
unpaid principal balance of this note shall be finally due and payable.
(c) All payments hereon made pursuant to this Paragraph shall be
applied first to accrued interest, the balance to principal.
(d) The Loan Agreement provides for required prepayments of the
indebtedness evidenced hereby upon terms and conditions specified therein.
3. No Usury Intended; Spreading. Notwithstanding any provision
to the contrary contained in this note or any of the other Loan Documents, it
is expressly provided that in no case or event shall the aggregate of (a) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (b) the aggregate of any Additional Interest, ever exceed the
Ceiling Rate. In this connection, Maker and Payee stipulate and agree that it
is their common and overriding intent to contract in strict compliance with
applicable federal and Texas usury laws (and the usury laws of any other
jurisdiction whose usury laws are deemed to apply to this note or any of the
other Loan Documents despite the intention and desire of the parties to apply
the usury laws of the State of Texas). In furtherance thereof, none of the
terms of this note or any of the other Loan Documents shall ever be construed
to create a contract to pay, as consideration for the use, forbearance or
detention of money, interest at a rate in excess of the Ceiling Rate. Maker or
other parties now or hereafter becoming liable for payment of the indebtedness
evidenced by this note shall never be liable for interest in excess of the
Ceiling Rate. If, for any reason whatever, the interest paid or received on
this note during its full term produces a rate which exceeds the Ceiling Rate,
the holder of this note shall credit against the principal of this note (or, if
such indebtedness shall have been paid in full, shall refund to the payor of
such interest) such portion of said interest as shall be necessary to cause the
interest paid on this note to produce a rate equal to the Ceiling Rate. All
sums paid or agreed to be paid to the holder of this note for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread in equal parts throughout the full term of this note, so that the
interest rate is uniform throughout the full term of this note. The provisions
of this Paragraph shall control all agreements, whether now or hereafter
existing and whether written or oral, between Maker and Payee.
4. Default. The Loan Agreement provides for the acceleration of
the maturity of this note and other rights and remedies upon the occurrence of
certain events specified therein.
EXHIBIT D
to Loan Agreement
-2-
<PAGE> 90
5. Waivers by Maker and Others. Except to the extent, if any,
that notice of default is expressly required herein or in any of the other Loan
Documents, Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting
and the filing of suit for the purpose of fixing liability and consent that the
time of payment hereof may be extended and re-extended from time to time
without notice to any of them. Each such Person agrees that its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect
or to maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
6. Paragraph Headings. Paragraph headings appearing in this note
are for convenient reference only and shall not be used to interpret or limit
the meaning of any provision of this note.
7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
8. Successors and Assigns. This note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and assigns
of Maker and Payee.
9. Records of Payments. The records of Payee shall be prima
facie evidence of the amounts owing on this note.
10. Severability. If any provision of this note is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this note shall not
be affected thereby, and this note shall be liberally construed so as to carry
out the intent of the parties to it.
11. Revolving Loan. Subject to the terms and provisions of the
Loan Agreement, Maker may use all or any part of the credit provided to be
evidenced by this note at any time before the Revolving Loan Maturity Date.
Maker may borrow, repay and reborrow hereunder; and except as set forth in the
Loan Agreement there is no limitation on the number of advances made hereunder.
Pursuant to Article 15.10(b) of Chapter 15 ("Chapter 15") of Title 79, Texas
Revised Civil Statutes, 1925, as amended, Maker and Payee expressly agree that
Chapter 15 shall not apply to this note or to any Loan evidenced by this note
and that neither this note nor any such Loan shall be governed by or subject to
the provisions of Chapter 15 in any manner whatsoever.
EXHIBIT D
to Loan Agreement
-3-
<PAGE> 91
12. Business Loans. Maker warrants and represents to Payee and
all other holders of this note that all loans evidenced by this note are and
will be for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter One.
NATIONAL TANK COMPANY,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EXHIBIT D
to Loan Agreement
-4-
<PAGE> 92
ASSIGNMENT AND ACCEPTANCE
Dated: ___________________
Reference is made to the Loan Agreement dated as of June 30, 1997 (as
restated, amended, modified, supplemented and in effect from time to time, the
"Loan Agreement"), among NATIONAL TANK COMPANY, a Delaware corporation (the
"Borrower"), the Lenders named therein, and Texas Commerce Bank National
Association, as Agent (the "Agent"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Loan
Agreement. This Assignment and Acceptance, between the Assignor (as defined
and set forth on Schedule I hereto and made a part hereof) and the Assignee (as
defined and set forth on Schedule I hereto and made a part hereof) is dated as
of the Effective Date of Assignment (as set forth on Schedule I hereto and made
a part hereof).
1. The Assignor hereby irrevocably sells and assigns to the
Assignee without recourse to the Assignor, and the Assignee hereby irrevocably
purchases and assumes from the Assignor without recourse to the Assignor, as of
the Effective Date, an undivided interest (the "Assigned Interest") in and to
all the Assignor's rights and obligations under the Loan Agreement respecting
those, and only those, credit facilities contained in the Loan Agreement as are
set forth on Schedule I (collectively, the "Assigned Facilities," individually,
an "Assigned Facility"), in a principal amount for each Assigned Facility as
set forth on Schedule I.
2. The Assignor (i) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement or any other
Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Agreement, any other Loan
Document or any other instrument or document furnished pursuant thereto, other
than that it is the legal and beneficial owner of the Assigned Interest and
that the Assigned Interest is free and clear of any adverse claim; (ii) makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of Cummings, Holdings, the Borrower or its Subsidiaries or
the performance or observance by the Borrower or its Subsidiaries of any of its
respective obligations under the Loan Agreement, any other Loan Document or any
other instrument or document furnished pursuant thereto; and (iii) attaches the
Note(s) held by it evidencing the Assigned Facility or Facilities, as the case
may be, and requests that the Agent exchange such Note(s) for a new Note or
Notes payable to the Assignor (if the Assignor has retained any interest in the
Assigned Facility or Facilities) and a new Note or Notes payable to the
Assignee in the respective amounts which reflect the assignment being made
hereby (and after giving effect to any other assignments which have become
effective on the Effective Date of Assignment).
EXHIBIT E
to
Loan Agreement
-1-
<PAGE> 93
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (ii) confirms that it
has received a copy of the Loan Agreement, together with copies of the
financial statements referred to in Section 6.2 thereof, or if later, the most
recent financial statements delivered pursuant to Section 7.2 thereof, and such
other documents and information as it has deemed appropriate to make its own
credit analysis; (iii) agrees that it will, independently and without reliance
upon the Agent, the Assignor or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under the Loan Agreement;
(iv) appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under the Loan Agreement as are delegated to
the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (v) agrees that it will be bound by the provisions of the
Loan Agreement and will perform in accordance with its terms all the
obligations which by the terms of the Loan Agreement are required to be
performed by it as a Lender; (vi) if the Assignee is organized under the laws
of a jurisdiction outside the United States, attaches the forms prescribed by
the Internal Revenue Service of the United States certifying as to the
Assignee's exemption from United States withholding taxes with respect to all
payments to be made to the Assignee under the Loan Agreement or such other
documents as are necessary to indicate that all such payments are subject to
such tax at a rate reduced by an applicable tax treaty, and (vii) has supplied
the information requested on the administrative questionnaire provided by
Agent.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent for acceptance by it and the Borrower and recording
by the Agent pursuant to Section 11.6 of the Loan Agreement, effective as of
the Effective Date of Assignment (which Effective Date of Assignment shall,
unless otherwise agreed to by the Agent, be at least five Business Days after
the execution of this Assignment and Acceptance).
5. Upon such acceptance and recording, from and after the
Effective Date of Assignment, the Agent shall make all payments in respect of
the Assigned Interest (including payments of principal, interest, fees and
other amounts) to the Assignee, whether such amounts have accrued prior to the
Effective Date of Assignment or accrue subsequent to the Effective Date of
Assignment. The Assignor and Assignee shall make all appropriate adjustments
in payments for periods prior to the Effective Date of Assignment by the Agent
or with respect to the making of this assignment directly between themselves.
EXHIBIT E
to
Loan Agreement
-2-
<PAGE> 94
6. From and after the Effective Date of Assignment, (i) the
Assignee shall be a party to the Loan Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder, and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Loan Agreement.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed by their respective duly authorized
officers on Schedule I hereto.
EXHIBIT E
to
Loan Agreement
-3-
<PAGE> 95
SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S> <C>
Legal Name of Assignor:
----------------------------------
Legal Name of Assignee:
----------------------------------------------
Effective Date of Assignment:
----------------------------
</TABLE>
<TABLE>
<CAPTION>
Percentage Assigned of Each
Facility (to at least 8
decimals) (Shown as a
percentage of aggregate
original principal amount
Principal [or, with respect to Letters
Assigned Amount of Credit, face amount]
Facilities Assigned Interest of all Lenders)
---------- ----------------- -----------------------------
<S> <C> <C>
Term Loans $______________ ______%
Revolving Loans $______________ ______%
Letter of Credit
participation interests $______________ ______%
Total $______________
</TABLE>
EXHIBIT E
to
Loan Agreement
-1-
<PAGE> 96
,
- -------------------------------------------
as Assignor
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
,
- ---------------------------------------------------
as Assignee
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
NATIONAL TANK COMPANY,
a Delaware corporation
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
Accepted:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
EXHIBIT E
to
Loan Agreement
-2-
<PAGE> 97
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the ______________________
______________________________ of NATIONAL TANK COMPANY, a Delaware corporation
(the "Borrower"), and that as such he is authorized to execute this certificate
on behalf of the Borrower pursuant to the Loan Agreement (the "Agreement")
dated as of June 30, 1997, by and among the Borrower, TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, as Agent, and the lenders therein named; and that a
review of the Borrower and the other Obligors has been made under his
supervision with a view to determining whether the Borrower and the other
Obligors have fulfilled all of their respective obligations under the
Agreement, the Notes and the other Loan Documents; and on behalf of the
Borrower further certifies, represents and warrants that to the best knowledge
of the officer executing this certificate, after due inquiry (each capitalized
term used herein having the same meaning given to it in the Agreement unless
otherwise specified):
(a) The Borrower and the other Obligors have fulfilled,
in all material respects, their respective obligations under the
Agreement, the Notes and the other Loan Documents to which each is a
party.
(b) The representations and warranties made in each Loan
Document are true and correct in all material respects on and as of the
time of delivery hereof, with the same force and effect as if made on
and as of the time of delivery hereof except to the extent limited to
an earlier date.
(c) The financial statements delivered to the Agent
concurrently with this Compliance Certificate have been prepared in
accordance with GAAP consistently followed throughout the period
indicated and fairly present in all material respects the financial
condition and results of operations of the applicable Persons as at the
end of, and for, the period indicated (subject, in the case of
Quarterly Financial Statements, to normal changes resulting from
year-end adjustments).
(d) No Default or Event of Default has occurred and is
continuing. In this regard, the compliance with the provisions of
Section 7.3 is as follows:
(i) SECTION 7.3(A) -- TANGIBLE NET WORTH
<TABLE>
<CAPTION>
Actual Required
------ --------
<S> <C>
$___________ $___________
</TABLE>
EXHIBIT F
1
<PAGE> 98
(ii) SECTION 7.3(B) -- DEBT TO CAPITALIZATION RATIO
<TABLE>
<CAPTION>
Actual Required
------ --------
<S> <C>
______% ______%
</TABLE>
(iii) SECTION 7.3(C) -- FIXED CHARGE COVERAGE RATIO
<TABLE>
<CAPTION>
Actual Required
------ --------
<S> <C>
______ to 1.00 1.25 to 1.00
</TABLE>
(e) No event which could reasonably be expected to have a
Material Adverse Effect has occurred.
DATED as of ____________________.
NATIONAL TANK COMPANY,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EXHIBIT F
2
<PAGE> 99
BORROWING BASE CERTIFICATE
The undersigned hereby certifies that he is the _______________________
of NATIONAL TANK COMPANY, a Delaware corporation (the "Borrower"), and that as
such he is authorized to execute this Borrowing Base Certificate on behalf of
the Borrower pursuant to the Loan Agreement (as it may be amended, supplemented
or restated from time to time, the "Agreement") dated as of June 30, 1997, by
and among the Borrower, Texas Commerce Bank National Association, as Agent, and
the Lenders therein named. The undersigned further certifies, represents and
warrants that to his knowledge, after due inquiry, that Schedule 1 attached
hereto has been duly completed and is true and correct in all material
respects.
Dated ________________, 199____.
---------------------------------
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT G
to
Loan Agreement
-1-
<PAGE> 100
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NUMBER VALUE EXPIRY AMOUNT BENEFICIARY ON BEHALF OF
DATE DATE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I-458646 01/04/96 07/01/98 $15,700.00 Bohai Oil Total Engineering
Corporation Services Team, Inc.
- -----------------------------------------------------------------------------------------------------------------
I-459631 02/13/96 03/28/98 15,846.40 The British Abduljalil Industrial
Bank of the Development/
Middle East Total Engineering
Services Team, Inc.
- -----------------------------------------------------------------------------------------------------------------
I-459632 02/13/96 01/15/98 4,828.80 The British Total Engineering
Bank of the Services Team, Inc.
Middle East
- -----------------------------------------------------------------------------------------------------------------
I-465101 10/02/96 06/20/98 9,480.00 Bohai Oil Total Engineering
Corporation Services Team, Inc.
- -----------------------------------------------------------------------------------------------------------------
I-465102 10/02/96 07/10/98 12,269.90 Bohai Oil Total Engineering
Corporation Services Team, Inc.
- -----------------------------------------------------------------------------------------------------------------
I-469128 03/24/97 12/31/97 63,523.05 Chevron Total Engineering
Nigeria Services Team, Inc.
Limited
- -----------------------------------------------------------------------------------------------------------------
I-469618 04/17/97 08/01/99 31,532.80 Hundai Test, Inc.
Heavy
Industries
Co., Ltd.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT H
<PAGE> 101
National Tank Company
1. Sale of certain property in Bakersfield, California
2. Sale of certain property in Williston, North Dakota
3. Sale of certain property in Oklahoma City, Oklahoma
4. Sale of certain property in Bossier City, Louisiana
5. NATCO's interest in the Technical Assistance Agreement between C-E
Turbo, a Division of Combustion Engineering, Inc. and Mitsubishi
Heavy Industries, Ltd. dated as October 11, 1972
Total Engineering Systems Team, Inc.
1. Sale of certain property located at 1865 Industrial Blvd., Harvey,
Louisiana
EXHIBIT I
<PAGE> 102
GUARANTY
THIS GUARANTY ("Guaranty") dated as of June 30, 1997 is executed and
delivered by CUMMINGS POINT INDUSTRIES, INC., a Delaware corporation
("Guarantor"), to TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent (in such
capacity herein called "Agent") under the Loan Agreement (hereinafter defined).
ARTICLE 1
Section 1.1 Definitions. As used in this Guaranty, these terms shall
have these respective meanings:
Borrower means NATIONAL TANK COMPANY, a Delaware corporation.
Debtmeans the sum of (a) all debt (principal, interest or other)
evidenced by the Notes and all debt (principal, interest or other) incurred
under or evidenced by the other Loan Documents, (b) the Letter of Credit
Liabilities and (c) the Interest Rate Risk Indebtedness. The Debt includes
interest and other obligations accruing or arising after (i) commencement of
any case under any bankruptcy or similar laws by or against any Obligor or (ii)
the obligations of any Obligor shall cease to exist by operation of law or for
any other reason. The Debt also includes all reasonable and customary
attorneys' fees and any other expenses incurred by Agent in enforcing any of
the Loan Documents.
Loan Agreement means that certain Loan Agreement dated concurrently
herewith executed by and among the Borrower, Agent and the Lenders party
thereto and all amendments, supplements, restatements or replacements to any of
the foregoing from time to time.
TERMS USED HEREIN WITH THEIR INITIAL LETTERS CAPITALIZED AND WHICH ARE
NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO SUCH TERMS IN
THE LOAN AGREEMENT.
ARTICLE 2
Section 2.1 Execution of Loan Documents. Borrower has executed and
delivered the Loan Documents, and the Debt is secured by various Liens created
or evidenced by the Loan Documents.
Section 2.2 Consideration. In consideration of the credit and
financial accommodations contemplated to be extended to Borrower pursuant to
the Loan Documents or otherwise, which Guarantor has determined will
substantially benefit Guarantor directly or indirectly, and for other good and
valuable consideration, the receipt and sufficiency of which Guarantor hereby
acknowledges, Guarantor executes and delivers this Guaranty to Agent with the
intention of being presently and legally bound by its terms.
<PAGE> 103
ARTICLE 3
Section 3.1 Payment Guaranty. Guarantor, as primary obligor and not
as a surety, unconditionally guarantees to Agent for the ratable benefit of
Lenders the full, prompt and punctual payment of the Debt when due (whether at
its stated maturity, by acceleration or otherwise) in accordance with the Loan
Documents. This Guaranty is irrevocable, unconditional and absolute, and if
for any reason all or any portion of the Debt shall not be paid when due,
Guarantor will, upon written demand, immediately pay to Agent the amount
demanded, in Dollars, regardless of (a) any defense, right of set-off or
counterclaim which any Obligor may have or assert and (b) whether Agent or any
other Person shall have taken any steps to enforce any rights against any
Obligor or any other Person to collect any of the Debt.
Section 3.2 Obligations Not Affected. Guarantor's covenants,
agreements and obligations under this Guaranty shall in no way be released,
diminished, reduced, impaired or otherwise affected by reason of the happening
from time to time of any of the following things, for any reason, whether by
voluntary act, operation of law or order of any Governmental Authority and
whether or not Guarantor is given any notice or is asked for or gives any
further consent (all requirements for which, however arising, Guarantor hereby
WAIVES):
(a) release or waiver of any obligation or duty to
perform or observe any express or implied agreement, covenant, term or
condition imposed in any of the Loan Documents or by applicable law on any
Obligor or any party to the Loan Documents (other than Guarantor).
(b) extension of the time for payment of any part of the
Debt or any other sums payable under the Loan Documents, extension of the time
for performance of any other obligation under or arising out of or in
connection with the Loan Documents or change in the manner, place or other
terms of such payment or performance.
(c) settlement or compromise of any of the Debt.
(d) renewal, supplementing, modification, rearrangement,
amendment, restatement, replacement, cancellation, rescission, revocation or
reinstatement (whether or not material) of any part of any of the Loan
Documents or any obligations under the Loan Documents of any Obligor or any
other party to the Loan Documents (without limiting the number of times any of
the foregoing may occur).
(e) acceleration of the time for payment or performance
of any Debt or other obligation under any of the Loan Documents or exercise of
any other right, privilege or remedy under or in regard to any of the Loan
Documents.
(f) failure, omission, delay, neglect, refusal or lack of
diligence by Agent or any other Person to assert, enforce, give notice of
intent to exercise--or any other notice with respect to--or exercise any right,
privilege, power or remedy conferred on Agent or any other Person in any of
2
<PAGE> 104
the Loan Documents or by law; or any action on the part of Agent or any other
Person granting indulgence, grace, adjustment, forbearance or extension of any
kind to any Obligor.
(g) release, surrender, exchange, subordination or loss
of any Lien priority under any of the Loan Documents or in connection with the
Debt.
(h) release, modification or waiver of, or failure,
omission, delay, neglect, refusal or lack of diligence to enforce, any
guaranty, pledge, mortgage, deed of trust, security agreement, lien, charge,
insurance agreement, bond, letter of credit or other security device, guaranty,
surety or indemnity agreement whatsoever.
(i) taking or acceptance of any other security or
guaranty for the payment or performance of any or all of the Debt or the
obligations of any Obligor.
(j) release, modification or waiver of, or failure,
omission, delay, neglect, refusal or lack of diligence to enforce, any right,
benefit, privilege or interest under any contract or agreement, under which the
rights of any Obligor have been collaterally or absolutely assigned, or in
which a security interest has been granted, as direct or indirect security for
payment of the Debt or performance of any other obligations to--or at any time
held by--Agent or any Lender.
(k) death, legal incapacity, disability, voluntary or
involuntary liquidation, dissolution, sale of any Collateral, marshaling of
assets and liabilities, change in corporate or organizational status,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of debt or other
similar proceedings of or affecting any Obligor or any of the assets of any
Obligor, even if any of the Debt is thereby rendered void, unenforceable or
uncollectible against any other Person.
(l) occurrence or discovery of any irregularity,
invalidity or unenforceability of any of the Debt or Loan Documents or any
defect or deficiency in any of the Debt or Loan Documents, including the
unenforceability of any provisions of any of the Loan Documents because
entering into any such Loan Document was ultra vires or because anyone who
executed them exceeded their authority.
(m) failure to acquire, protect or perfect any Lien in
any Collateral intended to secure any part of the Debt or any other obligations
under the Loan Documents or failure to maintain perfection.
(n) failure by Agent or any other Person to notify--or
timely notify--Guarantor of any Default or Event of Default under any of the
Loan Documents, any renewal, extension, supplementing, modification,
rearrangement, amendment, restatement, replacement, cancellation, rescission,
revocation or reinstatement (whether or not material) or assignment of any part
of the Debt, release or exchange of any security, any other action taken or not
taken by Agent against any Obligor or any other Person or any direct or
indirect security for any part of the Debt or other
3
<PAGE> 105
obligation of Borrower, any new agreement between Agent and/or any Lender and
any Obligor or any other Person or any other event or circumstance. Neither
Agent nor any Lender has any duty or obligation to give Guarantor any notice of
any kind under any circumstances whatsoever with respect to or in connection
with the Debt or the Loan Documents.
(o) occurrence of any event or circumstances which might
otherwise constitute a defense available to, or a discharge of, any Obligor,
including failure of consideration, usury, forgery, breach of warranty, failure
to satisfy any requirement of the statute of frauds, running of any statute of
limitation, accord and satisfaction and any defense based on election of
remedies of any type.
(p) receipt and/or application of any proceeds, credits
or recoveries from any source, including any proceeds, credits, or amounts
realized from exercise of any rights, remedies, powers or privileges under the
Loan Documents, by law or otherwise available to Agent or any Lender.
(q) occurrence of any act, error or omission, except
behavior which is proven to be in bad faith to the extent (but no further),
that Guarantor cannot effectively waive the right to complain.
Section 3.3 Waiver of Certain Rights and Notices. Guarantor hereby
WAIVES and RELEASES all right to require marshaling of assets and liabilities,
sale in inverse order of alienation, notice of acceptance of this Guaranty and
of any liability to which it applies or may apply, notice of the creation,
accrual, renewal, increase, extension, modification, amendment or rearrangement
of any part of the Debt, presentment, demand for payment, protest, notice of
nonpayment, notice of dishonor, notice of intent to accelerate, notice of
acceleration and, except as expressly provided herein, all other notices and
demands, collection, suit and the taking of any other action by Agent or any
Lender.
Section 3.4 Not a Collection Guaranty. This is an absolute guaranty
of payment, and not of collection, and Guarantor WAIVES any right to require
that any action be brought against any Obligor or any other Person, or that
Agent or any Lender be required to enforce, attempt to enforce or exhaust any
of its rights, benefits or privileges under any of the Loan Documents, by law
or otherwise; provided that nothing herein shall be construed to prevent Agent
or any Lender from exercising and enforcing at any time any right, benefit or
privilege which it may have under any Loan Document or by law from time to
time, and at any time, and Guarantor agrees that Guarantor's obligations
hereunder are-- and shall be--absolute, independent and unconditional under any
and all circumstances. Should Agent or any Lender seek to enforce Guarantor's
obligations by action in any court, Guarantor WAIVES any requirement,
substantive or procedural, that (a) Agent or such Lender pursue any foreclosure
action, realize or attempt to realize on any security or preserve or enforce
any deficiency claim against any Obligor or any other Person after any such
realization, (b) a judgment first be sought or rendered against any Obligor or
any other Person, (c) any Obligor or any other Person be joined in such action
or (d) a separate action be brought against any Obligor or any other
4
<PAGE> 106
Person. Guarantor's obligations under this Guaranty are several from those of
any other Obligor or any other Person, and are primary obligations concerning
which Guarantor is the principal obligor. All waivers in this Guaranty or any
of the Loan Documents shall be without prejudice to Agent or any Lender at its
option to proceed against any Obligor or any other Person, whether by separate
action or by joinder. Guarantor agrees that this Guaranty shall not be
discharged except by payment of the Debt in full, complete performance of all
obligations of the Obligors under the Loan Documents and termination of the
obligation--if any--to make any further advances under the Notes or extend
other financial accommodations to any Obligor.
Section 3.5 Subrogation. Guarantor agrees that it shall never be
entitled to be subrogated to any of Agent's or any Lender's rights against any
Obligor or any other Person or any Collateral or offset rights held by Agent or
any Lender for payment of the Debt until final termination of this Guaranty.
Section 3.6 Reliance on Guaranty. All extensions of credit and
financial accommodations heretofore or hereafter made by Agent or any Lender
under or in respect of the Notes or any of the other Loan Documents shall be
conclusively presumed to have been made in acceptance of this Guaranty.
Section 3.7 Demands are Conclusive. Any demand by Agent under this
Guaranty shall be conclusive, absent manifest error, as to the matters therein
stated, including the amount due.
Section 3.8 Joint and Several. If any Person makes any guaranty of
any of the obligations guaranteed hereby or gives any security for them,
Guarantor's obligations hereunder shall be joint and several with the
obligations of such other Person pursuant to such agreement or other papers
making the guaranty or giving the security.
Section 3.9 Payments Returned. Guarantor agrees that, if at any time
all or any part of any payment previously applied by Agent or any Lender to the
Debt is or must be returned by Agent or any Lender--or recovered from Agent or
any Lender--for any reason (including the order of any bankruptcy court), this
Guaranty shall automatically be reinstated to the same effect as if the prior
application had not been made, and, in addition, Guarantor hereby agrees to
indemnify Agent and each Lender against, and to save and hold Agent and each
Lender harmless from any required return by Agent or any Lender--or recovery
from Agent or any Lender--of any such payment because of its being deemed
preferential under applicable bankruptcy, receivership or insolvency laws, or
for any other reason.
ARTICLE 4
Section 4.1 Term. Subject to the automatic reinstatement provisions
of Article 3 above, this Guaranty shall terminate and be of no further force or
effect upon full payment of the Debt and final termination of the Revolving
Loan Commitments of the Lenders.
5
<PAGE> 107
ARTICLE 5
Section 5.1 Default. If any Default or Event of Default occurs under
the Loan Agreement, then that shall automatically constitute default under this
Guaranty.
ARTICLE 6
Section 6.1 Binding on Successors; No Assignment by Guarantor. All
guaranties, warranties, representations, covenants and agreements in this
Guaranty shall bind the heirs, devisees, executors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, successors
and assigns of Guarantor and shall benefit Agent, Lenders, their successors and
assigns, and any holder of any part of the Debt. Guarantor shall not assign or
delegate any of its obligations under this Guaranty or any of the Loan
Documents to which it is a party without the express prior written consent of
the Majority Lenders.
Section 6.2 Subordination of Borrower's Obligations to Guarantor.
Guarantor agrees that if, for any reason whatsoever, Borrower now is or
hereafter becomes liable, obligated or indebted to Guarantor, all such
liabilities, obligations and indebtedness, together with all interest thereon
and fees and other charges in connection therewith, and all Liens securing any
of the foregoing shall at all times be second, subordinate and inferior in
right of payment, in lien priority and in all other respects to the Debt and
all Liens created pursuant to the Security Documents.
Section 6.3 Waiver of Suretyship Rights. By signing this Guaranty,
Guarantor WAIVES each and every right to which it may be entitled by virtue of
any suretyship law, including any rights it may have pursuant to Rule 31 of
the Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice
and Remedies Code and Chapter 34 of the Texas Business and Commerce Code, as
the same may be amended from time to time.
Section 6.4 Amendments in Writing. This Guaranty shall not be
changed orally but shall be changed only by agreement in writing signed by the
party against whom such amendment is sought to be enforced. Any waiver or
consent with respect to this Guaranty shall be effective only in the specific
instance and for the specific purpose for which given. No course of dealing
between the parties, no usage of trade and no parole or extrinsic evidence of
any nature shall be used to supplement or modify any of the terms or provisions
of this Guaranty.
Section 6.5 Notices. Any notice, request or other communication
required or permitted to be given hereunder to Agent or any Lender shall be
given as provided in the Loan Agreement. Any notice, request or other
communication required or permitted to be given hereunder to Guarantor shall be
given in writing by delivering it against receipt for it, by depositing it with
an overnight delivery service or by depositing it in a receptacle maintained by
the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested, addressed as follows (and if so given, shall be
deemed given when mailed):
6
<PAGE> 108
Cummings Point Industries, Inc.
c/o National Tank Company
2950 N. Loop West, Suite 750
Houston, Texas 77092
Attn: William B. Weiner, III
Facsimile: (713) 683-7841
Guarantor's address for notice may be changed at any time and from time to
time, but only after thirty (30) days' advance written notice to Agent and
Lenders and shall be the most recent such address furnished in writing by
Guarantor to Agent and Lenders. Actual notice, however and from whomever given
or received, shall always be effective when received.
Section 6.6 Gender; "Including" is Not Limiting; Section Headings.
The masculine and neuter genders used in this Guaranty each includes the
masculine, feminine and neuter genders, and the singular number includes the
plural where appropriate, and vice versa. Wherever the term "including" or a
similar term is used in this Guaranty, it shall be read as if it were written
"including by way of example only and without in any way limiting the
generality of the clause or concept referred to." The headings used in this
Guaranty are included for reference only and shall not be considered in
interpreting, applying or enforcing this Guaranty.
Section 6.7 Offset Rights. Each Lender is hereby authorized, during
the continuation of an Event of Default, without notice to any Person (and
Guarantor hereby WAIVES any such notice) to the fullest extent permitted by
law, to set-off and apply any and all monies, securities and other Properties
of Guarantor now or in the future in the possession, custody or control of such
Lender, or on deposit with or otherwise owed to Guarantor by such Lender--
including all such monies, securities and other Properties held in general,
special, time, demand, provisional or final accounts or for safekeeping or as
Collateral or otherwise but excluding those accounts clearly designated as
escrow or trust accounts held by Guarantor for others unaffiliated with
Guarantor--against any and all of Guarantor's obligations to Agent or any of
the Lenders now or hereafter existing under this Guaranty, irrespective of
whether any demand under this Guaranty shall have been made. Each Lender
agrees to use reasonable efforts to promptly notify Guarantor after any such
set-off and application, provided that failure to give--or delay in giving--any
such notice shall not affect the validity of such set-off and application or
impose any liability on such Lender. Each Lender's rights under this Section
are in addition to other rights and remedies (including other rights of
set-off) which such Lender may have.
Section 6.8 Governing Law. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE
UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
Section 6.9 Survival. The representations, covenants and agreements
set forth in this Guaranty shall continue and survive until final termination
of this Guaranty.
7
<PAGE> 109
Section 6.10 Rights Cumulative; Delay Not Waiver. Agent's or any
Lender's exercise of any right, benefit or privilege under any of the Loan
Documents or at law or in equity shall not preclude the concurrent or
subsequent exercise of any of Agent's or any Lender's other present or future
rights, benefits or privileges. The remedies provided in this Guaranty are
cumulative and not exclusive of any remedies provided by law or the Loan
Documents. No failure by Agent or any Lender to exercise, and no delay in
exercising, any right under any Loan Document shall operate as a waiver
thereof.
Section 6.11 Severability. If any provision of this Guaranty is held
to be illegal, invalid or unenforceable under present or future laws, the
legality, validity and enforceability of the remaining provisions of this
Guaranty shall not be affected thereby, and this Guaranty shall be liberally
construed so as to carry out the intent of the parties to it. Each waiver in
this Guaranty is subject to the overriding and controlling rule that it shall
be effective only if and to the extent that (a) it is not prohibited by
applicable law and (b) applicable law neither provides for nor allows any
material sanctions to be imposed against Agent or any Lender for having
bargained for and obtained it.
Section 6.12 Entire Agreement. This Guaranty embodies the entire
agreement and understanding among Guarantor, Agent and Lenders with respect to
its subject matter and supersedes all prior conflicting or inconsistent
agreements, consents and understandings relating to such subject matter.
Guarantor acknowledges and agrees that there is no oral agreement between
Guarantor and Agent or any Lender which has not been incorporated in this
Guaranty.
Section 6.13 Relationship to Borrower. The value of the consideration
received and to be received by Guarantor in respect of the Debt is reasonably
worth at least as much as the liability and obligation of Guarantor incurred or
arising under this Guaranty and the Loan Documents. Guarantor has determined
that such liability and obligation may reasonably be expected to substantially
benefit Guarantor directly or indirectly (or if Guarantor is not a natural
person, Guarantor's board of directors, general partners or other governors
have made that determination). Guarantor has had full and complete access to
the underlying papers relating to the Debt and all other papers executed by any
Obligor or any other Person in connection with the Debt, has reviewed them and
is fully aware of the meaning and effect of their contents. Guarantor is fully
informed of all circumstances which bear upon the risks of executing this
Guaranty and which a diligent inquiry would reveal. Guarantor has adequate
means to obtain from Borrower on a continuing basis information concerning
Borrower's financial condition, and is not depending on Agent or any Lender to
provide such information, now or in the future. Guarantor agrees that neither
Agent nor any Lender shall have any obligation to advise or notify Guarantor or
to provide Guarantor with any data or information. The execution and delivery
of this Guaranty is not a condition precedent (and neither Agent nor any Lender
has in any way implied that the execution of this Guaranty is a condition
precedent) to Agent's or any Lender's making, extending or modifying any loan
to Guarantor or to any other financial accommodation to or for Guarantor.
Borrower is a wholly-owned Subsidiary of Guarantor; and Guarantor's guaranty
pursuant to this Guaranty reasonably may be expected to benefit, directly or
indirectly, Guarantor; and Guarantor has determined that this Guaranty is
necessary and convenient to the conduct, promotion and attainment of the
business of Guarantor and Borrower.
8
<PAGE> 110
THIS GUARANTY is executed as of the date first above written.
CUMMINGS POINT INDUSTRIES, INC.,
a Delaware corporation
By: /s/ WILLIAM B. WIENER, III
----------------------------
William B. Wiener, III,
Senior Vice President
9
<PAGE> 111
GUARANTY
THIS GUARANTY ("Guaranty") dated as of June 30, 1997 is executed and
delivered by NATCO HOLDINGS, INC., a Delaware corporation ("Guarantor"), to
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent (in such capacity herein
called "Agent") under the Loan Agreement (hereinafter defined).
ARTICLE 1
Section 1.1 Definitions. As used in this Guaranty, these terms shall
have these respective meanings:
Borrower means NATIONAL TANK COMPANY, a Delaware corporation.
Debt means the sum of (a) all debt (principal, interest or other)
evidenced by the Notes and all debt (principal, interest or other) incurred
under or evidenced by the other Loan Documents, (b) the Letter of Credit
Liabilities and (c) the Interest Rate Risk Indebtedness. The Debt includes
interest and other obligations accruing or arising after (i) commencement of
any case under any bankruptcy or similar laws by or against any Obligor or (ii)
the obligations of any Obligor shall cease to exist by operation of law or for
any other reason. The Debt also includes all reasonable and customary
attorneys' fees and any other expenses incurred by Agent in enforcing any of
the Loan Documents.
Loan Agreement means that certain Loan Agreement dated concurrently
herewith executed by and among the Borrower, Agent and the Lenders party
thereto and all amendments, supplements, restatements or replacements to any of
the foregoing from time to time.
TERMS USED HEREIN WITH THEIR INITIAL LETTERS CAPITALIZED AND WHICH ARE
NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO SUCH TERMS IN
THE LOAN AGREEMENT.
ARTICLE 2
Section 2.1 Execution of Loan Documents. Borrower has executed and
delivered the Loan Documents, and the Debt is secured by various Liens created
or evidenced by the Loan Documents.
Section 2.2 Consideration. In consideration of the credit and
financial accommodations contemplated to be extended to Borrower pursuant to
the Loan Documents or otherwise, which Guarantor has determined will
substantially benefit Guarantor directly or indirectly, and for other good and
valuable consideration, the receipt and sufficiency of which Guarantor hereby
acknowledges, Guarantor executes and delivers this Guaranty to Agent with the
intention of being presently and legally bound by its terms.
<PAGE> 112
ARTICLE 3
Section 3.1 Payment Guaranty. Guarantor, as primary obligor and not
as a surety, unconditionally guarantees to Agent for the ratable benefit of
Lenders the full, prompt and punctual payment of the Debt when due (whether at
its stated maturity, by acceleration or otherwise) in accordance with the Loan
Documents. This Guaranty is irrevocable, unconditional and absolute, and if
for any reason all or any portion of the Debt shall not be paid when due,
Guarantor will, upon written demand, immediately pay to Agent the amount
demanded, in Dollars, regardless of (a) any defense, right of set-off or
counterclaim which any Obligor may have or assert and (b) whether Agent or any
other Person shall have taken any steps to enforce any rights against any
Obligor or any other Person to collect any of the Debt.
Section 3.2 Obligations Not Affected. Guarantor's covenants,
agreements and obligations under this Guaranty shall in no way be released,
diminished, reduced, impaired or otherwise affected by reason of the happening
from time to time of any of the following things, for any reason, whether by
voluntary act, operation of law or order of any Governmental Authority and
whether or not Guarantor is given any notice or is asked for or gives any
further consent (all requirements for which, however arising, Guarantor hereby
WAIVES):
(a) release or waiver of any obligation or duty to
perform or observe any express or implied agreement, covenant, term or
condition imposed in any of the Loan Documents or by applicable law on any
Obligor or any party to the Loan Documents (other than Guarantor).
(b) extension of the time for payment of any part of the
Debt or any other sums payable under the Loan Documents, extension of the time
for performance of any other obligation under or arising out of or in
connection with the Loan Documents or change in the manner, place or other
terms of such payment or performance.
(c) settlement or compromise of any of the Debt.
(d) renewal, supplementing, modification, rearrangement,
amendment, restatement, replacement, cancellation, rescission, revocation or
reinstatement (whether or not material) of any part of any of the Loan
Documents or any obligations under the Loan Documents of any Obligor or any
other party to the Loan Documents (without limiting the number of times any of
the foregoing may occur).
(e) acceleration of the time for payment or performance
of any Debt or other obligation under any of the Loan Documents or exercise of
any other right, privilege or remedy under or in regard to any of the Loan
Documents.
(f) failure, omission, delay, neglect, refusal or lack of
diligence by Agent or any other Person to assert, enforce, give notice of
intent to exercise--or any other notice with respect to--or exercise any right,
privilege, power or remedy conferred on Agent or any other Person in any of
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the Loan Documents or by law; or any action on the part of Agent or any other
Person granting indulgence, grace, adjustment, forbearance or extension of any
kind to any Obligor.
(g) release, surrender, exchange, subordination or loss
of any Lien priority under any of the Loan Documents or in connection with the
Debt.
(h) release, modification or waiver of, or failure,
omission, delay, neglect, refusal or lack of diligence to enforce, any
guaranty, pledge, mortgage, deed of trust, security agreement, lien, charge,
insurance agreement, bond, letter of credit or other security device, guaranty,
surety or indemnity agreement whatsoever.
(i) taking or acceptance of any other security or
guaranty for the payment or performance of any or all of the Debt or the
obligations of any Obligor.
(j) release, modification or waiver of, or failure,
omission, delay, neglect, refusal or lack of diligence to enforce, any right,
benefit, privilege or interest under any contract or agreement, under which the
rights of any Obligor have been collaterally or absolutely assigned, or in
which a security interest has been granted, as direct or indirect security for
payment of the Debt or performance of any other obligations to--or at any time
held by--Agent or any Lender.
(k) death, legal incapacity, disability, voluntary or
involuntary liquidation, dissolution, sale of any Collateral, marshaling of
assets and liabilities, change in corporate or organizational status,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of debt or other
similar proceedings of or affecting any Obligor or any of the assets of any
Obligor, even if any of the Debt is thereby rendered void, unenforceable or
uncollectible against any other Person.
(l) occurrence or discovery of any irregularity,
invalidity or unenforceability of any of the Debt or Loan Documents or any
defect or deficiency in any of the Debt or Loan Documents, including the
unenforceability of any provisions of any of the Loan Documents because
entering into any such Loan Document was ultra vires or because anyone who
executed them exceeded their authority.
(m) failure to acquire, protect or perfect any Lien in
any Collateral intended to secure any part of the Debt or any other obligations
under the Loan Documents or failure to maintain perfection.
(n) failure by Agent or any other Person to notify--or
timely notify--Guarantor of any Default or Event of Default under any of the
Loan Documents, any renewal, extension, supplementing, modification,
rearrangement, amendment, restatement, replacement, cancellation, rescission,
revocation or reinstatement (whether or not material) or assignment of any part
of the Debt, release or exchange of any security, any other action taken or not
taken by Agent against any Obligor or any other Person or any direct or
indirect security for any part of the Debt or other
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obligation of Borrower, any new agreement between Agent and/or any Lender and
any Obligor or any other Person or any other event or circumstance. Neither
Agent nor any Lender has any duty or obligation to give Guarantor any notice of
any kind under any circumstances whatsoever with respect to or in connection
with the Debt or the Loan Documents.
(o) occurrence of any event or circumstances which might
otherwise constitute a defense available to, or a discharge of, any Obligor,
including failure of consideration, usury, forgery, breach of warranty, failure
to satisfy any requirement of the statute of frauds, running of any statute of
limitation, accord and satisfaction and any defense based on election of
remedies of any type.
(p) receipt and/or application of any proceeds, credits
or recoveries from any source, including any proceeds, credits, or amounts
realized from exercise of any rights, remedies, powers or privileges under the
Loan Documents, by law or otherwise available to Agent or any Lender.
(q) occurrence of any act, error or omission, except
behavior which is proven to be in bad faith to the extent (but no further),
that Guarantor cannot effectively waive the right to complain.
Section 3.3 Waiver of Certain Rights and Notices. Guarantor hereby
WAIVES and RELEASES all right to require marshaling of assets and liabilities,
sale in inverse order of alienation, notice of acceptance of this Guaranty and
of any liability to which it applies or may apply, notice of the creation,
accrual, renewal, increase, extension, modification, amendment or rearrangement
of any part of the Debt, presentment, demand for payment, protest, notice of
nonpayment, notice of dishonor, notice of intent to accelerate, notice of
acceleration and, except as expressly provided herein, all other notices and
demands, collection, suit and the taking of any other action by Agent or any
Lender.
Section 3.4 Not a Collection Guaranty. This is an absolute guaranty
of payment, and not of collection, and Guarantor WAIVES any right to require
that any action be brought against any Obligor or any other Person, or that
Agent or any Lender be required to enforce, attempt to enforce or exhaust any
of its rights, benefits or privileges under any of the Loan Documents, by law
or otherwise; provided that nothing herein shall be construed to prevent Agent
or any Lender from exercising and enforcing at any time any right, benefit or
privilege which it may have under any Loan Document or by law from time to
time, and at any time, and Guarantor agrees that Guarantor's obligations
hereunder are-- and shall be--absolute, independent and unconditional under any
and all circumstances. Should Agent or any Lender seek to enforce Guarantor's
obligations by action in any court, Guarantor WAIVES any requirement,
substantive or procedural, that (a) Agent or such Lender pursue any foreclosure
action, realize or attempt to realize on any security or preserve or enforce
any deficiency claim against any Obligor or any other Person after any such
realization, (b) a judgment first be sought or rendered against any Obligor or
any other Person, (c) any Obligor or any other Person be joined in such action
or (d) a separate action be brought against any Obligor or any other
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Person. Guarantor's obligations under this Guaranty are several from those of
any other Obligor or any other Person, and are primary obligations concerning
which Guarantor is the principal obligor. All waivers in this Guaranty or any
of the Loan Documents shall be without prejudice to Agent or any Lender at its
option to proceed against any Obligor or any other Person, whether by separate
action or by joinder. Guarantor agrees that this Guaranty shall not be
discharged except by payment of the Debt in full, complete performance of all
obligations of the Obligors under the Loan Documents and termination of the
obligation--if any--to make any further advances under the Notes or extend
other financial accommodations to any Obligor.
Section 3.5 Subrogation. Guarantor agrees that it shall never be
entitled to be subrogated to any of Agent's or any Lender's rights against any
Obligor or any other Person or any Collateral or offset rights held by Agent or
any Lender for payment of the Debt until final termination of this Guaranty.
Section 3.6 Reliance on Guaranty. All extensions of credit and
financial accommodations heretofore or hereafter made by Agent or any Lender
under or in respect of the Notes or any of the other Loan Documents shall be
conclusively presumed to have been made in acceptance of this Guaranty.
Section 3.7 Demands are Conclusive. Any demand by Agent under this
Guaranty shall be conclusive, absent manifest error, as to the matters therein
stated, including the amount due.
Section 3.8 Joint and Several. If any Person makes any guaranty of
any of the obligations guaranteed hereby or gives any security for them,
Guarantor's obligations hereunder shall be joint and several with the
obligations of such other Person pursuant to such agreement or other papers
making the guaranty or giving the security.
Section 3.9 Payments Returned. Guarantor agrees that, if at any time
all or any part of any payment previously applied by Agent or any Lender to the
Debt is or must be returned by Agent or any Lender--or recovered from Agent or
any Lender--for any reason (including the order of any bankruptcy court), this
Guaranty shall automatically be reinstated to the same effect as if the prior
application had not been made, and, in addition, Guarantor hereby agrees to
indemnify Agent and each Lender against, and to save and hold Agent and each
Lender harmless from any required return by Agent or any Lender--or recovery
from Agent or any Lender--of any such payment because of its being deemed
preferential under applicable bankruptcy, receivership or insolvency laws, or
for any other reason.
ARTICLE 4
Section 4.1 Term. Subject to the automatic reinstatement provisions
of Article 3 above, this Guaranty shall terminate and be of no further force or
effect upon full payment of the Debt and final termination of the Revolving
Loan Commitments of the Lenders.
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ARTICLE 5
Section 5.1 Default. If any Default or Event of Default occurs under
the Loan Agreement, then that shall automatically constitute default under this
Guaranty.
ARTICLE 6
Section 6.1 Binding on Successors; No Assignment by Guarantor. All
guaranties, warranties, representations, covenants and agreements in this
Guaranty shall bind the heirs, devisees, executors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, successors
and assigns of Guarantor and shall benefit Agent, Lenders, their successors and
assigns, and any holder of any part of the Debt. Guarantor shall not assign or
delegate any of its obligations under this Guaranty or any of the Loan
Documents to which it is a party without the express prior written consent of
the Majority Lenders.
Section 6.2 Subordination of Borrower's Obligations to Guarantor.
Guarantor agrees that if, for any reason whatsoever, Borrower now is or
hereafter becomes liable, obligated or indebted to Guarantor, all such
liabilities, obligations and indebtedness, together with all interest thereon
and fees and other charges in connection therewith, and all Liens securing any
of the foregoing shall at all times be second, subordinate and inferior in
right of payment, in lien priority and in all other respects to the Debt and
all Liens created pursuant to the Security Documents.
Section 6.3 Waiver of Suretyship Rights. By signing this Guaranty,
Guarantor WAIVES each and every right to which it may be entitled by virtue of
any suretyship law, including any rights it may have pursuant to Rule 31 of
the Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice
and Remedies Code and Chapter 34 of the Texas Business and Commerce Code, as
the same may be amended from time to time.
Section 6.4 Amendments in Writing. This Guaranty shall not be
changed orally but shall be changed only by agreement in writing signed by the
party against whom such amendment is sought to be enforced. Any waiver or
consent with respect to this Guaranty shall be effective only in the specific
instance and for the specific purpose for which given. No course of dealing
between the parties, no usage of trade and no parole or extrinsic evidence of
any nature shall be used to supplement or modify any of the terms or provisions
of this Guaranty.
Section 6.5 Notices. Any notice, request or other communication
required or permitted to be given hereunder to Agent or any Lender shall be
given as provided in the Loan Agreement. Any notice, request or other
communication required or permitted to be given hereunder to Guarantor shall be
given in writing by delivering it against receipt for it, by depositing it with
an overnight delivery service or by depositing it in a receptacle maintained by
the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested, addressed as follows (and if so given, shall be
deemed given when mailed):
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NATCO Holdings, Inc.
c/o National Tank Company
2950 N. Loop West, Suite 750
Houston, Texas 77092
Attn: William B. Weiner, III
Facsimile: (713) 683-7841
Guarantor's address for notice may be changed at any time and from time to
time, but only after thirty (30) days' advance written notice to Agent and
Lenders and shall be the most recent such address furnished in writing by
Guarantor to Agent and Lenders. Actual notice, however and from whomever given
or received, shall always be effective when received.
Section 6.6 Gender; "Including" is Not Limiting; Section Headings.
The masculine and neuter genders used in this Guaranty each includes the
masculine, feminine and neuter genders, and the singular number includes the
plural where appropriate, and vice versa. Wherever the term "including" or a
similar term is used in this Guaranty, it shall be read as if it were written
"including by way of example only and without in any way limiting the
generality of the clause or concept referred to." The headings used in this
Guaranty are included for reference only and shall not be considered in
interpreting, applying or enforcing this Guaranty.
Section 6.7 Offset Rights. Each Lender is hereby authorized, during
the continuation of an Event of Default, without notice to any Person (and
Guarantor hereby WAIVES any such notice) to the fullest extent permitted by
law, to set-off and apply any and all monies, securities and other Properties
of Guarantor now or in the future in the possession, custody or control of such
Lender, or on deposit with or otherwise owed to Guarantor by such Lender--
including all such monies, securities and other Properties held in general,
special, time, demand, provisional or final accounts or for safekeeping or as
Collateral or otherwise but excluding those accounts clearly designated as
escrow or trust accounts held by Guarantor for others unaffiliated with
Guarantor--against any and all of Guarantor's obligations to Agent or any of
the Lenders now or hereafter existing under this Guaranty, irrespective of
whether any demand under this Guaranty shall have been made. Each Lender
agrees to use reasonable efforts to promptly notify Guarantor after any such
set-off and application, provided that failure to give--or delay in giving--any
such notice shall not affect the validity of such set-off and application or
impose any liability on such Lender. Each Lender's rights under this Section
are in addition to other rights and remedies (including other rights of
set-off) which such Lender may have.
Section 6.8 Governing Law. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE
UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
Section 6.9 Survival. The representations, covenants and agreements
set forth in this Guaranty shall continue and survive until final termination
of this Guaranty.
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Section 6.10 Rights Cumulative; Delay Not Waiver. Agent's or any
Lender's exercise of any right, benefit or privilege under any of the Loan
Documents or at law or in equity shall not preclude the concurrent or
subsequent exercise of any of Agent's or any Lender's other present or future
rights, benefits or privileges. The remedies provided in this Guaranty are
cumulative and not exclusive of any remedies provided by law or the Loan
Documents. No failure by Agent or any Lender to exercise, and no delay in
exercising, any right under any Loan Document shall operate as a waiver
thereof.
Section 6.11 Severability. If any provision of this Guaranty is held
to be illegal, invalid or unenforceable under present or future laws, the
legality, validity and enforceability of the remaining provisions of this
Guaranty shall not be affected thereby, and this Guaranty shall be liberally
construed so as to carry out the intent of the parties to it. Each waiver in
this Guaranty is subject to the overriding and controlling rule that it shall
be effective only if and to the extent that (a) it is not prohibited by
applicable law and (b) applicable law neither provides for nor allows any
material sanctions to be imposed against Agent or any Lender for having
bargained for and obtained it.
Section 6.12 Entire Agreement. This Guaranty embodies the entire
agreement and understanding among Guarantor, Agent and Lenders with respect to
its subject matter and supersedes all prior conflicting or inconsistent
agreements, consents and understandings relating to such subject matter.
Guarantor acknowledges and agrees that there is no oral agreement between
Guarantor and Agent or any Lender which has not been incorporated in this
Guaranty.
Section 6.13 Relationship to Borrower. The value of the consideration
received and to be received by Guarantor in respect of the Debt is reasonably
worth at least as much as the liability and obligation of Guarantor incurred or
arising under this Guaranty and the Loan Documents. Guarantor has determined
that such liability and obligation may reasonably be expected to substantially
benefit Guarantor directly or indirectly (or if Guarantor is not a natural
person, Guarantor's board of directors, general partners or other governors
have made that determination). Guarantor has had full and complete access to
the underlying papers relating to the Debt and all other papers executed by any
Obligor or any other Person in connection with the Debt, has reviewed them and
is fully aware of the meaning and effect of their contents. Guarantor is fully
informed of all circumstances which bear upon the risks of executing this
Guaranty and which a diligent inquiry would reveal. Guarantor has adequate
means to obtain from Borrower on a continuing basis information concerning
Borrower's financial condition, and is not depending on Agent or any Lender to
provide such information, now or in the future. Guarantor agrees that neither
Agent nor any Lender shall have any obligation to advise or notify Guarantor or
to provide Guarantor with any data or information. The execution and delivery
of this Guaranty is not a condition precedent (and neither Agent nor any Lender
has in any way implied that the execution of this Guaranty is a condition
precedent) to Agent's or any Lender's making, extending or modifying any loan
to Guarantor or to any other financial accommodation to or for Guarantor.
Borrower is a wholly-owned Subsidiary of Guarantor; and Guarantor's guaranty
pursuant to this Guaranty reasonably may be expected to benefit, directly or
indirectly, Guarantor; and Guarantor has determined that this Guaranty is
necessary and convenient to the conduct, promotion and attainment of the
business of Guarantor and Borrower.
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THIS GUARANTY is executed as of the date first above written.
NATCO HOLDINGS, INC.,
a Delaware corporation
By:/s/ WILLIAM B. WIENER, III
---------------------------
William B. Wiener, III,
Senior Vice President
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GUARANTY
(TEAM)
THIS GUARANTY ("Guaranty") dated as of June 30, 1997 is executed and
delivered by TOTAL ENGINEERING SERVICES TEAM, INC., a Louisiana corporation
("Guarantor"), to TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent (in such
capacity herein called "Agent") under the Loan Agreement (hereinafter defined).
ARTICLE 1
Section 1.1 Definitions. As used in this Guaranty, these terms shall
have these respective meanings:
Borrower means NATIONAL TANK COMPANY, a Delaware corporation.
Debt means the sum of (a) all debt (principal, interest or other)
evidenced by the Notes and all debt (principal, interest or other) incurred
under or evidenced by the other Loan Documents, (b) the Letter of Credit
Liabilities and (c) the Interest Rate Risk Indebtedness. The Debt includes
interest and other obligations accruing or arising after (i) commencement of
any case under any bankruptcy or similar laws by or against any Obligor or (ii)
the obligations of any Obligor shall cease to exist by operation of law or for
any other reason. The Debt also includes all reasonable and customary
attorneys' fees and any other expenses incurred by Agent in enforcing any of
the Loan Documents.
Guaranteed Debt means the Maximum Amount less the amounts, if any, of
payments of the Guaranteed Debt made by Guarantor and clearly identified as
such in a notice accepted in writing by Agent confirming the payment and
reduction of the Guaranteed Debt for Guarantor.
Guarantor's Net Worth means (a) the fair value of the Property of
Guarantor from time to time (taking into consideration the value, if any, of
rights of subrogation, contribution and indemnity), minus (b) the total
liabilities of Guarantor (including contingent liabilities [discounted in
appropriate instances], but excluding liabilities of Guarantor under this
Guaranty and the other Loan Documents executed by Guarantor) from time to time.
It is agreed that Guarantor's Net Worth may fluctuate from time to time after
the date hereof as it is determined on each Determination Date (as defined in
the definition of "Maximum Amount").
Loan Agreement means that certain Loan Agreement dated concurrently
herewith executed by and among the Borrower, Agent and the Lenders party
thereto and all amendments, supplements, restatements or replacements to any of
the foregoing from time to time.
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Maximum Amount means the greater of (i) all proceeds (without
duplication) of the Debt directly or indirectly (by intercompany loan, advance,
Guarantor's ownership interest in any Person receiving the proceeds of the
Debt, capital contribution or otherwise) advanced to or for the account of, or
used by or for the benefit of, Guarantor; (ii) ninety-five percent (95%) of
Guarantor's Net Worth from time to time; or (iii) the amount that in a legal
proceeding brought within the applicable limitations period is determined by
the final, non-appealable order of a court having jurisdiction over the issue
and the applicable parties to be the amount of value given by Agent and
Lenders, or received by Guarantor, in exchange for the obligations of Guarantor
under this Guaranty. If on the date of any Loan (as defined in the Loan
Agreement) made after the date hereof (any such date being herein called a
"Determination Date"), ninety-five percent (95%) of Guarantor's Net Worth is
greater than either of the amounts described in clauses (i) and (iii) above,
the Maximum Amount for Guarantor shall be deemed to have increased through and
as of such Determination Date to ninety-five percent (95%) of Guarantor's Net
Worth as determined on such Determination Date (and the Guaranteed Debt for
Guarantor shall have correspondingly increased), without further action or
agreement between Agent and Guarantor, and any subsequent reduction or
diminution of Guarantor's Net Worth after such Determination Date will not
reduce the Guaranteed Debt for Guarantor. Notwithstanding anything to the
contrary contained in this definition of "Maximum Amount" or in any other
provision of this Guaranty, "Maximum Amount" for Guarantor shall never be less
than the amount referred to in clause (i) above.
TERMS USED HEREIN WITH THEIR INITIAL LETTERS CAPITALIZED AND WHICH ARE
NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO SUCH TERMS IN
THE LOAN AGREEMENT.
ARTICLE 2
Section 2.1 Execution of Loan Documents. Borrower has executed and
delivered the Loan Documents, and the Debt is secured by various Liens created
or evidenced by the Loan Documents.
Section 2.2 Consideration. In consideration of the credit and
financial accommodations contemplated to be extended to Borrower pursuant to
the Loan Documents or otherwise, which Guarantor has determined will
substantially benefit Guarantor directly or indirectly, and for other good and
valuable consideration, the receipt and sufficiency of which Guarantor hereby
acknowledges, Guarantor executes and delivers this Guaranty to Agent with the
intention of being presently and legally bound by its terms.
ARTICLE 3
Section 3.1 Payment Guaranty. Guarantor, as primary obligor and not
as a surety, unconditionally guarantees to Agent for the ratable benefit of
Lenders the full, prompt and punctual payment of the Debt when due (whether at
its stated maturity, by acceleration or otherwise) in accordance with the Loan
Documents. This Guaranty is irrevocable, unconditional and absolute, and if
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for any reason all or any portion of the Debt shall not be paid when due,
Guarantor will, upon written demand, immediately pay to Agent the amount
demanded, in Dollars, regardless of (a) any defense, right of set-off or
counterclaim which any Obligor may have or assert and (b) whether Agent or any
other Person shall have taken any steps to enforce any rights against any
Obligor or any other Person to collect any of the Debt. Notwithstanding the
foregoing, to the extent that in a legal proceeding brought within the
applicable limitations period it is determined by the final, non-appealable
order of a court having jurisdiction over the issue and the applicable parties
that Guarantor received less than a reasonably equivalent value in exchange for
its incurrence of its obligations under this Guaranty, then and only then the
liability of Guarantor under this Guaranty shall be limited to the Guaranteed
Debt for Guarantor. Agent shall have the right to determine and designate from
time to time, without notice or assent of Guarantor, which portions of the Debt
shall be deemed included in the Guaranteed Debt for Guarantor. Guarantor
acknowledges that such determination and designation shall be conclusive,
absent manifest error. This Guaranty shall not fail or be ineffective or
invalid or be considered too indefinite or contingent because the Guaranteed
Debt for Guarantor may fluctuate from time to time or for any other reason.
Section 3.2 Application of Payments or Prepayments. The parties
hereto agree that any payment or prepayment by Borrower or any other person or
entity against the Debt (other than payments made by Guarantor in accordance
with the procedures described in the definition of "Guaranteed Debt" herein)
shall be deemed paid first against that portion of the Debt not included in
"Guaranteed Debt" for Guarantor or determined for any reason not to be a part
of "Guaranteed Debt" for Guarantor and then shall be paid against any portion
of the Debt that is Guaranteed Debt for Guarantor, in such order and manner as
Agent shall determine in its sole discretion.
Section 3.3 Obligations Not Affected. Guarantor's covenants,
agreements and obligations under this Guaranty shall in no way be released,
diminished, reduced, impaired or otherwise affected by reason of the happening
from time to time of any of the following things, for any reason, whether by
voluntary act, operation of law or order of any Governmental Authority and
whether or not Guarantor is given any notice or is asked for or gives any
further consent (all requirements for which, however arising, Guarantor hereby
WAIVES):
(a) release or waiver of any obligation or duty to
perform or observe any express or implied agreement, covenant, term or
condition imposed in any of the Loan Documents or by applicable law on any
Obligor or any party to the Loan Documents (other than Guarantor).
(b) extension of the time for payment of any part of the
Debt or any other sums payable under the Loan Documents, extension of the time
for performance of any other obligation under or arising out of or in
connection with the Loan Documents or change in the manner, place or other
terms of such payment or performance.
(c) settlement or compromise of any of the Debt.
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(d) renewal, supplementing, modification, rearrangement,
amendment, restatement, replacement, cancellation, rescission, revocation or
reinstatement (whether or not material) of any part of any of the Loan
Documents or any obligations under the Loan Documents of any Obligor or any
other party to the Loan Documents (without limiting the number of times any of
the foregoing may occur).
(e) acceleration of the time for payment or performance
of any Debt or other obligation under any of the Loan Documents or exercise of
any other right, privilege or remedy under or in regard to any of the Loan
Documents.
(f) failure, omission, delay, neglect, refusal or lack of
diligence by Agent or any other Person to assert, enforce, give notice of
intent to exercise--or any other notice with respect to--or exercise any right,
privilege, power or remedy conferred on Agent or any other Person in any of the
Loan Documents or by law; or any action on the part of Agent or any other
Person granting indulgence, grace, adjustment, forbearance or extension of any
kind to any Obligor.
(g) release, surrender, exchange, subordination or loss
of any Lien priority under any of the Loan Documents or in connection with the
Debt.
(h) release, modification or waiver of, or failure,
omission, delay, neglect, refusal or lack of diligence to enforce, any
guaranty, pledge, mortgage, deed of trust, security agreement, lien, charge,
insurance agreement, bond, letter of credit or other security device, guaranty,
surety or indemnity agreement whatsoever.
(i) taking or acceptance of any other security or
guaranty for the payment or performance of any or all of the Debt or the
obligations of any Obligor.
(j) release, modification or waiver of, or failure,
omission, delay, neglect, refusal or lack of diligence to enforce, any right,
benefit, privilege or interest under any contract or agreement, under which the
rights of any Obligor have been collaterally or absolutely assigned, or in
which a security interest has been granted, as direct or indirect security for
payment of the Debt or performance of any other obligations to--or at any time
held by--Agent or any Lender.
(k) death, legal incapacity, disability, voluntary or
involuntary liquidation, dissolution, sale of any Collateral, marshaling of
assets and liabilities, change in corporate or organizational status,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of debt or other
similar proceedings of or affecting any Obligor or any of the assets of any
Obligor, even if any of the Debt is thereby rendered void, unenforceable or
uncollectible against any other Person.
(l) occurrence or discovery of any irregularity,
invalidity or unenforceability of any of the Debt or Loan Documents or any
defect or deficiency in any of the Debt or Loan
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Documents, including the unenforceability of any provisions of any of the Loan
Documents because entering into any such Loan Document was ultra vires or
because anyone who executed them exceeded their authority.
(m) failure to acquire, protect or perfect any Lien in
any Collateral intended to secure any part of the Debt or any other obligations
under the Loan Documents or failure to maintain perfection.
(n) failure by Agent or any other Person to notify--or
timely notify--Guarantor of any Default or Event of Default under any of the
Loan Documents, any renewal, extension, supplementing, modification,
rearrangement, amendment, restatement, replacement, cancellation, rescission,
revocation or reinstatement (whether or not material) or assignment of any part
of the Debt, release or exchange of any security, any other action taken or not
taken by Agent against any Obligor or any other Person or any direct or
indirect security for any part of the Debt or other obligation of Borrower, any
new agreement between Agent and/or any Lender and any Obligor or any other
Person or any other event or circumstance. Neither Agent nor any Lender has
any duty or obligation to give Guarantor any notice of any kind under any
circumstances whatsoever with respect to or in connection with the Debt or the
Loan Documents.
(o) occurrence of any event or circumstances which might
otherwise constitute a defense available to, or a discharge of, any Obligor,
including failure of consideration, usury, forgery, breach of warranty, failure
to satisfy any requirement of the statute of frauds, running of any statute of
limitation, accord and satisfaction and any defense based on election of
remedies of any type.
(p) receipt and/or application of any proceeds, credits
or recoveries from any source, including any proceeds, credits, or amounts
realized from exercise of any rights, remedies, powers or privileges under the
Loan Documents, by law or otherwise available to Agent or any Lender.
(q) occurrence of any act, error or omission, except
behavior which is proven to be in bad faith to the extent (but no further),
that Guarantor cannot effectively waive the right to complain.
Section 3.4 Waiver of Certain Rights and Notices. Guarantor hereby
WAIVES and RELEASES all right to require marshaling of assets and liabilities,
sale in inverse order of alienation, notice of acceptance of this Guaranty and
of any liability to which it applies or may apply, notice of the creation,
accrual, renewal, increase, extension, modification, amendment or rearrangement
of any part of the Debt, presentment, demand for payment, protest, notice of
nonpayment, notice of dishonor, notice of intent to accelerate, notice of
acceleration and, except as expressly provided herein, all other notices and
demands, collection, suit and the taking of any other action by Agent or any
Lender.
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Section 3.5 Not a Collection Guaranty. This is an absolute guaranty
of payment, and not of collection, and Guarantor WAIVES any right to require
that any action be brought against any Obligor or any other Person, or that
Agent or any Lender be required to enforce, attempt to enforce or exhaust any
of its rights, benefits or privileges under any of the Loan Documents, by law
or otherwise; provided that nothing herein shall be construed to prevent Agent
or any Lender from exercising and enforcing at any time any right, benefit or
privilege which it may have under any Loan Document or by law from time to
time, and at any time, and Guarantor agrees that Guarantor's obligations
hereunder are--and shall be--absolute, independent and unconditional under any
and all circumstances. Should Agent or any Lender seek to enforce Guarantor's
obligations by action in any court, Guarantor WAIVES any requirement,
substantive or procedural, that (a) Agent or such Lender pursue any foreclosure
action, realize or attempt to realize on any security or preserve or enforce
any deficiency claim against any Obligor or any other Person after any such
realization, (b) a judgment first be sought or rendered against any Obligor or
any other Person, (c) any Obligor or any other Person be joined in such action
or (d) a separate action be brought against any Obligor or any other Person.
Guarantor's obligations under this Guaranty are several from those of any other
Obligor or any other Person, and are primary obligations concerning which
Guarantor is the principal obligor. All waivers in this Guaranty or any of
the Loan Documents shall be without prejudice to Agent or any Lender at its
option to proceed against any Obligor or any other Person, whether by separate
action or by joinder. Guarantor agrees that this Guaranty shall not be
discharged except by payment of the Debt in full, complete performance of all
obligations of the Obligors under the Loan Documents and termination of the
obligation--if any--to make any further advances under the Notes or extend
other financial accommodations to any Obligor.
Section 3.6 Subrogation. Guarantor agrees that it shall never be
entitled to be subrogated to any of Agent's or any Lender's rights against any
Obligor or any other Person or any Collateral or offset rights held by Agent or
any Lender for payment of the Debt until final termination of this Guaranty.
Section 3.7 Reliance on Guaranty. All extensions of credit and
financial accommodations heretofore or hereafter made by Agent or any Lender
under or in respect of the Notes or any of the other Loan Documents shall be
conclusively presumed to have been made in acceptance of this Guaranty.
Section 3.8 Demands are Conclusive. Any demand by Agent under this
Guaranty shall be conclusive, absent manifest error, as to the matters therein
stated, including the amount due.
Section 3.9 Joint and Several. If any Person makes any guaranty of
any of the obligations guaranteed hereby or gives any security for them,
Guarantor's obligations hereunder shall be joint and several with the
obligations of such other Person pursuant to such agreement or other papers
making the guaranty or giving the security.
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Section 3.10 Payments Returned. Guarantor agrees that, if at any time
all or any part of any payment previously applied by Agent or any Lender to the
Debt is or must be returned by Agent or any Lender--or recovered from Agent or
any Lender--for any reason (including the order of any bankruptcy court), this
Guaranty shall automatically be reinstated to the same effect as if the prior
application had not been made, and, in addition, Guarantor hereby agrees to
indemnify Agent and each Lender against, and to save and hold Agent and each
Lender harmless from any required return by Agent or any Lender--or recovery
from Agent or any Lender--of any such payment because of its being deemed
preferential under applicable bankruptcy, receivership or insolvency laws, or
for any other reason.
ARTICLE 4
Section 4.1 Term. Subject to the automatic reinstatement provisions
of Article 3 above, this Guaranty shall terminate and be of no further force or
effect upon full payment of the Debt and final termination of the Revolving
Loan Commitments of the Lenders.
ARTICLE 5
Section 5.1 Default. If any Default or Event of Default occurs under
the Loan Agreement, then that shall automatically constitute default under this
Guaranty.
ARTICLE 6
Section 6.1 Binding on Successors; No Assignment by Guarantor. All
guaranties, warranties, representations, covenants and agreements in this
Guaranty shall bind the heirs, devisees, executors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, successors
and assigns of Guarantor and shall benefit Agent, Lenders, their successors and
assigns, and any holder of any part of the Debt. Guarantor shall not assign or
delegate any of its obligations under this Guaranty or any of the Loan
Documents to which it is a party without the express prior written consent of
the Majority Lenders.
Section 6.2 Subordination of Borrower's Obligations to Guarantor.
Guarantor agrees that if, for any reason whatsoever, Borrower now is or
hereafter becomes liable, obligated or indebted to Guarantor, all such
liabilities, obligations and indebtedness, together with all interest thereon
and fees and other charges in connection therewith, and all Liens securing any
of the foregoing shall at all times be second, subordinate and inferior in
right of payment, in lien priority and in all other respects to the Debt and
all Liens created pursuant to the Security Documents.
Section 6.3 Waiver of Suretyship Rights. By signing this Guaranty,
Guarantor WAIVES each and every right to which it may be entitled by virtue of
any suretyship law, including any rights it may have pursuant to Rule 31 of
the Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil
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Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce
Code, as the same may be amended from time to time.
Section 6.4 Amendments in Writing. This Guaranty shall not be
changed orally but shall be changed only by agreement in writing signed by the
party against whom such amendment is sought to be enforced. Any waiver or
consent with respect to this Guaranty shall be effective only in the specific
instance and for the specific purpose for which given. No course of dealing
between the parties, no usage of trade and no parole or extrinsic evidence of
any nature shall be used to supplement or modify any of the terms or provisions
of this Guaranty.
Section 6.5 Notices. Any notice, request or other communication
required or permitted to be given hereunder to Agent or any Lender shall be
given as provided in the Loan Agreement. Any notice, request or other
communication required or permitted to be given hereunder to Guarantor shall be
given in writing by delivering it against receipt for it, by depositing it with
an overnight delivery service or by depositing it in a receptacle maintained by
the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested, addressed as follows (and if so given, shall be
deemed given when mailed):
Total Engineering Services Team, Inc.
c/o National Tank Company
2950 N. Loop West, Suite 750
Houston, Texas 77092
Attn: William B. Weiner, III
Facsimile: (713) 683-7841
Guarantor's address for notice may be changed at any time and from time to
time, but only after thirty (30) days' advance written notice to Agent and
Lenders and shall be the most recent such address furnished in writing by
Guarantor to Agent and Lenders. Actual notice, however and from whomever given
or received, shall always be effective when received.
Section 6.6 Gender; "Including" is Not Limiting; Section Headings.
The masculine and neuter genders used in this Guaranty each includes the
masculine, feminine and neuter genders, and the singular number includes the
plural where appropriate, and vice versa. Wherever the term "including" or a
similar term is used in this Guaranty, it shall be read as if it were written
"including by way of example only and without in any way limiting the
generality of the clause or concept referred to." The headings used in this
Guaranty are included for reference only and shall not be considered in
interpreting, applying or enforcing this Guaranty.
Section 6.7 Offset Rights. Each Lender is hereby authorized, during
the continuation of an Event of Default, without notice to any Person (and
Guarantor hereby WAIVES any such notice) to the fullest extent permitted by
law, to set-off and apply any and all monies, securities and other Properties
of Guarantor now or in the future in the possession, custody or control of such
Lender,
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or on deposit with or otherwise owed to Guarantor by such Lender--including all
such monies, securities and other Properties held in general, special, time,
demand, provisional or final accounts or for safekeeping or as Collateral or
otherwise but excluding those accounts clearly designated as escrow or trust
accounts held by Guarantor for others unaffiliated with Guarantor--against any
and all of Guarantor's obligations to Agent or any of the Lenders now or
hereafter existing under this Guaranty, irrespective of whether any demand
under this Guaranty shall have been made. Each Lender agrees to use reasonable
efforts to promptly notify Guarantor after any such set-off and application,
provided that failure to give--or delay in giving--any such notice shall not
affect the validity of such set-off and application or impose any liability on
such Lender. Each Lender's rights under this Section are in addition to other
rights and remedies (including other rights of set-off) which such Lender may
have.
Section 6.8 Governing Law. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE
UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
Section 6.9 Survival. The representations, covenants and agreements
set forth in this Guaranty shall continue and survive until final termination
of this Guaranty.
Section 6.10 Rights Cumulative; Delay Not Waiver. Agent's or any
Lender's exercise of any right, benefit or privilege under any of the Loan
Documents or at law or in equity shall not preclude the concurrent or
subsequent exercise of any of Agent's or any Lender's other present or future
rights, benefits or privileges. The remedies provided in this Guaranty are
cumulative and not exclusive of any remedies provided by law or the Loan
Documents. No failure by Agent or any Lender to exercise, and no delay in
exercising, any right under any Loan Document shall operate as a waiver
thereof.
Section 6.11 Severability. If any provision of this Guaranty is held
to be illegal, invalid or unenforceable under present or future laws, the
legality, validity and enforceability of the remaining provisions of this
Guaranty shall not be affected thereby, and this Guaranty shall be liberally
construed so as to carry out the intent of the parties to it. Each waiver in
this Guaranty is subject to the overriding and controlling rule that it shall
be effective only if and to the extent that (a) it is not prohibited by
applicable law and (b) applicable law neither provides for nor allows any
material sanctions to be imposed against Agent or any Lender for having
bargained for and obtained it.
Section 6.12 Entire Agreement. This Guaranty embodies the entire
agreement and understanding among Guarantor, Agent and Lenders with respect to
its subject matter and supersedes all prior conflicting or inconsistent
agreements, consents and understandings relating to such subject matter.
Guarantor acknowledges and agrees that there is no oral agreement between
Guarantor and Agent or any Lender which has not been incorporated in this
Guaranty.
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Section 6.13 Relationship to Borrower. The value of the consideration
received and to be received by Guarantor in respect of the Debt is reasonably
worth at least as much as the liability and obligation of Guarantor incurred or
arising under this Guaranty and the Loan Documents. Guarantor has determined
that such liability and obligation may reasonably be expected to substantially
benefit Guarantor directly or indirectly (or if Guarantor is not a natural
person, Guarantor's board of directors, general partners or other governors
have made that determination). Guarantor has had full and complete access to
the underlying papers relating to the Debt and all other papers executed by any
Obligor or any other Person in connection with the Debt, has reviewed them and
is fully aware of the meaning and effect of their contents. Guarantor is fully
informed of all circumstances which bear upon the risks of executing this
Guaranty and which a diligent inquiry would reveal. Guarantor has adequate
means to obtain from Borrower on a continuing basis information concerning
Borrower's financial condition, and is not depending on Agent or any Lender to
provide such information, now or in the future. Guarantor agrees that neither
Agent nor any Lender shall have any obligation to advise or notify Guarantor or
to provide Guarantor with any data or information. The execution and delivery
of this Guaranty is not a condition precedent (and neither Agent nor any Lender
has in any way implied that the execution of this Guaranty is a condition
precedent) to Agent's or any Lender's making, extending or modifying any loan
to Guarantor or to any other financial accommodation to or for Guarantor.
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THIS GUARANTY is executed as of the date first above written.
TOTAL ENGINEERING SERVICES TEAM, INC.,
a Louisiana corporation
By: /s/ WILLIAM B. WIENER, III
-----------------------------------
William B. Wiener, III,
Senior Vice President
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GUARANTY
(TEST)
THIS GUARANTY ("Guaranty") dated as of June 30, 1997 is executed and
delivered by TEST, INC., a Louisiana corporation ("Guarantor"), to TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, as Agent (in such capacity herein called
"Agent") under the Loan Agreement (hereinafter defined).
ARTICLE 1
Section 1.1 Definitions. As used in this Guaranty, these terms shall
have these respective meanings:
Borrower means NATIONAL TANK COMPANY, a Delaware corporation.
Debt means the sum of (a) all debt (principal, interest or other)
evidenced by the Notes and all debt (principal, interest or other) incurred
under or evidenced by the other Loan Documents, (b) the Letter of Credit
Liabilities and (c) the Interest Rate Risk Indebtedness. The Debt includes
interest and other obligations accruing or arising after (i) commencement of any
case under any bankruptcy or similar laws by or against any Obligor or (ii) the
obligations of any Obligor shall cease to exist by operation of law or for any
other reason. The Debt also includes all reasonable and customary attorneys'
fees and any other expenses incurred by Agent in enforcing any of the Loan
Documents.
Guaranteed Debt means the Maximum Amount less the amounts, if any, of
payments of the Guaranteed Debt made by Guarantor and clearly identified as such
in a notice accepted in writing by Agent confirming the payment and reduction of
the Guaranteed Debt for Guarantor.
Guarantor's Net Worth means (a) the fair value of the Property of
Guarantor from time to time (taking into consideration the value, if any, of
rights of subrogation, contribution and indemnity), minus (b) the total
liabilities of Guarantor (including contingent liabilities [discounted in
appropriate instances], but excluding liabilities of Guarantor under this
Guaranty and the other Loan Documents executed by Guarantor) from time to time.
It is agreed that Guarantor's Net Worth may fluctuate from time to time after
the date hereof as it is determined on each Determination Date (as defined in
the definition of "Maximum Amount").
Loan Agreement means that certain Loan Agreement dated concurrently
herewith executed by and among the Borrower, Agent and the Lenders party thereto
and all amendments, supplements, restatements or replacements to any of the
foregoing from time to time.
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Maximum Amount means the greater of (i) all proceeds (without
duplication) of the Debt directly or indirectly (by intercompany loan, advance,
Guarantor's ownership interest in any Person receiving the proceeds of the Debt,
capital contribution or otherwise) advanced to or for the account of, or used by
or for the benefit of, Guarantor; (ii) ninety-five percent (95%) of Guarantor's
Net Worth from time to time; or (iii) the amount that in a legal proceeding
brought within the applicable limitations period is determined by the final,
non-appealable order of a court having jurisdiction over the issue and the
applicable parties to be the amount of value given by Agent and Lenders, or
received by Guarantor, in exchange for the obligations of Guarantor under this
Guaranty. If on the date of any Loan (as defined in the Loan Agreement) made
after the date hereof (any such date being herein called a "Determination
Date"), ninety-five percent (95%) of Guarantor's Net Worth is greater than
either of the amounts described in clauses (i) and (iii) above, the Maximum
Amount for Guarantor shall be deemed to have increased through and as of such
Determination Date to ninety-five percent (95%) of Guarantor's Net Worth as
determined on such Determination Date (and the Guaranteed Debt for Guarantor
shall have correspondingly increased), without further action or agreement
between Agent and Guarantor, and any subsequent reduction or diminution of
Guarantor's Net Worth after such Determination Date will not reduce the
Guaranteed Debt for Guarantor. Notwithstanding anything to the contrary
contained in this definition of "Maximum Amount" or in any other provision of
this Guaranty, "Maximum Amount" for Guarantor shall never be less than the
amount referred to in clause (i) above.
TERMS USED HEREIN WITH THEIR INITIAL LETTERS CAPITALIZED AND WHICH ARE
NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS ASCRIBED TO SUCH TERMS IN
THE LOAN AGREEMENT.
ARTICLE 2
Section 2.1 Execution of Loan Documents. Borrower has executed and
delivered the Loan Documents, and the Debt is secured by various Liens created
or evidenced by the Loan Documents.
Section 2.2 Consideration. In consideration of the credit and financial
accommodations contemplated to be extended to Borrower pursuant to the Loan
Documents or otherwise, which Guarantor has determined will substantially
benefit Guarantor directly or indirectly, and for other good and valuable
consideration, the receipt and sufficiency of which Guarantor hereby
acknowledges, Guarantor executes and delivers this Guaranty to Agent with the
intention of being presently and legally bound by its terms.
ARTICLE 3
Section 3.1 Payment Guaranty. Guarantor, as primary obligor and not as
a surety, unconditionally guarantees to Agent for the ratable benefit of Lenders
the full, prompt and punctual payment of the Debt when due (whether at its
stated maturity, by acceleration or otherwise) in accordance with the Loan
Documents. This Guaranty is irrevocable, unconditional and absolute, and if
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for any reason all or any portion of the Debt shall not be paid when due,
Guarantor will, upon written demand, immediately pay to Agent the amount
demanded, in Dollars, regardless of (a) any defense, right of set-off or
counterclaim which any Obligor may have or assert and (b) whether Agent or any
other Person shall have taken any steps to enforce any rights against any
Obligor or any other Person to collect any of the Debt.. Notwithstanding the
foregoing, to the extent that in a legal proceeding brought within the
applicable limitations period it is determined by the final, non-appealable
order of a court having jurisdiction over the issue and the applicable parties
that Guarantor received less than a reasonably equivalent value in exchange for
its incurrence of its obligations under this Guaranty, then and only then the
liability of Guarantor under this Guaranty shall be limited to the Guaranteed
Debt for Guarantor. Agent shall have the right to determine and designate from
time to time, without notice or assent of Guarantor, which portions of the Debt
shall be deemed included in the Guaranteed Debt for Guarantor. Guarantor
acknowledges that such determination and designation shall be conclusive, absent
manifest error. This Guaranty shall not fail or be ineffective or invalid or be
considered too indefinite or contingent because the Guaranteed Debt for
Guarantor may fluctuate from time to time or for any other reason.
Section 3.2 Application of Payments or Prepayments. The parties hereto
agree that any payment or prepayment by Borrower or any other person or entity
against the Debt (other than payments made by Guarantor in accordance with the
procedures described in the definition of "Guaranteed Debt" herein) shall be
deemed paid first against that portion of the Debt not included in "Guaranteed
Debt" for Guarantor or determined for any reason not to be a part of "Guaranteed
Debt" for Guarantor and then shall be paid against any portion of the Debt that
is Guaranteed Debt for Guarantor, in such order and manner as Agent shall
determine in its sole discretion.
Section 3.3 Obligations Not Affected. Guarantor's covenants, agreements
and obligations under this Guaranty shall in no way be released, diminished,
reduced, impaired or otherwise affected by reason of the happening from time to
time of any of the following things, for any reason, whether by voluntary act,
operation of law or order of any Governmental Authority and whether or not
Guarantor is given any notice or is asked for or gives any further consent (all
requirements for which, however arising, Guarantor hereby WAIVES):
(a) release or waiver of any obligation or duty to perform or
observe any express or implied agreement, covenant, term or condition imposed in
any of the Loan Documents or by applicable law on any Obligor or any party to
the Loan Documents (other than Guarantor).
(b) extension of the time for payment of any part of the Debt
or any other sums payable under the Loan Documents, extension of the time for
performance of any other obligation under or arising out of or in connection
with the Loan Documents or change in the manner, place or other terms of such
payment or performance.
(c) settlement or compromise of any of the Debt.
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(d) renewal, supplementing, modification, rearrangement,
amendment, restatement, replacement, cancellation, rescission, revocation or
reinstatement (whether or not material) of any part of any of the Loan Documents
or any obligations under the Loan Documents of any Obligor or any other party to
the Loan Documents (without limiting the number of times any of the foregoing
may occur).
(e) acceleration of the time for payment or performance of any
Debt or other obligation under any of the Loan Documents or exercise of any
other right, privilege or remedy under or in regard to any of the Loan
Documents.
(f) failure, omission, delay, neglect, refusal or lack of
diligence by Agent or any other Person to assert, enforce, give notice of intent
to exercise--or any other notice with respect to--or exercise any right,
privilege, power or remedy conferred on Agent or any other Person in any of the
Loan Documents or by law; or any action on the part of Agent or any other Person
granting indulgence, grace, adjustment, forbearance or extension of any kind to
any Obligor.
(g) release, surrender, exchange, subordination or loss of any
Lien priority under any of the Loan Documents or in connection with the Debt.
(h) release, modification or waiver of, or failure, omission,
delay, neglect, refusal or lack of diligence to enforce, any guaranty, pledge,
mortgage, deed of trust, security agreement, lien, charge, insurance agreement,
bond, letter of credit or other security device, guaranty, surety or indemnity
agreement whatsoever.
(i) taking or acceptance of any other security or guaranty for
the payment or performance of any or all of the Debt or the obligations of any
Obligor.
(j) release, modification or waiver of, or failure, omission,
delay, neglect, refusal or lack of diligence to enforce, any right, benefit,
privilege or interest under any contract or agreement, under which the rights of
any Obligor have been collaterally or absolutely assigned, or in which a
security interest has been granted, as direct or indirect security for payment
of the Debt or performance of any other obligations to--or at any time held
by--Agent or any Lender.
(k) death, legal incapacity, disability, voluntary or
involuntary liquidation, dissolution, sale of any Collateral, marshaling of
assets and liabilities, change in corporate or organizational status,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of debt or other
similar proceedings of or affecting any Obligor or any of the assets of any
Obligor, even if any of the Debt is thereby rendered void, unenforceable or
uncollectible against any other Person.
(l) occurrence or discovery of any irregularity, invalidity or
unenforceability of any of the Debt or Loan Documents or any defect or
deficiency in any of the Debt or Loan
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Documents, including the unenforceability of any provisions of any of the Loan
Documents because entering into any such Loan Document was ultra vires or
because anyone who executed them exceeded their authority.
(m) failure to acquire, protect or perfect any Lien in any
Collateral intended to secure any part of the Debt or any other obligations
under the Loan Documents or failure to maintain perfection.
(n) failure by Agent or any other Person to notify--or timely
notify--Guarantor of any Default or Event of Default under any of the Loan
Documents, any renewal, extension, supplementing, modification, rearrangement,
amendment, restatement, replacement, cancellation, rescission, revocation or
reinstatement (whether or not material) or assignment of any part of the Debt,
release or exchange of any security, any other action taken or not taken by
Agent against any Obligor or any other Person or any direct or indirect security
for any part of the Debt or other obligation of Borrower, any new agreement
between Agent and/or any Lender and any Obligor or any other Person or any other
event or circumstance. Neither Agent nor any Lender has any duty or obligation
to give Guarantor any notice of any kind under any circumstances whatsoever with
respect to or in connection with the Debt or the Loan Documents.
(o) occurrence of any event or circumstances which might
otherwise constitute a defense available to, or a discharge of, any Obligor,
including failure of consideration, usury, forgery, breach of warranty, failure
to satisfy any requirement of the statute of frauds, running of any statute of
limitation, accord and satisfaction and any defense based on election of
remedies of any type.
(p) receipt and/or application of any proceeds, credits or
recoveries from any source, including any proceeds, credits, or amounts realized
from exercise of any rights, remedies, powers or privileges under the Loan
Documents, by law or otherwise available to Agent or any Lender.
(q) occurrence of any act, error or omission, except behavior
which is proven to be in bad faith to the extent (but no further), that
Guarantor cannot effectively waive the right to complain.
Section 3.4 Waiver of Certain Rights and Notices. Guarantor hereby
WAIVES and RELEASES all right to require marshaling of assets and liabilities,
sale in inverse order of alienation, notice of acceptance of this Guaranty and
of any liability to which it applies or may apply, notice of the creation,
accrual, renewal, increase, extension, modification, amendment or rearrangement
of any part of the Debt, presentment, demand for payment, protest, notice of
nonpayment, notice of dishonor, notice of intent to accelerate, notice of
acceleration and, except as expressly provided herein, all other notices and
demands, collection, suit and the taking of any other action by Agent or any
Lender.
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Section 3.5 Not a Collection Guaranty. This is an absolute guaranty of
payment, and not of collection, and Guarantor WAIVES any right to require that
any action be brought against any Obligor or any other Person, or that Agent or
any Lender be required to enforce, attempt to enforce or exhaust any of its
rights, benefits or privileges under any of the Loan Documents, by law or
otherwise; provided that nothing herein shall be construed to prevent Agent or
any Lender from exercising and enforcing at any time any right, benefit or
privilege which it may have under any Loan Document or by law from time to time,
and at any time, and Guarantor agrees that Guarantor's obligations hereunder
are--and shall be--absolute, independent and unconditional under any and all
circumstances. Should Agent or any Lender seek to enforce Guarantor's
obligations by action in any court, Guarantor WAIVES any requirement,
substantive or procedural, that (a) Agent or such Lender pursue any foreclosure
action, realize or attempt to realize on any security or preserve or enforce any
deficiency claim against any Obligor or any other Person after any such
realization, (b) a judgment first be sought or rendered against any Obligor or
any other Person, (c) any Obligor or any other Person be joined in such action
or (d) a separate action be brought against any Obligor or any other Person.
Guarantor's obligations under this Guaranty are several from those of any other
Obligor or any other Person, and are primary obligations concerning which
Guarantor is the principal obligor. All waivers in this Guaranty or any of the
Loan Documents shall be without prejudice to Agent or any Lender at its option
to proceed against any Obligor or any other Person, whether by separate action
or by joinder. Guarantor agrees that this Guaranty shall not be discharged
except by payment of the Debt in full, complete performance of all obligations
of the Obligors under the Loan Documents and termination of the obligation--if
any--to make any further advances under the Notes or extend other financial
accommodations to any Obligor.
Section 3.6 Subrogation. Guarantor agrees that it shall never be
entitled to be subrogated to any of Agent's or any Lender's rights against any
Obligor or any other Person or any Collateral or offset rights held by Agent or
any Lender for payment of the Debt until final termination of this Guaranty.
Section 3.7 Reliance on Guaranty. All extensions of credit and
financial accommodations heretofore or hereafter made by Agent or any Lender
under or in respect of the Notes or any of the other Loan Documents shall be
conclusively presumed to have been made in acceptance of this Guaranty.
Section 3.8 Demands are Conclusive. Any demand by Agent under this
Guaranty shall be conclusive, absent manifest error, as to the matters therein
stated, including the amount due.
Section 3.9 Joint and Several. If any Person makes any guaranty of any
of the obligations guaranteed hereby or gives any security for them, Guarantor's
obligations hereunder shall be joint and several with the obligations of such
other Person pursuant to such agreement or other papers making the guaranty or
giving the security.
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Section 3.10 Payments Returned. Guarantor agrees that, if at any time
all or any part of any payment previously applied by Agent or any Lender to the
Debt is or must be returned by Agent or any Lender--or recovered from Agent or
any Lender--for any reason (including the order of any bankruptcy court), this
Guaranty shall automatically be reinstated to the same effect as if the prior
application had not been made, and, in addition, Guarantor hereby agrees to
indemnify Agent and each Lender against, and to save and hold Agent and each
Lender harmless from any required return by Agent or any Lender--or recovery
from Agent or any Lender--of any such payment because of its being deemed
preferential under applicable bankruptcy, receivership or insolvency laws, or
for any other reason.
ARTICLE 4
Section 4.1 Term. Subject to the automatic reinstatement provisions of
Article 3 above, this Guaranty shall terminate and be of no further force or
effect upon full payment of the Debt and final termination of the Revolving Loan
Commitments of the Lenders.
ARTICLE 5
Section 5.1 Default. If any Default or Event of Default occurs under
the Loan Agreement, then that shall automatically constitute default under this
Guaranty.
ARTICLE 6
Section 6.1 Binding on Successors; No Assignment by Guarantor. All
guaranties, warranties, representations, covenants and agreements in this
Guaranty shall bind the heirs, devisees, executors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, successors
and assigns of Guarantor and shall benefit Agent, Lenders, their successors and
assigns, and any holder of any part of the Debt. Guarantor shall not assign or
delegate any of its obligations under this Guaranty or any of the Loan Documents
to which it is a party without the express prior written consent of the Majority
Lenders.
Section 6.2 Subordination of Borrower's Obligations to Guarantor.
Guarantor agrees that if, for any reason whatsoever, Borrower now is or
hereafter becomes liable, obligated or indebted to Guarantor, all such
liabilities, obligations and indebtedness, together with all interest thereon
and fees and other charges in connection therewith, and all Liens securing any
of the foregoing shall at all times be second, subordinate and inferior in right
of payment, in lien priority and in all other respects to the Debt and all Liens
created pursuant to the Security Documents.
Section 6.3 Waiver of Suretyship Rights. By signing this Guaranty,
Guarantor WAIVES each and every right to which it may be entitled by virtue of
any suretyship law, including any rights it may have pursuant to Rule 31 of the
Texas Rules of Civil Procedure, ss.17.001 of the Texas Civil
7
<PAGE> 138
Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce
Code, as the same may be amended from time to time.
Section 6.4 Amendments in Writing. This Guaranty shall not be changed
orally but shall be changed only by agreement in writing signed by the party
against whom such amendment is sought to be enforced. Any waiver or consent with
respect to this Guaranty shall be effective only in the specific instance and
for the specific purpose for which given. No course of dealing between the
parties, no usage of trade and no parole or extrinsic evidence of any nature
shall be used to supplement or modify any of the terms or provisions of this
Guaranty.
Section 6.5 Notices. Any notice, request or other communication
required or permitted to be given hereunder to Agent or any Lender shall be
given as provided in the Loan Agreement. Any notice, request or other
communication required or permitted to be given hereunder to Guarantor shall be
given in writing by delivering it against receipt for it, by depositing it with
an overnight delivery service or by depositing it in a receptacle maintained by
the United States Postal Service, postage prepaid, registered or certified mail,
return receipt requested, addressed as follows (and if so given, shall be deemed
given when mailed):
TEST, Inc.
c/o National Tank Company
2950 N. Loop West, Suite 750
Houston, Texas 77092
Attn: William B. Weiner, III
Facsimile: (713) 683-7841
Guarantor's address for notice may be changed at any time and from time to time,
but only after thirty (30) days' advance written notice to Agent and Lenders and
shall be the most recent such address furnished in writing by Guarantor to Agent
and Lenders. Actual notice, however and from whomever given or received, shall
always be effective when received.
Section 6.6 Gender; "Including" is Not Limiting; Section Headings. The
masculine and neuter genders used in this Guaranty each includes the masculine,
feminine and neuter genders, and the singular number includes the plural where
appropriate, and vice versa. Wherever the term "including" or a similar term is
used in this Guaranty, it shall be read as if it were written "including by way
of example only and without in any way limiting the generality of the clause or
concept referred to." The headings used in this Guaranty are included for
reference only and shall not be considered in interpreting, applying or
enforcing this Guaranty.
Section 6.7 Offset Rights. Each Lender is hereby authorized, during the
continuation of an Event of Default, without notice to any Person (and Guarantor
hereby WAIVES any such notice) to the fullest extent permitted by law, to
set-off and apply any and all monies, securities and other Properties of
Guarantor now or in the future in the possession, custody or control of such
Lender,
8
<PAGE> 139
or on deposit with or otherwise owed to Guarantor by such Lender--including all
such monies, securities and other Properties held in general, special, time,
demand, provisional or final accounts or for safekeeping or as Collateral or
otherwise but excluding those accounts clearly designated as escrow or trust
accounts held by Guarantor for others unaffiliated with Guarantor--against any
and all of Guarantor's obligations to Agent or any of the Lenders now or
hereafter existing under this Guaranty, irrespective of whether any demand under
this Guaranty shall have been made. Each Lender agrees to use reasonable efforts
to promptly notify Guarantor after any such set-off and application, provided
that failure to give--or delay in giving--any such notice shall not affect the
validity of such set-off and application or impose any liability on such Lender.
Each Lender's rights under this Section are in addition to other rights and
remedies (including other rights of set-off) which such Lender may have.
Section 6.8 Governing Law. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE
UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
Section 6.9 Survival. The representations, covenants and agreements set
forth in this Guaranty shall continue and survive until final termination of
this Guaranty.
Section 6.10 Rights Cumulative; Delay Not Waiver. Agent's or any
Lender's exercise of any right, benefit or privilege under any of the Loan
Documents or at law or in equity shall not preclude the concurrent or subsequent
exercise of any of Agent's or any Lender's other present or future rights,
benefits or privileges. The remedies provided in this Guaranty are cumulative
and not exclusive of any remedies provided by law or the Loan Documents. No
failure by Agent or any Lender to exercise, and no delay in exercising, any
right under any Loan Document shall operate as a waiver thereof.
Section 6.11 Severability. If any provision of this Guaranty is held to
be illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this Guaranty shall
not be affected thereby, and this Guaranty shall be liberally construed so as to
carry out the intent of the parties to it. Each waiver in this Guaranty is
subject to the overriding and controlling rule that it shall be effective only
if and to the extent that (a) it is not prohibited by applicable law and (b)
applicable law neither provides for nor allows any material sanctions to be
imposed against Agent or any Lender for having bargained for and obtained it.
Section 6.12 Entire Agreement. This Guaranty embodies the entire
agreement and under standing among Guarantor, Agent and Lenders with respect to
its subject matter and supersedes all prior conflicting or inconsistent
agreements, consents and understandings relating to such subject matter.
Guarantor acknowledges and agrees that there is no oral agreement between
Guarantor and Agent or any Lender which has not been incorporated in this
Guaranty.
9
<PAGE> 140
Section 6.13 Relationship to Borrower. The value of the consideration
received and to be received by Guarantor in respect of the Debt is reasonably
worth at least as much as the liability and obligation of Guarantor incurred or
arising under this Guaranty and the Loan Documents. Guarantor has determined
that such liability and obligation may reasonably be expected to substantially
benefit Guarantor directly or indirectly (or if Guarantor is not a natural
person, Guarantor's board of directors, general partners or other governors have
made that determination). Guarantor has had full and complete access to the
underlying papers relating to the Debt and all other papers executed by any
Obligor or any other Person in connection with the Debt, has reviewed them and
is fully aware of the meaning and effect of their contents. Guarantor is fully
informed of all circumstances which bear upon the risks of executing this
Guaranty and which a diligent inquiry would reveal. Guarantor has adequate means
to obtain from Borrower on a continuing basis information concerning Borrower's
financial condition, and is not depending on Agent or any Lender to provide such
information, now or in the future. Guarantor agrees that neither Agent nor any
Lender shall have any obligation to advise or notify Guarantor or to provide
Guarantor with any data or information. The execution and delivery of this
Guaranty is not a condition precedent (and neither Agent nor any Lender has in
any way implied that the execution of this Guaranty is a condition precedent) to
Agent's or any Lender's making, extending or modifying any loan to Guarantor or
to any other financial accommodation to or for Guarantor.
10
<PAGE> 141
THIS GUARANTY is executed as of the date first above written.
TEST, INC.,
a Louisiana corporation
By: /s/ WILLIAM B. WIENER III
--------------------------------------
William B. Wiener, III,
Senior Vice President
11
<PAGE> 1
EXHIBIT 10.8
LOAN AGREEMENT
BY AND BETWEEN
THE CYNARA COMPANY
("Borrower")
and
BANK ONE, TEXAS, N.A.
("Lender")
Dated as of the 8th day of October, 1997
<PAGE> 2
LOAN AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
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<S> <C>
Section 1. General Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Certain Definitions; Use of Defined Terms;
Accounting Terms; Singular or Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4 Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.5 Repayment Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.5 Prepayment/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.6 Authorized Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Investments, Loans, Advances and Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Liabilities and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 Titles and Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.8 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.10 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.11 Pension Reform Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.12 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.13 Margin Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.14 Patents, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.15 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.16 Credit Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.17 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.18 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.2 Taxes and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.5 Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.6 Reimbursement of Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.8 Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.10 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.11 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.12 Payments from Account Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1 Guarantees and Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
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- ------- ----
<S> <C>
4.2 Dividends and Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.3 Investments, Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.4 Mergers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.6 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.7 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.8 Basic Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.9 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.10 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.11 Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5. Events of Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Counsel to Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Required Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Other Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4 Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.5 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Survival of Various Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4 Renewals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.5 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Non-Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.9 Payment on Non-Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.11 Controlling Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.12 Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.13 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.14 Set Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.15 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.16 Change of Ownership or Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
Exhibits
<S> <C>
"1.3" Form of Term Note
"1.4.1" Borrowing Application
"1.4.2" Form of Revolving Note
"2.5" Liabilities and Litigation
"3.8" Certificate of Compliance
"3.11" Borrowing Base Report
</TABLE>
(iii)
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into as of the 8th day of
October, 1997, by and between The Cynara Company, a Delaware corporation, with
offices and place of business at 2925 Briarpark, Suite 1200, Houston, Texas
77042 (hereinafter called "Borrower") and Bank One, Texas, N.A., a national
banking corporation, with offices at 910 Travis, Houston, Texas 77002
(hereinafter called "Lender"). 22
AGREEMENT
WHEREAS, Borrower has agreed to borrow, and Lender has agreed to make
available, a loan of up to $13,000,000 as more fully described below,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Borrower and Lender agree as follows
intending to be legally bound hereby:
Section 1. General Terms
1.1 Indebtedness. Upon the terms and conditions hereinafter set
forth, the Lender agrees to lend to Borrower and/or issue letters of credit for
the account of Borrower in an aggregate of up to $13,000,000.00, outstanding at
any time as evidenced by a Term Loan in an amount of up to $7,000,000 and a
Revolving Facility to be extended to the Borrower by the Lender in an amount up
to $6,000,000.00, as more specifically described in Section 1.3(a) hereof and
the Letter of Credit Facility as more specifically described in Section 1.4(b)
hereof.
1.2 Certain Definitions; Use of Defined Terms; Accounting Terms;
Singular or Plural. (a) As used herein:
(1) "Affiliate" shall mean any Person who is an
"affiliate" within the meaning of the regulations promulgated pursuant
to the Securities Act of 1933, as such regulations are amended from
time to time.
(2) "Agreement" shall mean this Loan Agreement as it may
be amended or supplemented from time to time.
(3) "Authorized Officer" shall mean the chairman,
president, chief executive officer or chief financial officer of the
Borrower or any other individual designated as an Authorized Officer
by the Board of Directors of Borrower.
<PAGE> 6
(4) "Base Rate" shall mean the variable rate of interest
announced by Lender from time to time as its base rate of interest
and, without notice to the Borrower or any other person, such rate of
interest shall change as and when changes in that base rate of
interest are announced. The Base Rate is set by Lender as a general
reference rate of interest, taking into account such factors as Lender
may deem appropriate, it being understood that many of the Lender's
commercial or other loans are priced in relation to such rate, that it
is not necessarily the lowest or best rate of interest actually
charged on any loan, and that Lender may make various commercial or
other loans at rates of interest having no relationship to the Base
Rate. If at any time the "Base Rate" of Lender is no longer
available, the owner of the Notes ("Owner") will designate as "Base
Rate" a different variable rate of interest announced by a national
banking association of Owner's choice.
(5) "Borrowing Base" shall mean the sum of (i) eighty
percent (80%) of Eligible Accounts plus (ii) one hundred percent
(100%) of Liquid Collateral plus (iii) fifty percent (50%) of
Inventory.
(6) "Borrowing Base Report" shall mean the report in the
form attached as Exhibit "3.11".
(7) "Business Day" shall mean any weekday on which Lender
is open for business.
(8) "Capital Assets" shall mean tangible property, real
or personal, with a useful life of greater than one (1) year.
(9) "Capital Expenditures" shall mean the cost paid for
the acquisition of Capital Assets.
(10) "Cash Flow" shall mean the sum of the Borrower's net
income plus non-cash charges, less distributions or dividends paid and
non-cash income for the immediately preceding four quarters.
(11) "Cash Flow Coverage Ratio" shall mean the ratio of
Cash Flow to Debt Service, calculated on a quarterly basis.
(12) "Certificate of Compliance" shall mean the
certificate described in Section 3.8 of this Agreement.
(13) "Closing Date" means the date of the satisfaction of
all the closing conditions contained in the Agreement for the Term
Loan.
2
<PAGE> 7
(14) "Collateral" shall mean the property described in
Section 3.10 of this Agreement, securing payment of the Indebtedness
and performance of the obligations of the Borrower under this
Agreement and the Security Instruments.
(15) "Commitment" means $13,000,000.
(16) "Commitment Fee" means a fee payable by Borrower to
Lender on the average daily unused portion of the Credit Facility(use
shall include the face amount of Credits and the principal amount of
Loans outstanding) from the Closing Date to the end of the Credit
Facility Commitment Period provided that the unused portion of the
Term Loan after December 31, 1997 shall not be included, at the rate
of one half of one percent (1/2%) per annum based on a 365 or 366 day
year as applicable and the actual number of days elapsed.
(17) "Credit" means any irrevocable standby letter of
credit issued by Lender for Borrower's account which shall have an
expiry date of not later than 5:00 p.m. Houston, Texas time on the LOC
Expiration Date, and shall be in the form acceptable to Lender.
(18) "Credit Facility" shall mean the credit facility
described in Sections 1.3 and 1.4, including the Revolving Facility
and the Letter of Credit Facility.
(19) "Credit Facility Commitment Period" means the period
from the Closing Date until the earlier to occur of (i) a Default, or
(ii) the second anniversary of the Closing Date, provided that the
Credit Facility Commitment Period may be extended for additional
one-year periods at the discretion of the Lender.
(20) "Credit Fee" means one percent (1%) per annum on the
face amount of each Credit; provided, however, that the minimum fee
per Credit shall not be less than $500.00; provided, further, that all
Credit Fees shall be due and payable at the time of the issuance of
each Credit and shall be fully earned and non- refundable when paid.
(21) "Current Ratio" shall mean current assets divided by
current liabilities.
(22) "Debt" shall mean with respect to any Person all
items of indebtedness, obligation or liability, whether matured or
unmatured, liquidated or unliquidated, direct or contingent, joint or
several, including, but without limitation:
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(a) All indebtedness guaranteed, directly or
indirectly, in any manner, or endorsed (other than for
collection or deposit in the ordinary course of business) or
discounted with recourse;
(b) All indebtedness in effect guaranteed,
directly or indirectly, through agreements, contingent or
otherwise: (1) to purchase such indebtedness; or (2) to
purchase, sell or lease (as lessee) property, products,
materials or supplies or to purchase or sell services,
primarily for the purpose of enabling the debtor to make
payment of such indebtedness or to assure the owner of the
indebtedness against loss; or (3) to supply funds to or in any
other manner invest in the debtor;
(c) All indebtedness secured by (or for which the
holder of such indebtedness has an existing right, contingent
or otherwise, to be secured by) any mortgage, deed of trust,
pledge, lien, security interest or other charge or encumbrance
upon property owned or acquired subject to such mortgage, deed
of trust, pledge, lien, security interest, charge or
encumbrance, whether or not the liabilities secured thereby
have been assumed; and
(d) All indebtedness incurred as the lessee of
goods or services under leases that, in accordance with
generally accepted accounting principles, should be reflected
on the lessee's balance sheet.
(23) "Debt Service" means the aggregate of principal
payments payable hereunder over the subsequent four quarters.
(24) "Default" shall mean an event which with the giving
of notice, the lapse of time, or both, constitutes an Event of
Default.
(25) "Defined Benefit Pension Plans," "Pension Benefit
Guaranty Corporation," "Reportable Event," and "Prohibited
Transaction" shall have the same respective meanings as are given to
those terms in ERISA.
(26) "Dow" means Dow Chemical Company.
(27) "EBITDA" means the sum of (i) net income, (ii)
non-cash expenses and (iii) interest expense, less non-cash income and
distributions or dividends paid, for the previous four quarters.
(28) "Eligible Accounts" shall mean the aggregate of all
of Borrower's accounts receivable acceptable to Lender in Lender's
reasonable discretion, which (i) are due and payable
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within thirty (30) days; (ii) have been outstanding less than
ninety(90) days past the original date of invoice; (iii) have arisen
from Borrower's sale of goods in which Borrower had sole ownership
where such goods have been shipped or delivered to the account debtor;
(iv) represent complete bona fide transactions which require no
further act under any circumstances on Borrower's part to make such
accounts receivable payable by the account debtor; (v) the goods the
sale of which gave rise to such accounts receivable were shipped or
delivered to the account debtor on an absolute sale basis and not on
consignment, a sale or return basis, or on the basis of any similar
understanding; (vi) the goods of sale giving rise to such accounts
receivable were not, at the time of sale thereof, subject to any lien,
except the security interest in favor of Lender created by the
Security Instruments; (vii) are not subject to any provision
prohibiting assignment or requiring notice of or consent to such
assignment; (viii) are subject to a perfected, first priority security
interest in favor of Lender; (ix) are not subject to setoff,
counterclaim, defense, allowance, dispute or adjustment other than
normal discounts for prompt payment and the goods of sale which gave
rise to accounts receivable have not been returned, rejected,
repossessed, lost or damaged; (x) have arisen in the ordinary course
of Borrower's business and for which no notice of bankruptcy,
insolvency or financial difficulty of the account debtor shall have
been received by Borrower or Lender; (xi) are not evidenced by chattel
paper or an instrument of any kind; (xii) are owed by the United
States or any department, agency or instrumentality thereof if the
provisions of the Federal Assignment of Claims Act have been
satisfied; and (xiii) are not owed by any of Borrower's Affiliates.
No account receivable owed by an account debtor to Borrower shall be
included as an Eligible Account if more than twenty percent (20%) of
the balances then outstanding on accounts receivable owed by such
account debtor and its affiliates to Borrower have remained unpaid for
more than ninety (90) days, unless the Lender consents to the
inclusion of such receivables as an Eligible Receivable, which consent
shall not be unreasonably withheld.
(29) "ERISA" means the Employee Retirement Income Security
Act of 1974, as the same may be amended from time to time.
(30) "Event of Default" shall mean any event specified in
Section 5 of this Agreement provided that any requirement for the
giving of notice, the lapse of time, or the happening of any
condition, event or act has been satisfied.
(31) "Facility Fee" shall mean a fee in the amount of
three-quarters of one percent (3/4%) of the Commitment; one-half
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of this fee has been advanced to Lender and one-half is payable upon
execution of this Agreement.
(32) "Financial Statements" shall mean the audit report,
annual financial statements, and interim statements described or
referred to in Section 3.1 of this Agreement.
(33) "Funded Debt" means the principal amounts outstanding
hereunder.
(34) "Indebtedness" shall mean all sums owed or to be owed
by the Borrower to Lender whether principal or interest, including
principal and interest on the Notes, reimbursement of advances
pursuant to any Credit, and reimbursement of monies advanced by Lender
pursuant to Section 3.6 hereof.
(35) "Investment" shall mean an equity investment
resulting in the ownership of fifty percent (50%) or less of the
securities of a corporation having ordinary voting power for election
of directors or resulting in the ownership of any partnership
interest.
(36) "Inventory" shall mean the cost to Borrower of all
goods held for sale or lease, owned by Borrower at any time in
question, whether in the possession of the Borrower, a bailee or any
other Person, and includes (i) the costs of raw materials up to
$1,000,000, (ii) the costs of finished goods, and (iii) the costs of
project-related work-in-process in excess of billings.
(37) "Letter of Credit Facility" shall mean the Letter of
Credit facility described in Section 1.4(b).
(38) "Letter of Credit Request" means, as applicable,
either (i) a standby letter of credit application in the form
prescribed by Lender, with all the blanks appropriately completed, and
showing Borrower as the account party, or (ii) if Borrower has
executed and delivered to Lender a Master Letter of Credit Agreement
(whether prior to, contemporaneously with, or after the date of this
Agreement), a standby letter of credit request or application in the
form prescribed in such Master Letter of Credit Agreement with all the
blanks appropriately completed and showing Borrower as the account
party, as any of the same may be amended or modified from time to
time.
(39) "Leverage Ratio" means the ratio of the principal
amount outstanding hereunder to EBITDA, calculated on a quarterly
basis.
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(40) "Liquid Collateral" means all certificates of deposit
issued by the Lender, owned by Borrower and in which the Lender has a
first perfected security interest.
(41) "Loan" shall mean the Term Loan and any advance
pursuant to the Revolving Facility.
(42) "LOC Expiration Date" means the date which is six
months after the end of the Credit Facility Commitment Period.
(43) "Notes" shall mean the promissory note or notes
delivered to Lender by Borrower pursuant to this Agreement, including,
but not limited to, the Term Note and the Revolving Note.
(44) "Obligation" means all present and future
obligations, duties, and liabilities, now or hereafter owed to Lender
by Borrower, arising from or pursuant to the Notes, this Agreement or
any of the Security Instruments, together with all interest accruing
thereon and costs, expenses, and attorneys' fees incurred in the
enforcement thereof or collection of amounts due thereunder.
(45) "Permitted Encumbrances" shall mean the encumbrances
and liens allowed pursuant to Section 4.5.
(46) "Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture, court, government or political
subdivision or agency thereof.
(47) "Prior Financial Statements" shall mean the unaudited
balance sheet of Borrower as of June 30, 1997, which has been
delivered to Lender.
(48) "Revolving Facility" shall mean the line of credit
pursuant to Section 1.4.
(49) "Revolving Facility Maturity Date" shall mean the
date that is the second anniversary of the Closing Date.
(50) "Revolving Note" shall mean the promissory note of
the Borrower in the original principal amount of $6,000,000.00 issued
pursuant to Section 1.4 of this Agreement in the form attached as
Exhibit "1.4" to this Agreement.
(51) "Security Agreement" shall mean the security
agreement or agreements of the Borrower granting Lender a security
interest in the Collateral described in Section 3.10.
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(52) "Security Instruments" shall mean the instruments
described or referred to in Section 3.10 of this Agreement, including
but not limited to the Security Agreement and any and all instruments
now or hereafter executed in connection with or as security for the
Notes.
(53) "Tangible Net Worth" shall mean the sum of (i) par
value of capital stock, (ii) capital in excess of par value, and (iii)
retained earnings less (a) all intangible assets such as good will and
patent rights and (b) all promissory notes or accounts receivable due
from Affiliates other than transactions arising in the ordinary course
of business on an arm's length basis.
(54) "Term Loan" shall mean the loan made available to
Borrower under Section 1.3 hereof.
(55) "Term Note" shall mean the promissory note of
Borrower substantially in the form of Exhibit 1.3, attached hereto, in
respect of the Term Loan.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any Notes, certificate, report, or other document made or
delivered pursuant to this Agreement, unless specifically required otherwise.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles.
(c) Terms in the singular shall include the plural and those in
the plural shall include the singular unless the context shall otherwise
require.
1.3 Term Loan. (a) The Lender, during the period from the date of
this Agreement until December 31, 1997, subject to the terms and conditions of
this Agreement, and subject to the condition that at the time of each borrowing
hereunder no Default or Event of Default has occurred and is then continuing to
occur and that the representations and warranties given by the Borrower in
Section 2 as of the date of this Agreement shall remain true and correct in all
respects agrees to make loans to Borrower up to but not in excess of an
aggregate principal amount outstanding at any time of $7,000,000.00, upon
receipt from Borrower on or before 10:00 a.m. Houston time on the prior
Business Day of written applications for loans hereunder in the form attached
as Exhibit "1.3.1". Each advance shall be in an amount of not less than
$50,000. The initial advance shall be in an amount sufficient to refinance all
outstanding amounts due and owing by Borrower to Banc One Capital Partners.
(b) Interest on the Term Loan shall accrue at the Base Rate plus one
percent (1%) per annum.
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1.4 Revolving Credit Facility. The Lender, subject to the terms
and conditions of this Agreement, and subject to the condition that at the time
of each borrowing and/or Credit issuance hereunder no Default or Event of
Default has occurred and is then continuing to occur and that the
representations and warranties given by the Borrower in Section 2 as of the
date of this Agreement shall remain true and correct in all material respects:
(a) agrees to make loans to Borrower during the
Credit Facility Commitment Period pursuant to a Revolving
Facility up to but not in excess of an aggregate principal
amount outstanding at any time of the lesser of the Borrowing
Base and $6,000,000.00, upon receipt from Borrower on or
before 10:00 a.m. Houston time on the prior Business Day of
written applications for loans hereunder in the form attached
as Exhibit "1.4.1". Each advance shall be in an amount of not
less than $50,000.
(b) (1) agrees to open one or more Credits
during the Credit Facility Commitment Period for Borrower's
account. Borrower shall submit to Lender a Letter of Credit
Request with respect to each Credit to be opened by Lender, in
accordance with the terms hereof and the other letter of
credit agreements in effect, if any. Lender at its option may
accept telecopy requests for the issuance of Credits, provided
that such acceptance shall not constitute a waiver of Lender's
right to require delivery of a written Letter of Credit
Request in connection with the issuance of a Credit. If
Lender receives a request for a Credit issuance under the
Credit Facility satisfying the conditions thereof prior to
10:00 a.m. Houston, Texas time on a Business Day, Lender shall
use its best efforts to issue such Credit prior to 5:00 p.m.
Houston, Texas time on such day, otherwise Lender shall use
its best efforts to issue such Credit before 5:00 p.m. on the
following Business Day (provided that the other conditions of
the Credit Facility have been satisfied). No credit shall be
issued with a termination date that is after the LOC
Expiration Date, except for credits that are fully secured by
Liquid Collateral, which credits shall not be outstanding for
more than thirty-six (36) months. Borrower will be required
to pay to Lender a Credit Fee for the issuance of each credit.
Each Credit shall be on substantially the terms as Borrower
may request and such Letter of Credit Request must be in the
form and substance satisfactory to Lender. The sum of the
outstanding face amount of all Credits when added to the sum
of the outstanding Revolving Loans shall not exceed the lesser
of the Borrowing Base or $6,000,000.00.
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(2) Additional Agreements Regarding Credits:
(i) Prior to the earlier to occur
of the occurrence of a Default or the end of the
Credit Facility Commitment Period, if Borrower does
not provide Lender with funds, in the amount and on
the date necessary to settle Lender's obligations
under any draft drawn or demand made under a Credit,
Lender shall make, and Borrower shall accept, a Loan
under the Credit Facility in the amount necessary to
settle Lender's obligations under any draft or demand
made under such Credit to the extent Borrower does
not otherwise provide such funds, such Loan to be
made as of the date of such settlement of the Credit.
Borrower's obligations and indebtedness to Lender
pursuant to such Loans shall be evidenced by the
Notes, this Agreement, the Letter of Credit Requests
and the other letter of credit agreements relating to
the subject Credit. Anything herein to the contrary
notwithstanding, in no event shall any Loan be made
under the Credit Facility which, together with the
outstanding principal amount thereof, would exceed
the positive difference, if any, between (1) the
lesser of the Borrowing Base or $6,000,000.00 less
(2) the aggregate principal amount of the outstanding
Credits. Borrower shall pay any such excess to
Lender on demand.
(ii) At the earlier to occur of a
Default or the end of the Credit Facility Commitment
Period, and if a Credit is outstanding, Borrower
agrees (1) to deposit with Lender an amount equal to
the aggregate undrawn amount of all Credits, and (2)
to reimburse Lender by paying to Lender in
immediately available funds (which amounts Lender may
draw from any funds held by Lender) at Lender's
principal office in Houston, Texas, upon its demand,
the amount necessary to settle Lender's obligations
under any draft drawn or demand made under a Credit
issued by Lender which has not been paid by the
proceeds of Loans made pursuant to the immediately
preceding paragraph hereof. Borrower's obligations
and indebtedness to Lender pursuant to such draws or
demands made on any Credit shall be evidenced by this
Agreement, the Letter of Credit Requests and the
other letter of credit agreements relating to the
subject Credit. After the expiry date of a Credit,
Lender shall return the unused portion of the cash
collateral securing such Credit to Borrower.
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(iii) Borrower agrees that (1) Lender
shall not be responsible or liable for, and
Borrower's obligation to reimburse Lender for any
payment made by Lender under such Credit shall not be
affected by (x) the validity, enforceability or
genuineness of any Notes or other document (or such
endorsement) if such is proven to be invalid,
unenforceable, fraudulent or forged, except in the
event of the Lender's gross negligence or willful
misconduct, or (y) any dispute between Borrower and
the beneficiary under such Credit, and (2) any action
taken or omitted to be taken by Lender in connection
with such Credit, if taken in good faith and with
reasonable care, shall be binding upon Borrower and
shall not create any liability for Lender to
Borrower.
(iv) In case of any conflict between
the terms of any Letter of Credit Request or other
letter of credit agreement and the terms of this
Agreement, the terms of this Agreement shall control.
Such additional provisions of each Letter of Credit
Request and other letter of credit agreement shall be
cumulative and in addition to the terms of this
Agreement.
(v) Neither Lender nor any of
Lender's correspondents shall be responsible for:
(1) the failure of any draft to bear any reference or
adequate reference to any Credit, or the failure of
any Person to surrender or to take up any Credit or
the failure of any Person to note the amount of any
instrument on any Credit, (2) errors, omissions,
interruptions, or delays in transmission or delivery
of any messages, in person, by mail, cable,
telegraph, wireless or otherwise whether or not they
may be in cipher, (3) any use which may be made of
any Credit or any acts or omissions of beneficiary
thereof in connection therewith, or (4) the validity,
sufficiency, or genuineness of documents, or any
endorsement(s) thereon, even if such document should
in fact prove to be in any and all respects invalid,
insufficient, fraudulent or forged, except in the
event of the Lender's gross negligence or willful
misconduct. Lender shall not be responsible for any
act, error, neglect, default, omission, insolvency,
or failure in business of any of its correspondents
(including without limitation negligent acts and
omissions, but expressly excluding gross negligence
and willful misconduct), and the happening of any one
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<PAGE> 16
or more of the contingencies referred to in this
sentence or the preceding sentence shall not affect,
impair, or prevent the vesting of any of Lender's
rights or powers under the Notes, this Agreement and
the Security Instruments. Lender and/or any of its
correspondents may receive, accept, or pay as
complying with the terms of any Credit, any drafts or
other documents, otherwise in order, which may be
signed by, or issued to, the administrator or
executor of, or the trustee in bankruptcy of, or the
receiver for any of the property of, the party in
whose name any Credit provides that any drafts or any
other documents should be drawn or issued. It is
hereby further agreed that any action, inaction, or
omission taken or suffered by Lender, or by any of
its correspondents, under or in connection with any
Credit or any drafts or documents referenced therein,
if in good faith and in conformity with such foreign
or domestic laws and customs or other regulations as
Lender or any of Lender's correspondents may deem to
be applicable thereto, shall be binding upon Borrower
and shall not place Lender or any of Lender's
correspondents under any resulting liability to
Borrower.
(c) The Borrower's obligation to repay the
Revolving Facility shall be evidenced by a promissory note of
the Borrower in substantially the form attached as Exhibit
"1.4.2" hereto, payable to the order of Lender. The Revolving
Note shall bear interest at the Base Rate per annum not to
exceed the maximum non-usurious interest rate permitted by
applicable law with the balance of principal plus accrued and
unpaid interest due and payable on or before the Revolving
Facility Maturity Date.
(d) Borrower may, at any time, upon giving written
notice to Lender, reduce the maximum amount of Loans and/or
Credits Borrower has the right to request hereunder.
Effective upon Lender's receipt of such notice and as of such
date, the maximum amount of Loans and/or Credits Borrower has
a right to obtain shall be so reduced and Borrower's
obligation to pay the Commitment Fee shall be calculated based
upon the reduced amount after the effective date of such
notice.
1.5 Repayment Schedule. Borrower hereby agrees to pay, and
authorizes and directs Lender to collect:
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(a) Credit Fees (at the time of the issuance of a
Credit), the Facility Fee upon execution of this Agreement,
and the Commitment Fee (on the last day of each December,
March, June, and September, commencing December 31, 1997);
(b) the amount of any drawing under a Credit not
otherwise reimbursed to Lender by advance under the Notes on
the earlier of the LOC Expiration Date by Lender by debit to
Borrower's Operating Account No. 1820763017 at Lender or any
other of Borrower's accounts at Lender;
(c) accrued interest on the Term Loan shall be
payable quarterly commencing December 31, 1997;
(d) the principal of the Term Loan in twenty
(20) consecutive quarterly installments of $325,000 each,
commencing March 31, 1998, provided that all outstanding
principal of and interest on the Term Loan shall be due and
payable on or before December 31, 2002; and
(e) advances under the Revolving Note (on the
maturity of the Revolving Note), and accrued interest on the
advances under the Revolving Note (quarterly on the last day
of each quarter and on maturity of the Revolving Note);
provided, that all advances under the Revolving Note to
reimburse Lender for draws under any Credit shall be due and
payable in full on the maturity of the Revolving Note;
provided further, that all outstanding principal, together
with accrued and unpaid interest, shall be due and payable in
full on or before the second anniversary of the Closing Date.
1.6 Prepayment/Mandatory Prepayment. The Borrower shall have the
right to prepay without premium at any time any amount owing on the Notes.
1.7 Authorized Officer. Lender is authorized to rely on the
instructions of the Authorized Officer as to all matters related to this
Agreement and the transactions contemplated hereby.
Section 2. Representations and Warranties
The Borrower represents and warrants to the Lender that:
2.1 Corporate Existence. The Borrower is a corporation duly
organized, legally existing and in good standing under the laws of the
jurisdiction in which it is incorporated and duly qualified as a foreign
corporation in all jurisdictions wherein the property owned or the business
transacted by it makes such qualification necessary, except where the failure
to be so qualified could have a material adverse effect on Borrower's basic
line of business.
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2.2 Corporate Authority. The Borrower is duly authorized and
empowered to create and issue the Notes, and to execute and deliver this
Agreement. The Borrower is duly authorized and empowered to execute and
deliver the Security Instruments to which it is a party, and all other
instruments referred to or mentioned herein to which Borrower is a party, and
all corporate action requisite for the due creation, issuance and delivery of
the Notes and the due execution and delivery of this Agreement and the Security
Instruments has been duly and effectively taken. This Agreement, the Notes,
and the Security Instruments to which the Borrower is a party when executed and
delivered will be valid and binding obligations of the Borrower enforceable in
accordance with their terms (subject to any applicable bankruptcy, insolvency
or other laws generally affecting the enforcement of creditors' rights). This
Agreement, the Notes, and the Security Instruments do not violate any
provisions of the Borrower's corporate charter or bylaws, or any material
provision of any contract, agreement, law or regulation to which the Borrower
is subject, and the same do not require the consent or approval of any
regulatory authority or governmental body of the United States or any state
where the failure to obtain such consent would have a material adverse effect
on the Borrower.
2.3 Financial Condition. The Prior Financial Statement which has
been delivered to Lender fairly presents the financial position of the Borrower
at such date.
2.4 Investments, Loans, Advances and Guarantees. As of the date
hereof the Borrower has not made Investments in, loans or advances to or
guarantees of the obligations of any Person which exceed, in the aggregate,
$100,000.
2.5 Liabilities and Litigation. Except as set forth on Exhibit
2.5, as of the date hereof the Borrower has no liabilities and no litigation,
legal or administrative proceedings, investigation or other action is pending
or to the Borrower's knowledge threatened against or affecting the Borrower
which is not fully covered by insurance subject to deductible not greater than
$50,000.00 or which may adversely affect in a material respect the business or
the assets of the Borrower or the Borrower's ability to carry on their business
as now conducted, except for liabilities incurred in the ordinary course of
business. No unusual or unduly burdensome restriction, restraint or hazard
exists by contract, law, governmental regulation or otherwise of which Borrower
has knowledge that would prevent or materially restrict Borrower's operations
as they are currently conducted.
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2.6 Titles and Encumbrances. The Borrower has good title to its
properties and assets, free and clear of all mortgages, liens and encumbrances,
except those referred to in Section 4.5 hereof.
2.7 No Default. No Default, or Event of Default exists under this
Agreement and the Borrower is not in default in any respect under any material
contract, agreement or instrument to which Borrower is a party or by which
Borrower or any of its property may be bound, and Borrower is not aware of any
default under any contract, agreement or instrument, which Default, Event of
Default, default or breach could have a material adverse effect on the ability
of the Borrower to perform its obligations under the Notes, this Agreement, or
any of the Security Instruments to which they are a party or on its ability to
conduct their business as now conducted.
2.8 [INTENTIONALLY OMITTED]
2.9 Taxes. As of the date hereof the Borrower has filed all tax
returns required to be filed (or extensions have been granted) before
delinquency, and all Federal and state income taxes that are due and payable by
Borrower have been paid or otherwise satisfied before delinquency.
2.10 Compliance. As of the date hereof the Borrower has complied
in all material respects with all valid and applicable statutes, rules and
regulations of each jurisdiction to which each may be subject.
2.11 Pension Reform Act. In the event that ERISA may be applicable
to any Defined Benefit Pension Plan of the Borrower, no Reportable Event or
Prohibited Transaction exists which would constitute grounds for the
termination of any such Defined Benefit Pension Plan by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
district court of a trustee to administer any such Defined Benefit Pension
Plan.
2.12 Environmental Laws. To Borrower's knowledge, and except as
would not have a material adverse effect on the operations or financial
condition of Borrower or on Borrower's ability to perform and pay its
obligations hereunder and under the Security Instruments:
(a) Borrower and all of its properties, assets, and
operations are in compliance in all material respects with all
Environmental Laws (as hereinafter defined).
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<PAGE> 20
(b) Borrower is not aware of, nor has Borrower received
notice of, any past, present, or future conditions, events,
activities, practices, or incidents which may interfere with or
prevent the compliance or continued compliance of Borrower with the
Environmental Laws.
(c) Borrower has not (i) permitted violation of any
Environmental Laws with respect to any Hazardous Substances (as
hereinafter defined), wastes or materials which exist on, about, or
within or are used, generated, stored, transported, disposed of on, or
released or (ii) permitted actions which would cause the incurrence of
response costs or costs of corrective action on the part of Borrower
as defined by the Environmental Laws.
(d) The use which Borrower makes and intends to make of
its properties and assets will not result in violation of any
Environmental Laws in the use, generation, storage, transportation,
accumulation, disposal, or release of any Hazardous Substance, wastes
or materials on, in, or from any such properties or assets.
(e) There is no action, suit, proceeding, investigation,
or inquiry before any court, administrative agency or other
governmental authority pending or, to the knowledge of Borrower,
threatened against Borrower relating in any way to any Environmental
Law.
(f) Borrower (i) has no liability for remedial or
corrective action or response costs under any Environmental Law, (ii)
has not received any request for information by any governmental
authority with respect to the condition, use, or operation of any of
its properties or assets, and (iii) has not received any notice from
any governmental authority or other person with respect to any
violation of or liability under any Environmental Law.
(g) Borrower has obtained and complied with, and is in
compliance with, all terms and conditions of all permits, licenses and
other authorizations that may be required pursuant to Environmental
Laws for the occupation of the properties of the Borrower and the
operation of the business of the Borrower.
"Environmental Laws" means any and all federal, state, local and
foreign environmental laws, regulations, and ordinances applicable to Borrower
or Borrower's operations, including without
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limitation the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendment and Reauthorization Act of 1986, as amended,
the Federal Water Pollution Control Act and the Oil Pollution Act. "Hazardous
Substances" shall mean any item defined as hazardous under the Environmental
Laws.
2.13 Margin Securities. The Borrower does not own any "margin
security" or "margin stock" as defined in Regulations G, U or X of the Board of
Governors of the Federal Reserve System (12 C.F.R. Parts 207, 221 and 224,
respectively).
2.14 Patents, etc. Except as previously disclosed to the Lender in
writing, the Borrower has all patents, patent rights or licenses, trademarks,
trademark rights, trade names, trade name rights, copyrights, permits and
franchises which are required in order for it to conduct its business as now
conducted without known conflict with the rights of others. The Borrower is
not aware of any fact or condition which might cause any of such foregoing not
to be renewed in due course.
2.15 Full Disclosure. Neither this Agreement nor any certificate
or written statement or any other factual data furnished by the Borrower or any
of its officers in writing in connection with the negotiation of this Agreement
or the transactions contemplated hereby contains any statement of a material
fact which is untrue in any material respect or omits a material fact known to
the Borrower to be necessary to make the statements contained herein or
therein, taken as a whole, not misleading in any material respect. There is no
fact known to the Borrower which the Borrower has failed to disclose to Lender
in writing which could adversely affect the business, operations, assets,
prospects or condition, financial or otherwise, of the Borrower.
2.16 Credit Agreements. Borrower has no agreements in effect
providing for or relating to extensions of credit in respect of which Borrower
is or may become directly or contingently obligated, and has not signed any
security agreement that is currently outstanding except as disclosed in writing
to Lender contemporaneously with the execution and delivery of this Agreement.
2.17 Investment Company Act. Borrower is not an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
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2.18 Public Utility Holding Company Act. Borrower is not a
"holding company" or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 3. Affirmative Covenants
Until the Indebtedness of the Borrower to the Lender has been paid or
while the Lender has a commitment to the Borrower hereunder:
3.1 Reporting Requirements. The Borrower will promptly furnish to
the Lender from time to time the following information regarding the business
affairs and financial condition of the Borrower.
(a) as soon as possible and in any event within five (5)
Business Days after obtaining knowledge of the occurrence of each
Default or Event of Default, the statement of an Authorized Officer
setting forth details of such Default or Event of Default and the
action which the Borrower proposes to take with respect thereto;
(b) as soon as available and in any event within one
hundred twenty (120) days after the end of each fiscal year, annual
audited financial statements of the Borrower, including the balance
sheet of the Borrower as at the end of such year and the statements of
income, shareholders' equity and cash flow of the Borrower for such
year, together with comparative figures for the preceding fiscal year,
if applicable, the statements certified, without qualification, by
independent certified public accountants acceptable to the Lender;
(c) as soon as available, and in any event, within thirty
(30) days after the last day of each month unaudited financial
statements of the Borrower, including the balance sheet of the
Borrower, as of the end of each such month, and the consolidating
statements of income, shareholders' equity and cash flow of the
Borrower for such month, certified by an Authorized Officer;
(d) as soon as available, and in any event, within thirty
(30) days following the last day of each month, the Borrowing Base
Report, to include aging reports of accounts receivable;
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<PAGE> 23
(e) as soon as available, and in any event within thirty
(30) days following the end of each fiscal quarter, and within one
hundred twenty (120) days after the end of each fiscal year, the
certificate described in Section 3.8 of this Agreement; and
(f) such other information the Lender may reasonably
request from time to time at reasonable intervals under the then
applicable circumstances.
The Financial Statements and other reports shall fairly present the
financial position and results of operations of the Borrower and, if
applicable, in accordance with generally accepted accounting principles,
consistently applied.
The Borrower grants to the Lender the right upon three (3) Business
Days' prior notice to send the Lender's own representatives and/or employees
during normal business hours to inspect, copy, and/or audit the books of the
Borrower, the reasonable cost of which shall be paid by Borrower.
3.2 Taxes and Other Liens. The Borrower will pay all taxes,
assessments, governmental charges, claims for labor, supplies, rent and other
obligations which if unpaid, might become a lien against the property of the
Borrower provided the Borrower shall have the right to contest the foregoing by
appropriate proceedings diligently pursued.
3.3 Maintenance. Borrower will maintain its current basic
operations without change in line of business, its corporate existence, remain
in or become a corporation in good standing in each jurisdiction in which it is
required to be qualified, maintain all patents, trademarks, franchises and
licenses necessary in its business, and comply in all material respects with
all valid and applicable statutes, rules and regulations including without
limitation the Fair Labor Standard Act and all Environmental Laws, and it will
maintain or cause to be maintained its properties in condition sufficient to
continue its operations as presently conducted.
3.4 Further Assurances. Borrower will promptly at Lender's
request cure any defects in the execution and delivery of this Agreement, the
Notes, the Security Instruments and any other instrument or instruments
referred to or mentioned herein. Borrower will promptly, and in any event
within ten (10) days of Lender's request, execute and deliver to Lender upon
request all security agreements, financing statements, certificates of title,
deeds of trust, mortgages or any other instrument required to
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<PAGE> 24
accomplish covenants and agreements of Borrower under this Agreement and the
Security Instruments.
3.5 Performance of Obligations. Borrower will pay the Notes
according to the reading, tenor and effect thereof and will do and perform
every act and discharge all of the obligations provided to be performed and
discharged by it under this Agreement, the Notes, the Security Instruments and
any and all of the instruments referred to or mentioned herein to which it is a
party at the time or times and in the manner therein and herein specified
subject to the other provisions hereof. The Borrower will perform all
obligations, pursuant to the terms of each indenture, agreement, contract, and
other instrument by which the Borrower or its properties is bound.
3.6 Reimbursement of Costs and Expenses. The Borrower will pay
the reasonable fees and expenses of counsel for the Lender in connection with
this Agreement and all transactions pursuant hereto, within thirty (30) days of
delivery to Borrower of each statement for such fees and expenses. The
Borrower will, upon request by Lender, within ten (10) days from said request,
reimburse the Lender for all amounts expended, advanced or incurred by the
Lender to satisfy any obligation of the Borrower under this Agreement, or to
protect the properties, assets or business of the Borrower, including without
limitation wages paid to insure compliance with the Fair Labor Standards Act,
amounts incurred to collect the Notes or to enforce the rights of the Lender
under this Agreement or any other instrument referred to or mentioned herein or
executed or to be executed in connection herewith, which amounts will include
all court costs, attorneys' fees, fees of auditors and accountants, and
investigation expenses reasonably incurred by the Lender in connection with any
such matters, and any and all amounts expended by Lender after the occurrence
of a Default or an Event of Default and during the continuation thereof as a
result of the provisions of all Environmental Laws, together with interest at
the rate of three percent (3%) over the Base Rate per annum, not to exceed the
maximum non-usurious interest rate permitted by applicable law, on each such
amount from the date that the same is due and payable to the Lender until the
date it is repaid to the Lender. All amounts advanced in connection herewith
shall be secured by the Collateral more fully described in Section 3.10.
Except for expenses advanced by Lender after (i) occurrence of an Event of
Default, (ii) to maintain insurance or (iii) to protect and preserve the
Collateral, Lender shall provide Borrower not less than five (5) days prior
notice of any advance hereunder.
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3.7 Insurance. The Borrower will maintain with financially sound
and reputable insurers, insurance with respect to its properties and business
against such liabilities, casualties, risks and contingencies and in such types
and amounts as is customary in the case of corporations engaged in the same or
similar businesses and similarly situated. Not less than annually, either
concurrently with delivery of the audited financial statements or promptly
after renewal of the applicable policy, or upon the reasonable written request
of Lender, the Borrower will furnish Lender a summary of the insurance coverage
of the Borrower showing compliance herewith and in form and substance
reasonably satisfactory to Lender and if requested will furnish Lender copies
of the applicable policies. Borrower will cause any and all insurance
policies, if any, insuring the Collateral, or any part thereof, to name Lender
as loss payee thereunder as its interest may appear and contain a provision
requiring at least thirty (30) days prior notice of cancellation to Lender. As
soon as possible, and in any event, within ten (10) days, Borrower will notify
Lender of the cancellation of any insurance coverage, whether or not Lender is
a loss payee under the affected policy.
3.8 Certificate of Compliance. Within thirty (30) days after the
end of each month, and within one hundred and twenty (120) days after the end
of each fiscal year there shall be furnished to the Lender a certificate in the
form attached as Exhibit "3.8" signed by an authorized officer of the Borrower
(1) stating that a review of the activities of the Borrower during such year
has been made under his supervision with a view to determining whether the
Borrower has kept, observed, performed and fulfilled all of its obligations
under this Agreement, the Notes, and Security Instruments, (2) containing
calculations to verify compliance and/or non-compliance with financial
covenants hereunder, and (3) stating that to the best knowledge and belief of
such officer of Borrower the Borrower has kept, observed, performed and
fulfilled each and every covenant and condition contained in the Notes, this
Agreement and the Security Instruments and to the best knowledge and belief of
such officer of Borrower is not at the time in default in the observance,
performance or fulfillment of any such covenants and conditions or if the
Borrower shall be in default, specifying any such default, the nature and
status thereof, and what action, if any, has been taken to remedy the default
or defaults; provided, however, that the information required by subsection (1)
above shall be required for the annual certificate only.
3.9 Litigation. As soon as possible and in any event, within ten
(10) Business Days of a president or chief financial officer of Borrower
obtaining knowledge thereof, Borrower shall give written
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<PAGE> 26
notice to Lender of commencement of litigation (other than litigation being
defended by an insurance carrier without reservation as to coverage claiming
amounts within said coverage) in which the Borrower is reasonably expected to
have liability in excess of $100,000.00 and of all proceedings before any
governmental or regulatory agency affecting Borrower in which an adverse
decision is reasonably expected to involve amounts in excess of $200,000.00.
3.10 Security. The Indebtedness and Obligations of the Borrower
under this Agreement and the Security Instruments shall be secured by the
following:
(a) all Borrower's accounts, accounts receivable,
documents, instruments, chattel paper, and general intangibles,
whether now owned or hereafter acquired, and all products and proceeds
thereof;
(b) all Borrower's inventory, fixtures and equipment,
whether now owned or hereafter acquired, and all products and proceeds
thereof;
(c) without limiting any of the foregoing, all of
Borrower's customer lists, books, records, business records, computer
programs, computer software, database information, computer tapes and
discs, contracts of insurance, letters of credit, advices of credit,
confirmations of letters of credit, acceptances, drafts, warehouse
receipts, guaranties, deposit accounts at or with Lender, warranties,
and indemnities, whether now owned or hereafter acquired;
(d) any of the following issued by or held in the
possession of Lender: any deposit, deposit account, money market
account, cash management account, demand deposit account, savings
account, security, certificate of deposit, cash, cash equivalent, or
other sum at any time credited by or due (including without limitation
any funds on deposit) from any depository or other person or entity to
Borrower, certificated and uncertificated securities, whether now
owned or hereinafter acquired, and all and any and all proceeds and
products thereof; and
(e) all products and proceeds of (a) through (d) above.
3.11 Borrowing Base. The aggregate indebtedness pursuant to the
Revolving Facility and the amount of outstanding Credits shall not exceed the
Borrowing Base as reported in the Borrowing Base
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Report. In accordance with Section 3.1(d), Borrower shall provide the Lender a
calculation of the Borrowing Base on the Borrowing Base Report. In the event
the aggregate unpaid principal balance of Loans plus the outstanding Credits
exceeds the Borrowing Base calculated as described above as reported in the
Borrowing Base Report, the Borrower will immediately, but in any event no later
than the close of business on the same Business Day as the Borrowing Base
Report is delivered to Lender, reduce the indebtedness under the Revolving
Facility until the amount owed is less than the amount permitted pursuant to
the Borrowing Base.
3.12 Payments from Account Debtors. Borrower agrees to direct
payments from its account debtors into its operating account No. 1820763017 at
Lender via wire transfer or such other manner approved by Lender.
Section 4. Negative Covenants
In the absence of a written consent from Lender (in the manner
hereinafter provided), so long as any part of the Indebtedness shall remain
unpaid or the Lender has a commitment to the Borrower hereunder:
4.1 Guarantees and Debts. The Borrower will not guarantee any
contract or obligation of any other Person or incur, create, permit to exist,
assume or guarantee or in any manner become or be liable in respect of any
Debt, except that the foregoing restrictions shall not apply to:
(a) the Notes, Credits, and other obligations or
liabilities pursuant to this Agreement or the Security Instruments;
(b) indebtedness on open account in connection with
normal trade obligations in the ordinary course of business and
obligations incurred in connection with the purchase and sale of
Inventory in the ordinary course of business;
(c) lease obligations and general and administrative
expenses;
(d) liabilities of the Borrower for any unpaid taxes not
yet due or being diligently contested in good faith by appropriate
proceedings and subject to the creation of appropriate reserves under
generally accepted accounting principles and upon stay of levy and
execution thereon;
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(e) obligations of the Borrower pursuant to contracts
entered into in the ordinary course of business, except for
indebtedness for borrowed money;
(f) insurance premiums to the extent they are not
delinquent; and
(g) other indebtedness pursuant to which no principal
payments nor the establishment of any sinking fund is required prior
to the maturity of the Term Loan.
Notwithstanding the foregoing exceptions (a) - (g), the Borrower shall not
enter into any agreement or contract with face value in excess of $3,000,000,
without the Lender's prior written consent, which shall not be unreasonably
withheld.
4.2 Dividends and Redemption. The Borrower will not declare or
pay dividends or make any other distribution on account of, or purchase,
acquire, redeem or retire any stock of the Borrower other than (1) dividends to
shareholders in respect of the tax liabilities of such shareholders resulting
from the operations of the Borrower and (2) retirement of outstanding common
stock of the Borrower upon conversion to other common or preferred stock of the
Borrower, whether now or hereafter outstanding, if after giving effect to such
dividend, the Borrower shall not be in compliance with Section 4.7 hereof;
provided that in no event shall such distribution or dividend exceed fifty
percent (50%) of the Borrower's net income for the applicable period.
4.3 Investments, Loans and Advances. The Borrower will not make
Investments in or loans or advances to any Person, except (1) expense and
salary advances made to employees of the Borrower or in the ordinary course of
business, and (2) temporary cash investments approved by Lender, except that
Lender shall review proposed investments in or creation of joint ventures of
the Borrower and shall not unreasonably withhold its consent to such joint
ventures.
4.4 Mergers, etc. The Borrower will not (a) merge or consolidate
with any corporation,(b) create any subsidiaries, (c) acquire all or
substantially all the assets of any other entity, nor (d) create or
participate in any partnerships or joint ventures, except that Lender shall
review proposed investments in or creation of joint ventures of the Borrower
and shall not unreasonably withhold its consent to such joint ventures. The
Borrower will not liquidate or dissolve.
4.5 Encumbrances. The Borrower will not create, incur, assume or
permit to exist any mortgage, pledge, lien or encumbrance on any of its
properties or assets (now owned or hereafter
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acquired), nor acquire or agree to acquire property or assets under any
conditional sale agreement or title retention contract, except that the
foregoing restrictions shall not apply to:
(a) liens of vendors, carriers, warehousemen, mechanics,
laborers and materialmen arising by law in the ordinary course of
business for sums not yet due or which are being diligently contested
in good faith;
(b) liens for taxes not yet due or which are being
diligently contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with or to secure
workmen's compensation, unemployment insurance, pensions or other
employee benefits;
(d) liens required by this Agreement or any of the
Security Instruments;
(e) statutory liens and easements or other servitudes
arising in the ordinary course of business and minor irregularities of
title which do not materially impair the ownership or use of the
property subject thereto for the purposes for which such property is
owned and held by the Borrower or limit or restrict Lender's remedies
hereunder;
(f) liens incurred in the ordinary course of business,
not on any of the collateral, to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to secure
obligations on appeal bonds; and
(g) judgments in existence less than 30 days after the
entry thereof or with respect to which execution has been properly
stayed.
As to the liens and encumbrances permitted pursuant to paragraphs (a)
and (b) above, Borrower's right to contest diligently in good faith by
appropriate proceedings is conditioned upon the Borrower setting up appropriate
reserves under generally accepted accounting principles and upon stay of levy
and execution thereon.
4.6 Sale of Assets. The Borrower will not sell, transfer or
otherwise dispose of all or substantially all of its assets. The Borrower will
not enter into any arrangement directly or indirectly with any person, firm, or
corporation whereby the Borrower would
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sell or transfer any property, whether now owned or hereafter acquired, and
then or thereafter lease as lessee such property or any part thereof or any
other property which the Borrower would use for substantially the same purpose
or purposes as the property sold or transferred.
4.7 Financial Covenants. The Borrower will not at any time
permit:
(a) its Current Ratio to be less than 1.1 to 1.0;
(b) its Tangible Net Worth to be less than $2,500,000
plus fifty percent (50%) of Borrower's net income (excluding any
deductions for net losses);
(c) its Leverage Ratio to be greater than 3.25 to 1.0
through December 31, 1998, and 2.0 to 1.0 thereafter; and
(d) its Cash Flow Coverage Ratio of not less than 1.25
to 1.0.
All terms not expressly defined shall be defined in accordance with
generally accepted accounting principles. All determinations under
this Agreement shall be made in accordance with generally accepted
accounting principles consistently applied, on a consolidated basis,
except where expressly provided to the contrary. All references to a
preceding period shall mean the period ending as of the end of the
month, quarter or fiscal year for which the applicable report is
delivered. All references to a period immediately following shall
mean the period beginning on the first day of the month, quarter or
fiscal year following the end of the period for which the applicable
report is delivered.
4.8 Basic Line of Business. Borrower will not change its basic
line of business from gas membrane separation services, gas membrane plant
manufacturing and related businesses.
4.9 Transactions with Affiliates. Borrower will not enter into
transactions with an Affiliate which is not on an arms-length basis comparable
to the terms which would apply to a transaction with a bona-fide third party.
4.10 Capital Expenditures. Borrower will not make any capital
expenditures, acquisitions or other investments except in the ordinary course
of business. During any twelve month period,
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Borrower will not make capital expenditures in excess of $250,000, except for
expenditures of up to $1,200,000 for the membrane manufacturing and drying plant
before June 30, 1998.
4.11 Operating Leases. The Borrower shall not enter into any
operating leases except (a) operating leases in existence on the Closing Date
and (b) operating leases in which lease payments do not exceed $75,000 per year
in the aggregate.
Section 5. Events of Default and Remedies
5.1 Events of Default. Any of the following events which shall
occur and be continuing shall be considered an Event of Default as that term is
used herein:
(a) Borrower does not pay any installment of interest on
the Notes, a payment of fees owed to Lender, or any installment of
principal of the Notes or a reimbursement under any Credit within
three (3) Business Days of the due date; provided, however, that any
default rate of interest provided herein shall immediately accrue on
such amounts, notwithstanding the foregoing grace period;
(b) Borrower does not pay at the scheduled maturity
(after expiration of any applicable grace period) or when due whether
by acceleration or otherwise all or any part of, any Debt of the
Borrower to any other person or entity which exceeds, in the
aggregate, $50,000;
(c) The Borrower shall fail or refuse for a period of
thirty (30) days to furnish to the Lender any information, data,
certificate, or other document required by this Agreement;
(d) The Borrower does not comply with or fails in the
performance of any covenant contained in Section 3 of this Agreement
(other than delivery of information which shall be governed by Section
5.1(c) hereof) or any of the Security Instruments to be kept or
performed by the Borrower and, except for the failure to make payments
hereunder, such failure continues for thirty (30) days;
(e) The Borrower does not comply with or fails in the
performance of any covenant contained in Section 4.7 of this Agreement
to be kept or performed by the Borrower and fails to
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cure such default within thirty (30) days of the occurrence thereof;
(f) The Borrower does not comply with or fails in the
performance of any covenant contained in Section 4 of this Agreement
(other than Section 4.7) to be kept or performed by the Borrower and,
except for the failure to make payments hereunder, such failure
continues for thirty (30) days;
(g) Any representation or warranty made by the Borrower
herein or in any of the Security Instruments proves to have been
untrue in any material respect, or any representation, statement
(including financial statements), certificate or data furnished or
prepared and made available by the Borrower to Lender hereunder proves
to have been untrue in any material respect, as of the date as of
which the facts therein set forth were stated or certified;
(h) The Borrower shall discontinue business, or shall (i)
make a general assignment for the benefit of creditors, or (ii) apply
for or consent to the appointment of a receiver, a trustee or
liquidator of itself or of all or a substantial part of its assets, or
(iii) be adjudicated a bankrupt or insolvent, or (iv) file a voluntary
petition in bankruptcy or file a petition or answer seeking
reorganization or an arrangement with creditors or seeking to take
advantage of any other law (whether federal or state) relating to
relief of debtors, or admit (by answer, by default or otherwise) the
material allegations of a petition filed against it in any bankruptcy,
reorganization, arrangement, insolvency or other proceedings (whether
federal or state) relating to relief of debtors, or (v) suffer or
permit to continue unstayed and in effect for sixty (60) consecutive
days any judgment, decree or order, entered by a court of competent
jurisdiction, which approves a petition seeking reorganization of the
Borrower or appoints a receiver, trustee or liquidator of the Borrower
or of all or a substantial part of its assets, or (vi) take or omit to
take any action for the purpose or with the result of effecting or
permitting any of the foregoing.
5.2 Remedies. Upon the happening of an Event of Default specified
in Section 5.1(g), immediately and without notice, and upon the happening of
any other Default or Event of Default specified in Section 5.1, at the option
of the Lender, without notice to Borrower, Lender may declare any commitment
hereunder cancelled and cease advances thereunder, and/or upon the happening of
an Event of Default specified in Section 5.1(g), immediately and
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without notice, and otherwise, at the option of the Lender, upon notice to
Borrower, Lender may declare the entire aggregate principal amount of the Notes
then outstanding and the interest accrued thereon immediately due and payable
without further notice and without presentment, demand, protest, notice of
protest or other notice of default or dishonor of any kind, all of which are
hereby expressly waived by the Borrower.
Section 6. Closing
The closing of the loans and the commencement of advances pursuant to
the Revolving Facility contemplated hereby shall be subject to the satisfaction
of the following conditions:
6.1 Counsel to Lender. All legal matters incident to the
transactions herein contemplated shall be satisfactory to Gardere Wynne Sewell
& Riggs, L.L.P., counsel to the Lender.
6.2 Required Documents. The Lender shall have received executed
copies of the following closing documentation:
<TABLE>
<S> <C>
(a) This Agreement;
(b) The Term Note;
(c) The Revolving Note;
(d) The Security Agreement;
(e) The Notice of Final Agreement;
(f) An opinion of counsel satisfactory to Lender;
(g) An appraisal from an independent appraiser acceptable
to Lender, appraising the value of Borrower's fixed
assets at $9,000,000 or greater; and
(h) Such other documentation as Lender may require.
</TABLE>
6.3 Other Conditions. Other conditions and/or documentation have
been completed and/or executed in a manner satisfactory to Lender in its
reasonable discretion.
6.4 Material Adverse Changes. No event has occurred that could
reasonably be expected to have a material adverse effect on Borrower's
business, operations or property, Borrower's ability to perform its obligations
under this Agreement, the Notes or any of the Security Instruments, or the
validity or enforceability of this Agreement, the Notes or any of the Security
Instruments or Lender's remedies and rights hereunder or thereunder.
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6.5 Other Indebtedness. Evidence of payment of Borrower's
indebtedness to Dow, which shall be in form and substance satisfactory to
Lender.
Section 7. Miscellaneous
7.1 Survival of Various Matters. All representations and
warranties of the Borrower herein shall be deemed remade as of the date of any
borrowing hereunder (except to the extent such representation and warranty
expressly provides it is as of the date hereof), and all covenants and
agreements herein not fully performed before the date of this Agreement, shall
survive such date.
7.2 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and may be
personally served or sent by telex, telecopier, mail or the express mail
service of the United States Postal Service, Federal Express or other
equivalent overnight or expedited delivery service and (i) if given by personal
service, telex (confirmed by telephone) or telecopier (confirmed by telephone),
it shall be deemed to have been given upon receipt, (ii) if sent by telex or
telecopier without telephone confirmation, it shall be deemed to have been
given twenty-four (24) hours after being given, (iii) if sent by mail, it shall
be deemed to have been given upon receipt and (iv) if sent by Federal Express,
the Express Mail Service of the United States Postal Service or other
equivalent overnight or expedited delivery service, it shall be deemed given
twenty-four (24) hours after delivery to such overnight or expedited delivery
service, delivery charges prepaid and properly addressed to Borrower or Lender,
as the case may be. For purposes hereof, the address of Borrower and Lender
shall be as follows:
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Borrower:
The Cynara Company
2925 Briarpark, Suite 1200
Houston, Texas 77042
Attention: Mr. Richard D. Peters
Fax No. (713) 975-8881
with copies to:
Heller, Hickox, Dimeling, Schreiber & Park
1629 Locust Street
Philadelphia,, Pennsylvania 19103
Attention: Mr. George K. Hickox, Jr.
Fax No. (215) 546-1041
and
Reed Smith Shaw & McClay
One Liberty Place, 25th Floor
Philadelphia, Pennsylvania 19103
Attention: Lori L. Lasher, Esquire
Fax No. (215) 851-1420
Lender:
Bank One, Texas, N.A.
910 Travis
Houston, Texas 77002
Attention: David Phillips
Fax No.: (713) 751-3646
Except that all reports required by Section 3.1 hereof shall
be delivered to:
Bank One, Texas, N.A.
910 Travis
Houston, Texas 77002
Attention: Monitoring Unit
Fax No.: (713) 751-6239
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002
Attention: Mr. Robert W. Bramlette
Fax No.: (713) 308-5555
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Any party may, by proper written notice hereunder to the other parties, change
the address to which notices shall thereafter be sent to it.
7.3 Successors and Assigns. All covenants and agreements herein
contained by or on behalf of the Borrower shall bind its successors and assigns
and shall inure to the benefit of the Lender and its successors and assigns and
all covenants and agreements herein contained by or on behalf of the Lender
shall bind the Lender and its successors and assigns.
7.4 Renewals. All provisions of this Agreement relating to the
Notes shall apply with equal force and effect to each and all promissory notes
hereafter executed which in whole or in part represent a renewal, extension or
rearrangement of any part of the Indebtedness originally represented by the
Notes.
7.5 No Waiver. No course of dealing on the part of the Lender or
its officers or employees, or any failure or delay by the Lender with respect
to exercising any right, power or privilege of the Lender under this Agreement,
the Notes, or Security Instruments, shall operate as a waiver thereof. The
rights and remedies of the Lender under this Agreement, the Notes, and the
Security Instruments shall be cumulative and the exercise or partial exercise
of any such right or remedy shall not preclude the exercise of any other right
or remedy.
7.6 Governing Law. This Agreement and the Notes which may be
issued hereunder shall be deemed to be contracts made under and shall be
construed in accordance with and governed by the laws of the State of Texas.
7.7 Non-Subordination. The Notes shall never be in a position
subordinate to any indebtedness owing to any other creditor of the Borrower,
except to the extent that such other creditor may hold a lien or liens on
specific assets of the Borrower pursuant to the terms hereof or with the
knowledge and written consent of the Lender.
7.8 Exhibits. The Exhibits attached to this Agreement are
incorporated herein for all purposes, and shall be considered a part of this
Agreement. Those exhibits are: Term Note - Exhibit "1.3"; Borrowing
Application - Exhibit "1.4.1"; Revolving Note - Exhibit "1.4.2"; Adverse Change
- - Exhibit "2.3"; Liabilities and Litigation - Exhibit "2.5"; Certificate of
Compliance - Exhibit "3.8"; and Borrowing Base Report - Exhibit "3.11".
7.9 Payment on Non-Business Days. Whenever (i) any payment to be
made hereunder or under the Notes or (ii) any certificate, report or financial
statement is due on a day that is a Saturday, Sunday or banking holiday under
the laws of the State of Texas, such payment shall be made on the next
succeeding day which is not a Saturday, Sunday or banking holiday under the
laws of the State
32
<PAGE> 37
of Texas and such extension of time shall be included in the computation of
interest due with such payment.
7.10 Severability. In the event any one or more of the provisions
contained in this Agreement, the Notes, or the Security Instruments, or in any
other instrument referred to herein or executed in connection with or as
security for the Notes shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, the Notes, or the
Security Instruments, or any other instrument referred to herein or executed in
connection with or as security for the Notes. Furthermore, in lieu of such
invalid, illegal or unenforceable provision, there shall automatically be added
a provision as similar in terms to such invalid, illegal or unenforceable
provision as may be possible and as may be valid, legal and enforceable.
7.11 Controlling Document. Should a direct conflict exist between
the specific terms of the Notes, this Agreement or any of the Security
Instruments, the Notes shall control over this Agreement and the Security
Instruments, and this Agreement shall control over the Security Instruments and
the exhibits attached to this Agreement.
7.12 Savings Clause. Nothing contained in this Agreement or in the
Notes or in any other agreement or undertaking relating hereto shall be
construed to obligate Borrower, under any circumstances whatsoever, to pay
interest in excess of the maximum rate that Borrower may pay pursuant to Texas
law and in regard to which Borrower would be prohibited from successfully
raising the claim or defense of usury (the "Maximum Rate"). In the event that
any sums received from Borrower are at any time under applicable law deemed or
held to provide a rate of interest in excess of the Maximum Rate, the effective
rate of interest on the loans hereunder shall be deemed reduced to and shall be
the Maximum Rate and the Borrower and all sureties, endorsers and guarantors
shall accept as their sole remedy under such circumstances either the return of
any sums of interest which may have been collected and which produced a rate in
excess of the Maximum Rate, or the application of those sums as a credit
against the unpaid principal amount of the loan, whichever remedy may be
elected by Lender. In addition, in the event that the Notes are prepaid or the
maturity of the Notes is accelerated by reason of election by Lender hereunder,
then all unearned interest shall either be cancelled or, if theretofore paid,
shall either be returned to Borrower or credited on the unpaid principal amount
due under the Notes, whichever action may be elected by Lender.
7.13 Investment. Lender represents that it is the present
intention of Lender to acquire the Notes for its own account for the purpose of
investment and not with a view to the distribution or sale thereof, subject,
nevertheless, to the necessity that
33
<PAGE> 38
Lender remain in control at all times of the disposition of property held by it
for its own account; it being understood that the foregoing representation
shall not affect the character of the loans pursuant to this Agreement as
commercial lending transactions, and that Lender may grant a participation
interest in the Notes in the ordinary course of business. In the absence of
the exercise by Lender of any remedy set forth in Section 5.2, Lender shall
obtain Borrower's prior written consent to the assignment of Lender's
obligations hereunder.
7.14 Set Off. Upon the occurrence and during the continuance of
any Default or Event of Default, the Lender is hereby authorized at any time
and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Lender to or for the credit or the
account of the Borrower against any and all of the Indebtedness, irrespective
of whether or not the Lender shall have made any demand under this Agreement
and although such obligations may be unmatured. The Lender agrees promptly to
notify the Borrower after any such set off and application made by the Lender,
provided that the failure to give such notice shall not affect the validity of
such set off and application. The rights of the Lender under this Section are
in addition to other rights and remedies (including, without limitation, other
rights of set off) which the Lender may have.
7.15 INDEMNIFICATION. BORROWER AGREES TO INDEMNIFY AND HOLD LENDER
AND ITS OFFICERS, EMPLOYEES, DIRECTORS AND AGENTS HARMLESS AGAINST ALL THIRD
PARTY CLAIMS, DAMAGES, LIABILITIES AND EXPENSES WHICH MAY BE ASSERTED AGAINST
LENDER IN CONNECTION WITH OR ARISING OUT OF ANY THIRD PARTY INVESTIGATION,
LITIGATION OR PROCEEDING RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OTHER THAN CLAIMS ARISING FROM LENDER'S BAD FAITH, GROSS
NEGLIGENCE OR WILFUL MISCONDUCT.
7.16 Change of Ownership or Control. If at any time while any
Notes shall be outstanding or the Lender has a commitment hereunder (a) any of
Robert J. Hamaker, Ralph Kelly, Douglas P. Heller or George K. Hickox, Jr.
ceases to be a shareholder of Borrower or (b) the current shareholders of
Borrower cease to have the ability to elect a majority of the directors of the
Borrower, a "Change of Ownership or Control" shall be deemed to have occurred.
The Borrower shall promptly, but in any event within ten (10) days give written
notice to Lender upon obtaining knowledge of an event which is or would
constitute the occurrence of a Change of Ownership or Control. Lender shall,
upon the happening of a Change of Ownership or Control, have the privilege of
declaring the Notes to be due and payable on a date not earlier than ten (10)
days from the date of the exercise of said privilege. The Notes then
outstanding shall
34
<PAGE> 39
thereupon become due and payable on the date specified in the notice sent to
the Borrower by Lender including the principal amount thereof plus accrued
interest thereon to the accelerated maturity date and any amounts owed by
Borrower to Lender pursuant to this Agreement or the Security Instruments.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed in multiple counterparts, each of which is an original
instrument for all purposes, all as of the day and year first above written.
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENTS BETWEEN THE
BORROWER AND THE LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE BORROWER AND THE LENDER.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE LENDER AND THE BORROWER.
THE CYNARA COMPANY
By: /s/ RICHARD D. PETERS
---------------------------
Name: Richard D. Peters
Title: Chief Financial Officer
BANK ONE, TEXAS, N.A.
By: /s/ JOHN LANE
----------------------------
Name: John Lane
Title: Vice President
35
<PAGE> 40
EXHIBIT "1.3"
TERM NOTE
36
<PAGE> 41
EXHIBIT "1.4.1"
LOAN APPLICATION
, 19
------------------- ---
TO:
----------------------------------------------
FROM:
----------------------------------------------
1. Reference is made to that certain Loan Agreement, dated as of
__________, 1997 (the "Agreement"), between The Cynara Company as Borrower, and
Bank One, Texas, N.A. as Lender. All terms defined in such Agreement shall
have the same meaning herein.
2. Please be advised that during normal banking hours on
___________, 19___, Borrower shall borrow from Lender the aggregate principal
sum of $____________ which, when borrowed, will cause the total outstanding
principal amount of indebtedness pursuant to the Revolving Facility plus
outstanding Letters of Credit to be $______________.
3. Borrower has not acquired knowledge of any event which would
make any representation or warranty set forth in Section 2 of the Agreement
untrue in any material respect except as such may have been superseded by
information previously furnished to Lender, representations relating expressly
to a given date and as follows:
4. No Event of Default exists, and no event has occurred which
with the lapse of time or notice or both could become an Event of Default.
Very truly yours,
----------------------------------------
<PAGE> 42
Exhibit "1.4.2"
REVOLVING NOTE
<PAGE> 43
EXHIBIT "2.5"
LIABILITIES AND LITIGATION
NONE
<PAGE> 44
EXHIBIT "3.8"
CERTIFICATE OF COMPLIANCE
In accordance with Section 3.8 of the Loan Agreement ("Loan
Agreement") dated __________, 1997, between Bank One, Texas, N.A. ("Lender")
and The Cynara Company, a Delaware corporation ("Borrower"), I,
__________________________________, _____________________ of the Borrower do
hereby certify that the following is true and correct as of ______________,
19____.
1. To the best of my knowledge and belief, that the Borrower is
not in default under the Loan Agreement, the Notes, and the Security
Instruments.
2. That the Borrower's financial condition for the month ending
__________________ is as follows:
<TABLE>
<CAPTION>
FINANCIAL REQUIRED RATIO/ ACTUAL RATIO/
COVENANT AMOUNT AMOUNT
- --------- --------------- -------------
<S> <C>
Current Ratio 1.1 to 1.0 or less
Tangible Net Worth $2,500,000 or previous
year's no. + 50% of
net income
Leverage Ratio No more than 3.0 to 1.0
Cash Flow Coverage Ratio Not less than 1.25 to 1.0
</TABLE>
Collateral Location:
The foregoing terms are used as defined in the Amended and Restated Loan
Agreement.
----------------------------------------
(Signature of Certifying Officer)
<PAGE> 45
EXHIBIT "3.11"
BORROWING BASE REPORT
FORM OF
BORROWING BASE CERTIFICATE
NO. ____________________ Dated ____________, 19_______
In accordance with the loan agreement ("Agreement") dated __________,
1997 between Bank One, Texas, N.A. ("Lender") and The Cynara Company
("Borrower"), I, ____________________________ of the Borrower hereby certify
and warrant that the following schedule accurately states Borrower's Liquid
Collateral, Eligible Accounts Receivables and Inventory and Borrower's
borrowing base as of the date hereof:
<TABLE>
<S> <C> <C>
A. Eligible Accounts
-----------------
1. Prior Months Eligible Accounts Receivable: ______________
2. Borrowing Base Component (A(1) x 80%): ______________
B. Inventory
---------
1. Cost of raw materials ______________
2. Lesser of 1. And $1,000,000 ______________
3. Costs of finished goods ______________
4. Project costs in excess of billings ______________
5. Sum of B(2), (3) and (4) ______________
6. Borrowing Base Component (B(5) x 50%): ______________
C. Borrowing Base Calculation
--------------------------
1. Total Liquid Collateral (at 100% Advance Rate): ______________
2. Borrowing Base (Sum of A(2), B(2) and C(1): ______________
D. Availability
------------
1. Credit Facility Commitment: ______________
2. Borrowing Base (C(2) above): ______________
3. Lesser of D(1) and D(2): ______________
4. Total Credits Outstanding: ______________
5. Total Loans Outstanding: ______________
6. Total Outstandings: ______________
7. Availability D(3)-D(6): ______________
</TABLE>
The Undersigned further certifies and covenants that there has been no
material adverse change in the financial condition of Borrower from that shown
by the financial statements furnished to Lender and to the best of his
knowledge that no default under the Agreement is existing on the date of this
certificate, and that the foregoing report is true and correct as of the date,
and that the items mentioned herein constitute collateral in accordance with
the terms of the Agreement.
----------------------------------------
Signature of Certifying Officer
Title:
----------------------------------
<PAGE> 1
EXHIBIT 10.9
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of the day
of February, 1998, by and between NATCO Group Inc., a Delaware corporation and
formerly named Cummings Point Industries, Inc. (the "Company"), and (the
"Indemnitee").
RECITALS
A. The Indemnitee is presently serving as a director
and/or an officer of the Company and/or, at the request of the Company, in an
Authorized Capacity (as defined below) of or for Another Entity (as defined
below). The Company desires the Indemnitee to continue in such capacity and may
ask the Indemnitee to serve as a member of one or more committees of the Board
of Directors of the Company (the "Committees"). The Company believes that the
Indemnitee's undertaking of such responsibilities is important to the Company
and that the protection afforded by this Agreement will enhance the
Indemnitee's ability to discharge such responsibilities. The Indemnitee is
willing, subject to certain conditions including without limitation the
execution and performance of this Agreement by the Company and the Company's
agreement to provide the Indemnitee at all times the broadest and most
favorable (to Indemnitee) indemnification permitted by applicable law (whether
by legislative action or judicial decision), to continue in those capacities
(including as a member of one or more Committees).
B. In addition to the indemnification to which the
Indemnitee is entitled under the By-Laws of the Company, as amended (the
"By-Laws"), the Company may obtain (and if obtained, will use reasonable best
efforts to keep in force, at its sole expense) insurance protecting its
officers and directors and certain other persons (including the Indemnitee)
against certain losses arising out of actual or threatened actions, suits or
proceedings to which such persons may be made or threatened to be made parties.
The Company, however, may be unable to obtain such insurance, and, if obtained,
there can be no assurance as to the continuation or renewal thereof, or that
any such insurance will provide coverage for losses to which the Imdemnitee may
be exposed and for which he or she may be permitted to be indemnified under the
General Corporation Law of the State of Delaware (the "DGCL").
Now, Therefore, For and in consideration of the premises, the
mutual promises hereinafter set forth, the reliance of the Indemnitee hereon in
continuing to serve the Company or Another Entity in his present capacity and
in undertaking to serve the Company or Another Entity in any additional
capacity or capacities (including as a member of one or more Committees), the
Company and the Indemnitee agree as follows:
1. Continued Service. The Indemnitee will continue to serve as a
director or an officer of the Company (or both) or in each such Authorized
Capacity of or for Another Entity in which the Indemnity presently serves (or
both), as well as in such additional Authorized Capacities for the
<PAGE> 2
Company or Another Entity as the Board of Directors of the Company (the
"Board") may request, in each case so long as he is duly elected and qualified
to serve in such capacity or until he resigns or is removed.
2. Initial Indemnity. (a) The Company shall indemnify the
Indemnitee when the Indemnitee becomes involved in any manner (including as a
party, a deponent or a witness) or is threatened to be made so involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, formal or informal, and any appeals
therefrom (a "Proceeding") (other than a Proceeding by or in the right of the
Company), by reason of the fact that he is or was or had agreed to become a
director (including service as a member of one or more Committees), officer,
employee or agent of the Company, or is or was serving or had agreed to serve
at the request of the Company as a director (including service as a member of
one or more Committees), officer, partner, member, trustee, employee or agent
(each an "Authorized Capacity") of another corporation, partnership, joint
venture, trust or other enterprise (each "Another Entity"), or by reason of any
action alleged to have been taken or omitted in such capacity (including as a
member of one or more Committees), against any and all costs, charges and
expenses (including attorneys' and others' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with such Proceeding if the Indemnitee acted in good faith and in a manner that
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal Proceeding, the Indemnitee had no
reasonable cause to believe his conduct was unlawful. The termination of any
Proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent will not, of itself, adversely affect the right of
the Indemnitee to indemnification or create a presumption that the Indemnitee
did not meet the foregoing standard of conduct to the extent applicable
thereto.
(b) The Company shall indemnify the Indemnitee when he
becomes a party or is threatened to be made a party to any Proceeding by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that he is or was or had agreed to become a director, officer, employee or
agent of the Company, or is or was serving or had agreed to serve at the
request of the Company in an Authorized Capacity of or for Another Entity,
against any and all costs, charges and expenses (including attorneys' and
others' fees) actually and reasonably incurred by him or her in connection with
the investigation, preparation, defense, settlement or appeal of such
Proceeding if the Indemnitee acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification will be made in respect of any claim,
issue or matter as to which the Indemnitee shall have been adjudged to be
liable to the Company unless, and only to the extent, that the Court of
Chancery or the court in which the Proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, the Indemnitee is fairly and reasonably entitled to
indemnity for such expenses as the Court of Chancery or such other court shall
deem proper.
(c) To the extent that the Indemnitee has been successful
on the merits or otherwise, including the dismissal of a Proceeding without
prejudice, in the defense of any
-2-
<PAGE> 3
Proceeding referred to in Section 2(a) or Section 2(b) or in the defense of any
claim, issue or matter in any such Proceeding, the Company shall indemnify him
against any and all costs, charges and expenses, including attorneys' and
others' fees, actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under Section 2(a) or Section
2(b) (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination, in accordance with
Section 4, that such indemnification is proper in the circumstances because the
Indemnitee has met the applicable standards of conduct set forth in Section
2(a) and Section 2(b) (the "Indemnification Standards"). Such determination
will be made in the manner set forth in Section 4(b).
(e) Any and all costs, charges and expenses, including
attorneys' and others' fees, actually and reasonably incurred by the Indemnitee
in defending any Proceeding will be paid by the Company as incurred and in
advance of the final disposition of such Proceeding in accordance with the
procedure set forth in Section 4(e).
(f) Notwithstanding anything in this Agreement to the
contrary, the Indemnitee shall not be entitled to indemnification or
advancement of expenses pursuant hereto in connection with any Proceeding
initiated by the Indemnitee against the Company (except for any Proceeding
initiated by the Indemnitee pursuant to Section 6) unless the Company has
joined in or consented to the initiation of such Proceeding.
3. Additional Indemnification. (a) Pursuant to Section 145(f) of
the DGCL, without limiting any right which the Indemnitee may have under
Section 2, the By-Laws, the DGCL, any policy of insurance or otherwise, but
subject to the limitations set forth in Section 2(f) and to any maximum
permissible indemnity that may exist under applicable law at the time of any
request for indemnity hereunder as contemplated by this Section 3(a), the
Company shall indemnify the Indemnitee against any amount that he is or becomes
legally obligated to pay relating to or arising out of any claim made against
him because of any act, failure to act or neglect or breach of duty, including
any actual or alleged error, omission, misstatement or misleading statement,
that he commits, suffers, permits or acquiesces in while acting in his capacity
as a director or officer of the Company, or, at the request of the Company, in
an Authorized Capacity of or for Another Entity. The payments that the Company
is obligated to make pursuant to this Section 3 shall include damages,
judgments, fines, amounts paid in settlement and reasonable charges, costs and
expenses, including expenses of investigation, preparation, defense and
settlement of Proceedings and expenses of appeal, attachment or similar bonds;
provided, however, that the Company shall not be obligated under this Section
3(a) to make any payment in connection with any claim against the Indemnitee:
(i) to the extent of any fine or similar
governmental imposition that the Company is prohibited by
applicable law from paying and that results from a final,
nonappealable order; or
-3-
<PAGE> 4
(ii) to the extent based upon or attributable to
the Indemnitee gaining in fact a personal profit to which he
was not legally entitled, including profits made from the
purchase and sale of equity securities of the Company which
are recoverable by the Company pursuant to Section 16(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and profits arising from transactions in securities
which were effected in violation of Section 10(b) or Section
14(e) of the Exchange Act, including Rule 10b-5 or Rule 14e-3
promulgated thereunder.
The determination of whether the Indemnitee is entitled to indemnification
under this Section 3(a) shall be made in accordance with Section 4(b).
(b) Any and all costs, charges and expenses, including
attorneys' and others' fees, actually and reasonably incurred by the
Indemnitee in connection with any claim for which the Indemnitee may be
entitled to indemnification pursuant to Section 3(a) will be paid by the
Company as incurred and in advance of the final disposition thereof in
accordance with the procedure set forth in Section 4(e).
4. Certain Procedures Relating to Indemnification and Advancement
of Expenses. (a) Except as otherwise permitted or required by the DGCL, for
purposes of pursuing his rights to indemnification under Section 2(a), Section
2(b) or Section 3(a), as the case may be, the Indemnitee may, but shall not be
required to, submit to the Company (to the attention of the Secretary) a
request for indemnification substantially in the form of Exhibit 1 attached
hereto (the "Indemnification Request") stating that he believes that he is
entitled to indemnification pursuant to this Agreement, together with such
documents supporting the request as are reasonably available to the Indemnitee
and are reasonably necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification hereunder (the "Supporting
Documentation"). Upon receipt of any Indemnification Request, the officers of
the Company will promptly advise the Board in writing that the Indemnitee has
requested indemnification.
(b) The Indemnitee's entitlement to indemnification
under Section 2(a), Section 2(b) or Section 3(a), as the case may be, will be
determined promptly following a claim by the Indemnitee for indemnification
thereunder and in any event (if the Indemnitee submits to the Company an
Indemnification Request and Supporting Documentation) not less than 30 calendar
days after receipt by the Company of such Indemnification Request and Supporting
Documentation. The Indemnitee's entitlement to indemnification under Section
2(a) or Section 2(b) will, subject to the next sentence, be made in one of the
following ways: (i) by the Board by a majority vote of a quorum consisting of
directors who are not and were not parties to such Proceeding or claim
("Disinterested Directors"), (ii) by written opinion of independent legal
counsel selected by a majority of the Disinterested Directors (or, if there are
no Disinterested Directors or a majority vote thereof is not obtainable, by a
majority of the entire Board), if a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if obtainable, a quorum of
Disinterested Directors so directs, (iii) by the stockholders of the Company
(but only if a majority of Disinterested Directors, if they
-4-
<PAGE> 5
constitute a quorum of the Board, presents the issue of entitlement to
indemnification to the stockholders of the Company for their determination) or
(iv) as deemed to have been determined in accordance with Section 4(c). The
Indemnitee's entitlement to indemnification under Section 3(a) or, in the event
of a Change of Control (as hereinafter defined), under Section 2(a) or Section
2(b) will be determined by written opinion of independent legal counsel
selected by the Indemnitee. Independent legal counsel selected as described
above will be a law firm or member of a law firm (x) that neither at the time
in question nor in the five years immediately preceding such time has been
retained to represent (A) the Company (or any of its affiliates) or the
Indemnitee in any matter material to either such party or (B) any other party
to the Proceeding or claim giving rise to a claim for indemnification under
this Agreement, (y) that, under the applicable standards of professional
conduct then prevailing under the law of the State of Delaware, would not be
precluded from representing either the Company or the Indemnitee in an action
to determine the Indemnitee's rights under this Agreement and (z) to which the
Company, acting therein through a majority of the Disinterested Directors or,
if there are no Disinterested Directors, by a majority of the entire Board,
does not reasonably object. If the Company reasonably objects to such
independent legal counsel, the Indemnitee shall select another independent
legal counsel subject to similar reasonable objection until independent legal
counsel is agreed upon. The Company will pay the fees and expenses of such
independent legal counsel.
(c) Submission of an Indemnification Request and Supporting
Documentation to the Company pursuant to Section 4(b) will create a presumption
that the Indemnitee is entitled to indemnification under Section 2(a), Section
2(b) or Section 3(a), as the case may be, and thereafter the Company will have
the burden of proof to overcome that presumption in reaching a contrary
determination. Such presumption shall be overcome only by clear and convincing
evidence. Consequently, after submission of an Indemnification Request and
Supporting Documentation, the Indemnitee shall be entitled to indemnification
under Section 2(a), Section 2(b) or Section 3(a) unless within 30 days after
receipt of the Indemnification Request and Supporting Documentation by the
Company the person or persons empowered under Section 4(b) to determine
entitlement to indemnification have made a determination, based upon clear and
convincing evidence (sufficient to rebut the foregoing presumption), that the
Indemnitee is not entitled to such indemnification and the Indemnitee shall
have received notice within such period in writing of such determination, which
notice shall (i) disclose with particularity the evidence in support of such
determination, (ii) be sworn to by all persons who participated in the
determination and voted to deny indemnification and (iii), if such
determination was made by independent legal counsel, include a copy of the
related written opinion of such counsel. If the person or persons empowered
under Section 4(b) to determine the Indemnitee's entitlement to indemnification
have not been appointed or have not made a determination within such 30-day
period, the Indemnitee will be deemed to be entitled to indemnification. The
provisions of this Section 4(c) are intended to be procedural only and will not
affect the right of the Indemnitee to indemnification under this Agreement and
any determination that the Indemnitee is not entitled to indemnification and
any failure to make the payments requested in the Indemnification Request will
be subject to review as provided in Section 6.
-5-
<PAGE> 6
(d) If a determination is made or deemed to have been made
pursuant to this Section 4 that the Indemnitee is entitled to indemnification,
the Company shall pay to the Indemnitee the amounts to which the Indemnitee is
entitled within five business days thereafter,
(e) In order to obtain advancement of expenses pursuant to Section
2(e), the Indemnitee will submit to the Company a written undertaking
substantially in the form of Exhibit 2 attached hereto, executed personally or
on his behalf (the "Undertaking"), stating that (i) he has incurred or will
incur actual expenses in defending a Proceeding and (ii), if and to the extent
required by law at the time of such advance, he undertakes to repay such amounts
advanced as to which it may ultimately be determined that the Indemnitee is not
entitled. In order to obtain advancement of expenses pursuant to Section 3(b),
the Indemnitee may submit an Undertaking or, if an Undertaking is not legally
required under the circumstances, shall submit such other form of request as he
determines to be appropriate (an "Expense Request"), together with such other
support documentation as shall reasonably support the expenses claimed, Upon
receipt of an Undertaking or Expense Request, as the case may be, the Company
shall within five calendar days make payment of the costs, charges and expenses
stated in the Undertaking or Expense Request. No security will be required in
connection with any Undertaking or Expense Request and any Undertaking or
Expense Request will be accepted, and all such payments shall be made, without
reference to the Indemnitee's ability to make repayment.
5. Duplication of Payments. The Company will not be liable under
this Agreement to make any payment in connection with any claim made against
the Indemnitee to the extent the Indemnitee has actually received payment
(under any insurance policy, the By-Laws, the DGCL or otherwise) of the amount
otherwise payable hereunder.
6. Enforcement (a) If a claim for indemnification or advancement
of expenses made to the Company pursuant to Section 4 is not timely paid in
full by the Company as required by Section 4, the Indemnitee shall be entitled
to seek judicial enforcement of the Company's obligations to make such
payments. If a determination is made pursuant to Section 4 that the Indemnitee
is not entitled to indemnification or advancement of expenses hereunder, (i)
the Indemnitee may at any time thereafter seek an adjudication of his
entitlement to such indemnification or advancement either, at the Indemnitee's
sole option, in an appropriate court of the State of Delaware or any other
court of competent jurisdiction, (ii) any such judicial proceeding will be de
novo and the Indemnitee will not be prejudiced by reason of such adverse
determination and (iii) in any such judicial proceeding the Company will have
the burden of proving that the Indemnitee is not entitled to indemnification or
advancement of expenses under this Agreement.
(b) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to the provisions of
Section 6(a) that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
-6-
<PAGE> 7
(c) In any action brought under Section 6(a), it shall be
a defense to a claim for indemnification pursuant to Section 2(a) or Section
2(b) (but not an action brought to enforce a claim for costs, charges and
expenses incurred in defending any Proceeding in advance of its final
disposition where the Undertaking, if any is required, has been tendered to the
Company) that the Indemnitee has not met the standards of conduct that make it
permissible under the DGCL for the Company to indemnify the Indemnitee for the
amount claimed, but the burden of proving such defense will be on the Company.
Neither the failure of the Company (including any person or persons empowered
under Section 4(b) to determine the Indemnitee's entitlement to
indemnification) to have made a determination pursuant to Section 4 prior to
commencement of such action nor an actual determination by the Company
(including any person or persons empowered under Section 4(b) to determine the
Indemnitee's entitlement to indemnification) that the Indemnitee has not met
such applicable standard of conduct shall be a defense to the action or create
a presumption that the Indemnitee has not met the applicable standard of
conduct.
(d) It is the intent of the Company that the Indemnitee
shall not be required to incur the expenses associated with the enforcement of
his rights under this Agreement by litigation or other legal action because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to the Indemnitee hereunder. Accordingly, if it should appear to
the Indemnitee that the Company has failed to comply with any of its
obligations under this Agreement, or if the Company or any other person takes
any action to declare this Agreement void or unenforceable or institutes any
action, suit or proceeding designed (or having the effect of being designed) to
deny, or to recover from, the Indemnitee the benefits intended to be provided
to the Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee
from time to time to retain counsel of his choice, at the expense of the
Company as hereafter provided, to represent the Indemnitee in connection with
the initiation or defense of any litigation or other legal action, whether by
or against the Company or any director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction relating to enforcement of
this Agreement. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Indemnitee's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Indemnitee acknowledge
that a confidential relationship will exist between the Indemnitee and such
counsel. Regardless of the outcome thereof, the Company will pay and be solely
responsible for any and all costs, charges and expenses, including attorneys'
and others' fees, incurred by the Indemnitee (i) as a result of the Company's
failure to perform this Agreement or any provision hereof or (ii) as a result
of the Company or any person contesting the validity or enforceability of this
Agreement or any provision hereof as aforesaid.
7. Liability Insurance and Funding. To the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, the Indemnitee will be covered by such policy or
policies, in accordance with its or their terms, to the maximum extent of the
coverage available for a director or officer of the Company or a person serving
at the request of the Company in an Authorized Capacity of or for Another
Entity, as the case may be. The Company
-7-
<PAGE> 8
may, but shall not be required to, create a trust fund, grant a security
interest or use other means (including a letter of credit) to ensure the
payment of such amounts as may be necessary to satisfy its obligations to
indemnify and advance expenses pursuant to this Agreement.
8. Change of Control, (a) If the Company sells or otherwise
disposes of all or substantially all of its assets or is a constituent
corporation in a consolidation, merger or other business combination
transaction or if there is a change of control (as defined below) of the
Company, (a) the Company will require (if it is not the surviving, resulting or
acquiring corporation therein) the surviving, resulting or acquiring
corporation expressly to assume the Company's obligations under this Agreement
and to agree to indemnify the Indemnitee to the full extent provided herein and
(b), whether or not the Company is the resulting, surviving or acquiring
corporation in any such transaction (or Change of Control), the Indemnitee will
also stand in the same position under this Agreement with respect to the
resulting, surviving or acquiring corporation as he would have with respect to
the Company if the transaction (or Change of Control) had not occurred.
(b) The Company agrees that, if there is a Change of
Control of the Company (other than a Change of Control which has been approved
by a majority of the Company's Board of Directors who were directors
immediately prior to such Change of Control), then, with respect to all matters
thereafter arising concerning the rights of the Indemnitee to indemnity
payments and advancement of expenses under this Agreement or any other
agreement or Certificate (as defined below) or By-law provision now or
hereafter in effect, the Company shall seek legal advice only from independent
legal counsel selected as provided in Section 4(b). Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent the Indemnitee would be permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of such
independent legal counsel and to indemnify fully such counsel against any and
all expenses (including attorneys' fees), claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant hereto.
9. Partial Indemnity. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the costs, charges, expenses, judgments, fines and amounts paid in
settlement of a Proceeding but not, however, for the total amount thereof, the
Company shall nevertheless indemnify the Indemnitee for the portion thereof to
which the Indemnitee is entitled.
10. Nonexclusivity and Severability, (a) The right to
indemnification and advancement of expenses provided by this Agreement is not
exclusive of any other right to which the Indemnitee may be entitled under the
Certificate of Incorporation of the Company (the "Certificate"), By-Laws, the
DGCL, any other statute, insurance policy, agreement, vote of stockholders or
of directors or otherwise, both as to actions in his official capacity and as
to actions in another capacity while holding such office, and will continue
after the Indemnitee has ceased to serve as a director or officer of the
Company or in an Authorized Capacity in or for Another Entity and will inure to
the benefit
-8-
<PAGE> 9
of his heirs, executors and administrators; provided, however, that, to the
extent the Indemnitee otherwise would have any greater right to indemnification
or advancement of expenses under any provision of the Certificate or By-Laws as
in effect on the date hereof, the Indemnitee will be deemed to have such
greater right pursuant to this Agreement; and, provided further, that, inasmuch
as it is the intention of the Company to provide the Indemnitee with the
broadest and most favorable (to the Indemnitee) possible indemnity permitted by
applicable law (whether by legislative action or judicial decision), to the
extent that the DGCL currently permits or in the future permits (whether by
legislative action or judicial decision) any greater right to indemnification
or advancement of expenses than that provided under this Agreement as of the
date hereof, the Indemnitee will automatically, without the necessity of any
further action by the Company or the Indemnitee, be deemed to have such greater
right pursuant to this Agreement. Similarly, the Indemnitee shall have the
benefit of any future changes to the Certificate or By-Laws that grant or
permit any greater right to indemnification or advancement of expenses.
(b) The Company will not adopt any amendment to the
Certificate or By-Laws the effect of which would be to deny, diminish or
encumber the Indemnitee's rights to indemnity pursuant to the Certificate, the
By-Laws, the DGCL or any other applicable law as applied to any act or failure
to act occurring in whole or in part prior to the date upon which any such
amendment was approved by the Board or the stockholders, as the case may be.
Notwithstanding the foregoing, if the Company adopts any amendment to the
Certificate or By-Laws the effect of which is to so deny, diminish or encumber
the Indemnitee's rights to such indemnity, such amendment will apply only to
acts or failures to act occurring entirely after the effective date thereof.
(c) If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (i) the validity, legality and enforceability of the remaining
provisions of this Agreement (including all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby and (ii), to the fullest extent
possible, the provisions of this Agreement (including all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable. No claim or right to
indemnity or advancement of expenses pursuant to Section 3 hereof shall in any
way affect or limit any right which the Indemnitee may have under Section 2
hereof, the Certificate, the By-Laws, the DGCL, any policy of insurance or
otherwise.
11. Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflict of laws thereof.
12. Modification; Survival. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof, provided,
however, that this provision shall not be construed
-9-
<PAGE> 10
to affect the Company's obligations to the Indemnitee under the Certificate or
By-Laws. This Agreement may be modified only by an instrument in writing signed
by both parties hereto. The provisions of this Agreement shall survive the
death, disability, or incapacity of the Indemnitee or the termination of the
Indemnitee's service as a director or an officer of the Company or in an
Authorized Capacity of or for Another Entity and shall inure to the benefit of
the Indemnitee's heirs, executors and administrators.
13. Certain Terms. (a) For purposes of this Agreement, references
to a person's capacity as a "director" shall include without limitation such
person's capacity as a member of any committee appointed by the board of which
such person is a director; references to "Another Entity" will include employee
benefit plans; references to "fines" will include any excise taxes assessed on
the Indemnitee with respect to any employee benefit plan; and references to
"serving at the request of the Company" will include any service in any
capacity which imposes duties on, or involves services by, the Indemnitee with
respect to an employee benefit plan, its participants or beneficiaries;
references to Sections or Exhibits are to Sections or Exhibits of or to this
Agreement; references to the singular will include the plural and vice versa;
and if the Indemnitee acted in good faith and in a manner he or she reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan he or she will be deemed to have acted in a "manner not
opposed to the best interests of the Company" as referred to herein.
(b) For purposes of this Agreement, a "Change of Control"
shall be deemed to have occurred if (1) any "person" (as such term is used in
Sections 13 (d) and 14(d) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the total voting power represented by the Company's
then outstanding Voting Securities, (2) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (3) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series
of transactions) all or substantially all the Company's assets.
-10-
<PAGE> 11
(c) For purposes of this Agreement, the term "Voting
Securities" shall mean any securities of the Company which vote generally in
the election of directors.
(d) Unless the context otherwise requires, as used in
this Agreement: (a) a term has the meaning ascribed to it; (b) "or" is not
exclusive; (c) "including" means "including without limitation," (d) words in
the singular include the plural; (e) words in the plural include the singular;
(f) words applicable to one gender shall be construed to apply to each gender;
(g) the terms "hereof," "herein," "hereby," "hereto" and derivative or similar
words refer to this entire Agreement; and (i) the term "Section" shall refer to
the specified Section of this Agreement.
14. Joint Defense. Notwithstanding anything to the contrary
contained herein, if (a) the Indemnitee elects to retain counsel in connection
with any Proceeding or claim in respect of which indemnification may be sought
by the Indemnitee against the Company pursuant to this Agreement and (b) any
other director or officer of the Company or person serving at the request of
the Company in an Authorized Capacity of or for Another Entity may also be
subject to liability arising out of such Proceeding or claim and in connection
with such Proceeding or claim seeks indemnification against the Company
pursuant to an agreement similar to this Agreement, the Indemnitee, together
with such other persons, shall employ counsel to represent jointly the
Indemnitee and such other persons unless the Indemnitee determines that such
joint representation would be precluded under the applicable standards of
professional conduct then prevailing under the law of the State of Delaware, in
which case the Indemnitee will notify the Company (to the attention of the
Secretary) thereof and will be entitled to be represented by separate counsel.
15. EXPRESS NEGLIGENCE ACKNOWLEDGEMENT. WITHOUT LIMITING OR
ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
AGREEMENT, THE INDEMNITEE WILL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN
ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE CLAIM GIVING RISE
TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, OR STRICT LIABILITY, OF THE INDEMNITEE.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NATCO GROUP INC.
By:
-----------------------------------
Name:
Title: Senior Vice President
INDEMNITEE
--------------------------------------
Name:
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<PAGE> 13
EXHIBIT 1
INDEMNIFICATION REQUEST
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated as of February , 1998 (the "Indemnification
Agreement"), between NATCO GROUP INC., a Delaware corporation (the "Company"),
and the undersigned.
2. I am requesting indemnification in connection with a
Proceeding (as defined in the indemnification Agreement) or claim in which I
was or am involved or am threatened to be made involved.
3. With respect to all matters related to any such Proceeding or
claim, I believe that I am entitled to be indemnified pursuant to the
provisions of the Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I
am requesting indemnification against liabilities that have or may arise out of
.
- -------------------------------------------------------------------------------
5. I have attached such documents supporting this request as are
reasonably available to me and are reasonably necessary to determine whether
and to what extent I am entitled to indemnification under the Indemnification
Agreement.
------------------------
Name:
------------------------
<PAGE> 14
EXHIBIT 2
UNDERTAKING
1. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated as of February , 1998 (the "Indemnification Agreement"),
between NATCO GROUP INC., a Delaware corporation (the "Company"), and the
undersigned.
2. I am requesting advancement of certain costs, charges and
expenses (including attorneys' and others' fees) that I have incurred or will
incur in defending a Proceeding (as defined in the Indemnification Agreement)
or in connection with a claim for which I may be entitled to indemnification
pursuant to the Indemnification Agreement.
3. I hereby undertake to repay this advancement of expenses if it
is ultimately determined that I am not entitled to be indemnified by the
Company under the Indemnification Agreement.
4. The costs, charges and expenses for which advancement is
requested are, in general, all expenses related to
----------------------------
.
- -------------------------------------------------------------------------------
------------------------------------
Name:
------------------------------------
<PAGE> 1
EXHIBIT 10.10
SECURITIES EXCHANGE AGREEMENT
This Securities Exchange Agreement (the "Agreement") dated as of the 5th
day of March, 1998, is by and among Cummings Point Industries, Inc., a Delaware
corporation (the "Company"), and Capricorn Investors, L.P., a Delaware limited
partnership ("Cap I"), and Capricorn Investors II, L.P., a Delaware limited
partnership ("Cap II") (Cap I and Cap II being sometimes herein called the
"Stockholders").
RECITALS:
Cap I and Cap II are the only holders of the outstanding Common Stock, par
value $.01 per share, of the Company ("Common Stock"), owning of record and
beneficially 3,415,000 shares (68.3%) and 1,585,000 shares (31.7%),
respectively, which, after giving effect to the Stock Split referenced below,
will become 4,553,334 shares (68.3%) and 2,113,334 shares (31.7%),
respectively.
Cap I is also the holder of $5,084,501 in principal amount of a 13%
Subordinated Promissory Note due 2000 drawn by the Company to the order of Cap
I ("Note 1").
Cap II is also the holder of $2,359,864 in principal amount of a 13%
Subordinated Promissory Note due 2000 drawn by the Company to the order of Cap
II ("Note 2").
Note 1 and Note 2 are sometimes herein called the "Notes".
The Company is proposing to offer, sell and deliver, out of original
issue, a number of shares of Common Stock to the public in an offering (the
"Initial Public Offering") firmly underwritten by certain underwriters and
registered pursuant to a registration statement on Form S-1 to be filed by the
Company with the Securities and Exchange Commission pursuant to the
registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and the General Rules and Regulations (the "Securities Act
Rules") thereunder (the registration statement, in the form as it shall have
been amended immediately prior to the Acceleration Date (as hereinafter
defined) being herein called the "Registration Statement").
The Stockholders, in order to assist the Company in its Initial Public
Offering, are willing to exchange the Notes for shares of Common Stock
immediately after the Acceleration Date.
The Company is currently negotiating and anticipates executing and
delivering in the near future an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which the Company will acquire The Cynara Company
("Cynara") by virtue of the merger of a wholly-owned subsidiary of the Company
with and into Cynara.
The Stockholders acknowledge that Cynara may rely on the performance of
this Agreement by the parties hereto in executing and delivering the Merger
Agreement.
The Board of Directors of the Company has authorized an amendment to the
Certificate of Incorporation of the Company pursuant to which, among other
things, the outstanding Common
<PAGE> 2
Stock will be split on the basis of four shares for each three shares then
issued, and the Stockholders expect to approve, and the Company expects then to
file, a Certificate of Amendment to the Certificate of Incorporation of the
Company giving effect to such split (the "Stock Split").
NOW, THEREFORE, the parties hereto, in consideration of the premises,
the mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
agree as follows:
1 . Exchange of Securities. Subject to the terms and conditions
herein set forth,
(a) Cap I hereby agrees to sell and exchange Note 2 to
the Company, and the Company hereby agrees to purchase and accept Note
1, in consideration of the issuance by the Company, out of original
issue, of an aggregate of 1,010,333 shares of Common Stock (after
giving effect to the Stock Split); and
(b) Cap II hereby agrees to sell and exchange Note 2 to
the Company, and the Company hereby agrees to purchase and accept Note
2, in consideration of the issuance by the Company, out of original
issue, of an aggregate of 468,925 shares of Common Stock (after giving
effect to the Stock Split).
2. Closing of the Exchange.
(a) The closing of the exchange of securities shall be
effected on the business day next following the Acceleration Date (as
hereinafter defined) at 10:00 a.m., local time, at the offices of
Vinson & Elkins L.L.P., First City Tower, Houston, Texas 77002-6760 or
at such other date, time and place as the parties hereto shall
determine.
(b) At the closing, the Company shall deliver to Cap I a
certificate registered in the name of Cap I and otherwise in proper
form for delivery evidencing an aggregate of 1,010,333 shares of
Common Stock against delivery by Cap I to the Company of Note 1.
(c) At the closing, the Company shall deliver to Cap II a
certificate registered in the name of Cap II and otherwise in proper
form for delivery evidencing an aggregate of 468,925 shares of Common
Stock against delivery by Cap II to the Company of Note 2.
3 . Closing Conditions. The following shall be conditions to the
obligations of each party hereto to consummate the transactions contemplated
hereto:
(a) The Company shall have made a request in writing
pursuant to Rule 461 of the Securities Act Rules to accelerate the
effective date of the Registration Statement to a date certain not
more than five days later than the date on which such request is given
(the "Acceleration Date"), and Donaldson Lufkin & Jenrette Securities
Corporation, as the principal underwriter of the Initial Public
Offering, shall have joined in such request in accordance with the
said Rule 461; and
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<PAGE> 3
(b) all the transactions contemplated by Section 1 herein
shall be consummated concurrently.
4. Investment Representation. Each of the Stockholders hereby
represents, as to itself, that it is purchasing the shares of Common Stock to
be acquired by it pursuant to this Agreement without a view to the
"distribution" of all or any part thereof as such term is used in Section
2(11) of the Securities Act.
5. Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be amended or supplemented at any time,
except by an instrument in writing signed on behalf of each party hereto.
6. Benefit and Assignment. The terms and conditions of this
Agreement shall inure to the benefit of and be binding on the parties hereto
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by any party hereto except by operation of
law or with the prior express written consent of the other parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
7. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to be duly received if so given) in person, by telecopy, by express
courier service or by registered or certified mail, postage prepaid, return
receipt requested, to the respective parties as follows:
If to the Company: Cummings Point Industries, Inc.
Brookhollow Central III
2950 North Loop West
Houston, Texas 77092
Attention: Nathaniel A. Gregory
Chairman of the Board and
Chief Executive Officer
Telecopy No.: (713) 683-7841
If to Cap I: Capricorn Investors, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy No.: (203) 861-6671
If to Cap II: Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention. Herbert S. Winokur, Jr.
Telecopy No.: (203) 861-6671
-3-
<PAGE> 4
or to such other address or telecopy number as either party shall have
furnished to the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to the principles of conflicts of law thereof,
9. Invalidity. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of the Company or either Stockholder under this
Agreement will not be materially and adversely affected thereby, (a) such
provision shall be fully severable; (b) this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance here from; and (d) in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
10. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute but one and the same agreement.
11. Headings. The article and section headings herein are for
convenience only and shall not affect the construction hereof
12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof.
-4-
<PAGE> 5
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the Company and each of the Stockholders as of the date first above written.
CUMMINGS POINT INDUSTRIES, INC.
By: [ILLEGIBLE]
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
CAPRICORN INVESTORS, L.P.
By: Capricorn Holdings, G.P.,
Its general partner
By: Winokur Holdings Inc.,
Its general partner
By: /s/ HERBERT S. WINOKUR, JR.
------------------------------
Name: Herbert S. Winokur, Jr.
Title: President
CAPRICORN INVESTORS II, L.P.
By: Capricorn Holdings, LLC,
Its general partner
By: /s/ HERBERT S. WINOKUR, JR.
-----------------------------
Name: Herbert S. Winokur, Jr.
Title: Manager
-5-
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, made as of this 31st day of July, 1997, by
and between Cummings Point Industries, Inc., a corporation organized and
existing under the laws of the State of Delaware (hereinafter referred to as
"NATCO"), and Nathaniel A. Gregory (hereinafter referred to as "the Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Executive and NATCO entered into a stock option
agreement dated March 15, 1994, as amended on the 31st day of July, 1996 (the
"Previous Stock Option Agreement") under which the Executive received options
to purchase shares of common stock in a subsidiary of NATCO under certain terms
and conditions;
WHEREAS, the Executive and NATCO wish to update, clarify and amend
the Previous Stock Option Agreement, primarily to substitute options to
purchase shares of common stock in NATCO in place of existing options to
purchase subsidiary stock, to specify terms and conditions for such options and
to further modify other provisions as necessary;
WHEREAS, the Executive and NATCO are therefore simultaneously
herewith entering into a Stock Option Agreement (the "Stock Option Agreement"),
attached hereto as Exhibit A, which supercedes the Previous Stock Option
Agreement;
WHEREAS, the Executive and a subsidiary of NATCO entered into an
employment agreement dated March 15, 1994, as amended on the 31st day of July,
1996 (the "Previous Employment Agreement"), under which the Executive has
agreed to employment by such subsidiary under certain terms and conditions, and
under which the Executive is entitled to certain compensation, including
various provisions for special bonus compensation, under certain terms and
conditions;
WHEREAS, the Executive and NATCO wish to update, clarify, and amend
the Previous Employment Agreement, primarily to substitute employment by NATCO
in place of existing employment by a subsidiary, to specify terms and
conditions for such employment and for Executive's compensation, including
various provisions for special bonus compensation, and to further modify other
provisions as necessary;
and WHEREAS, NATCO desires to continue the Executive in the
employment capacity hereinafter set forth and the Executive agrees to accept
such employment on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is hereby agreed by and between NATCO and the Executive as
follows:
<PAGE> 2
1. CAPACITY AND SERVICES
(a) NATCO hereby agrees to continue to employ the Executive and the
Executive hereby agrees to accept such employment by NATCO as Chairman and Chief
Executive Officer of NATCO on the terms and conditions set forth herein. The
employment of the Executive pursuant to this Employment Agreement shall commence
on July 1, 1997 and continue through the Period of Active Employment, as defined
in Section 1(e) of this Employment Agreement. In his capacity as Chairman and
Chief Executive Officer of NATCO, the Executive shall assume such
responsibilities, perform such duties, and have such authority, as may from time
to time be assigned or delegated by the Board of Directors of NATCO (the may
from time to time be assigned or delegated by the Board of Directors of NATCO
(the "Board") consistent with the Executive's position. The Executive agrees to
perform such duties in accordance with the By-laws of NATCO, the Board's
instructions, and NATCO's policies.
(b) The Executive shall devote a significant portion of his business
time to his duties hereunder, provided, however, that the foregoing shall not
prevent the Executive from devoting time and effort to the business of
Capricorn Holdings, LLC, of which Executive is a Member, or from serving as a
member of the board of directors of a corporation if the Board, or the
appropriate Committee thereof, determines in its sole discretion that such
membership is not adverse to the interests of NATCO. Subject to the foregoing,
the Executive shall not engage in any business activities that are directly or
indirectly competitive with any business then conducted by NATCO or any of its
affiliated companies.
(c) The Executive may be an investor, shareholder, joint venturer, or
partner (hereinafter referred to as an "Investor") in any enterprise,
association, corporation, joint venture or partnership (hereinafter referred to
as an "Investment"), provided, however, that any such Investment does not (i)
violate NATCO's conflict of interest policy as in effect from time to time,
(ii) require the Executive's involvement in the management (except service on
boards of directors to the extent permitted by Section 1(b) of this Employment
Agreement) or operation of such Investment (recognizing that the Executive
shall be permitted to monitor and oversee the Investment, as would any prudent
Investor) or (iii) interfere with the performance of the Executive's duties and
obligations hereunder.
(d) The Executive shall fully and faithfully discharge his duties
under the direction of the Board.
(e) "Period of Active Employment", as used herein, shall mean the
period beginning on July 1, 1997 and terminating on the date on which the first
of the following events occurs:
(1) The death of the Executive;
(2) The disability of the Executive, as provided in Section 8
of this Employment Agreement;
(3) The termination of the Executive's employment, as provided
in Section 12 of this Employment Agreement; or
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(4) expiration of this Employment Agreement, as provided in
Section 2 hereof (or as such expiration may be extended pursuant to
Section 3 hereof).
2. TERM OF EMPLOYMENT.
The term of the Executive's employment hereunder shall commence on
July 1, 1997 and shall expire on July 1, 1998 unless the Executive's employment
is terminated before that time, as provided in Section 1(e) of this Employment
Agreement or unless this Employment Agreement is renewed as provided in Section
3 hereof.
3. RENEWAL.
This Employment Agreement shall be automatically renewed for one
additional year after the expiration of the stated term, unless NATCO or the
Executive gives notice, in writing, at least thirty (30) days prior to the
expiration of this Employment Agreement (or any renewal of this Employment
Agreement) of its desire to terminate the Employment Agreement or modify its
terms. The Executive expressly acknowledges, however, that NATCO has not made
any representations to the Executive as to the possible or expected duration of
this Employment Agreement beyond July 1, 1998.
4. COMPENSATION AND BENEFITS.
(a) During the Period of Active Employment, NATCO shall pay to the
Executive as base compensation for his services hereunder, a base salary of
$350,000 per annum ("Base Salary"), payable in arrears. Amounts payable shall
be reduced by standard withholding and other authorized deductions.
(b) During the Period of Active Employment, the Executive shall have
the right to participate in any of NATCO's fringe benefit and insurance plans
presently in effect or that may be established for the benefit of executives of
NATCO. NATCO reserves the right to modify, suspend or discontinue any or all
such plans or benefits at any time without recourse by the Executive.
(c) The Executive shall be entitled to take vacation in accordance
with NATCO's policy and practices for senior executives.
(d) During the Period of Active Employment, NATCO shall, upon
receipt of appropriate itemized vouchers for expenses, submitted to NATCO on a
monthly basis in accordance with NATCO's procedures from time to time in
effect, reimburse the Executive for any reasonable and actual costs of leasing
an automobile for the Executive's business and private use during the Period of
Active Employment ("Monthly Automobile Lease Cost"). The make, model, color and
year of the leased automobile described herein may be selected by the
Executive. In addition to reimbursement of the Monthly Automobile Lease Cost,
during the Period of Active Employment, NATCO shall, upon receipt of itemized
vouchers for expenses, submitted to NATCO on a monthly basis in accordance with
NATCO's procedures from time to time in effect, reimburse the Executive for his
reasonable and necessary expenses, including
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maintenance, repairs, gasoline and insurance, incurred in the operation of the
leased automobile described herein.
(e) During the Period of Active Employment, NATCO shall reimburse
the Executive for all actual and reasonable expenses associated with the
Executive's personal travel between Houston, Texas and Greenwich, Connecticut.
5. BONUS COMPENSATION.
(a) During each fiscal year in which the Executive is employed by
NATCO under the terms and conditions of this Employment Agreement, the
Executive will be eligible to receive Bonus Compensation in accordance with
the policies and practices of NATCO. For these purposes, Executive's "target"
annual bonus will be 60% of base compensation. The Board will determine,
annually, the criteria which determine "target" performance.
(b) In the event the Executive is employed by NATCO under the terms
and conditions of this Employment Agreement for a period less than any full
fiscal year and the Executive's employment with NATCO has not terminated
pursuant to Section 11(a) or Section 11(c) hereof, any Bonus Compensation
payable to the Executive under Section 5(a) of this Employment Agreement shall
be prorated accordingly. If the Executive's employment with NATCO terminates as
provided in Section 11(a) or Section 11(c) hereof, the Executive shall not be
eligible for any Bonus Compensation under the Employment Agreement.
(c) Any Bonus Compensation payment to which the Executive is entitled
under the terms of Section 5(a) of this Employment Agreement shall be paid to
the Executive as soon as practicable after financial statements have been
prepared for the fiscal period to which such Bonus Compensation payment
relates, but no later than ninety days from the date such financial
statements shall have been prepared.
(d) During each fiscal year in which the Executive is employed by
NATCO under the terms and conditions of this Employment Agreement, the
Executive will be eligible to receive additional bonus payments as the Board
deems appropriate. Although it is the parties' intention that the Executive
will receive a bonus payment if the Executive raises new capital for NATCO, any
bonus payment awarded under this Section 5(a) shall be at the sole discretion
of the Board.
(e) In the event of a "Sale or Public Offering" as defined in this
Section 5(c), NATCO shall pay to the Executive a bonus (in addition to any
other bonuses for which Executive might be eligible under this Section 5 or
otherwise) equal to one and one-half percent (1.5%) of the value of all
securities owned by stockholders of CPI, including common stock valued at the
price per share received in either the Sale or Public Offering, and any debt
held by Stockholders. Any bonus to which the Executive is entitled under this
Section 5(a) shall be paid in cash to the Executive coterminous with or as soon
as practicable after the closing of the Sale or Public Offering, but in any
event no later than ninety days after such closing. For purposes of this Section
5, a Sale or Public Offering will have occurred in the event of: (i) a sale,
merger, reorganization or other transaction involving NATCO which results in a
Change of Control as
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defined in Section 14(b), and in which stockholders of CPI shall receive any
combination of cash, debt, preferred stock, common stock of any unaffiliated
party, or similar securities in exchange for no less than fifty percent (50%) of
CPI's common stock ownership in NATCO as of the date of this agreement, or (ii)
a registration and public offering under the Securities Act of common shares of
NATCO as contemplated in the Stockholder's Agreement attached hereto as Exhibit
B.
(f) All references to Bonus Compensation herein are to the gross
amounts thereof. NATCO shall have the right to deduct therefrom all taxes which
may be required to be deducted or withheld under any provision of applicable
law now in effect or which may become effective any time during the term of this
Employment Agreement.
6. CERTAIN EXPENSES INCIDENT TO EMPLOYMENT.
Subject to such rules and procedures as from time to time are
specified by NATCO or the Board, NATCO agrees to reimburse the Executive for
travel, entertainment or other reasonable business expenses or disbursements
incurred ordinarily by the Executive as part of and in connection with the
performance of his duties under this Employment Agreement.
7. DISABILITY.
"Disability", as used in Section 1(e) of this Employment Agreement,
shall mean a physical or mental incapacity of the Executive which has prevented
him from performing the duties customarily assigned him by the Board for ninety
(90) days, whether or not consecutive, out of any twelve (12) consecutive
months and which thereafter can reasonably be expected, in the judgment of a
physician selected by NATCO, to continue.
8. AGREEMENT NOT TO COMPETE.
Except as otherwise provided by this Employment Agreement, the
Executive hereby agrees that, during the Period of Active Employment, the
Executive will not directly or indirectly, either through any form of ownership
(other than ownership of securities of a publicly-held corporation of which the
Executive owns less than one percent of any class of outstanding securities),
or as a director, officer, principal agent, employer, advisor, consultant,
co-partner, or in any individual or representative capacity, either for his own
benefit or for the benefit of any other person, firm, corporation or other
entity, engage in any business that is in competition with NATCO or any of its
affiliated companies.
9. INTANGIBLE AND OTHER PROPERTY RIGHTS.
(a) All right, title and interest of every kind and nature
whatsoever, whether now known or unknown, in and to any intangible property,
including all trade names, unregistered trademarks and service marks, brand
names, patents, copyrights, registered trademarks and service marks and all
trade secrets and confidential know-how (the "Intangible Property"), invented,
created, written, developed, furnished, produced or disclosed by the Executive
hereunder shall, as between the parties hereto, be and remain the sole and
exclusive
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property of NATCO for any and all purposes and uses whatsoever, and the
Executive shall have no right, title or interest of any kind or nature therein
or thereto, or in or to any results or proceeds therefrom. The Executive will,
at the request of NATCO, execute such assignments, certificates and other
instruments as NATCO may from time to time deem necessary or desirable to
evidence, establish, maintain, perfect, protect, enforce or defend its right,
title and interest in and to any of the foregoing.
(b) The Executive agrees that all "Intangible Property", materials,
books, files, reports, correspondence, records and documents (collectively
"NATCO Material") used, prepared or made available to the Executive in the
course of rendering his services to NATCO hereunder shall remain the property
of NATCO. At the end of the Period of Active Employment, all NATCO Material
shall be returned immediately to NATCO.
10. CONFIDENTIALITY.
The Executive shall hold in a fiduciary capacity for the benefit of
NATCO all secret or confidential information, knowledge or data relating to
NATCO and its affiliates, which shall have been obtained by the Executive
during his employment by NATCO and which shall not be public knowledge. After
termination of the Executive's employment with NATCO, he shall not, without the
prior written consent of the Board, communicate or divulge any such
information, knowledge or data to anyone other than the Board and those
designated by the Board.
11. TERMINATION.
(a) NATCO may terminate the Executive's employment under this
Employment Agreement for just cause by giving the Executive ten (10) days
advance written notice and an opportunity to be heard before the Board prior to
such termination. In the event that the Executive's employment under this
Employment Agreement is terminated for "cause", NATCO shall have no further
obligations or responsibilities hereunder (except for Base Salary amounts earned
but not yet paid to the Executive through the date of the Executive's
termination) and the Executive shall not be entitled to receive any Bonus
Compensation pursuant to Section 5 of this Employment Agreement or any
severance pay specified in any severance plan or policy that NATCO presently
has in effect or that NATCO may establish for employees of NATCO. Without
limiting the foregoing, any one or more of the following events shall
constitute "cause":
(1) Theft, fraud, embezzlement, dishonesty or other
similar behavior by the Executive;
(2) Any habitual neglect of duty or misconduct of the
Executive in discharging any of his duties and responsibilities
hereunder;
(3) A material breach by the Executive of the terms of
this Employment Agreement; or
<PAGE> 7
(4) The Executive's conviction of a felony or of any crime involving
moral turpitude.
(b) In the event that NATCO terminates the Executive's employment under
this Employment Agreement for any reason other than just cause, the Executive
shall be entitled to severance pay in accordance with any severance plan or
policy that NATCO then has in effect.
(c) If the Executive terminates this Employment Agreement for any reason,
other than by reason of NATCO's material breach of the terms of this Employment
Agreement, NATCO shall have no further obligations or responsibilities hereunder
(except for Base Salary amounts earned but not yet paid to the Executive through
the date of the Executive's termination) and the Executive shall not be entitled
to receive any Bonus Compensation pursuant to Section 5 of this Employment
Agreement or any severance pay specified in any severance plan or policy that
NATCO presently has in effect or that NATCO may establish for employees of
NATCO.
12. REPRESENTATION AND WARRANTY.
The Executive hereby represents and warrants that the execution and
performance of this Employment Agreement will not result in or constitute a
default, breach or violation, or an event which, with notice or lapse of time or
both, would be a default, breach or violation, of any understanding, agreement
or commitment, written or oral, express or implied, to which the Executive is a
party or by which the Executive or his property is bound.
13. RIGHTS AND WAIVERS.
All rights and remedies of the parties hereto are separate and cumulative,
and no one of them, whether exercised or not, shall be deemed to be to the
exclusion of any other rights or remedies or shall be deemed to limit or
prejudice any other legal or equitable rights or remedies under this Employment
Agreement unless such waiver is in writing and signed by such party. No delay or
omission on the part of either party in exercising any right or remedy shall
operate as a waiver of such right or remedy or any other rights or remedies. A
waiver on any one occasion shall not be construed as a bar to or waiver of any
right or remedy on any future occasion.
14. SUCCESSORS.
(a) NATCO and the Executive agree that if a Change in Control of NATCO
occurs during the Period of Active Employment, the Executive shall, at the time
of the Change in Control of NATCO, be permitted to terminate his employment with
NATCO under this Employment Agreement and receive from NATCO (1) all Base Salary
amounts earned but not yet paid to the Executive through the date of the
Executive's termination; (2) all Bonus Compensation payable to the Executive, if
any, pursuant to Section 5 herein, pro rated accordingly; and (3) severance pay
equal to 18 months base compensation. In the event that the Executive terminates
his employment with NATCO as provided for in this Section 14, NATCO's
obligations and responsibilities to the Executive under this Employment
Agreement are limited to those stated in Sections 14(a)(1), 14(a)(2) and
14(a)(3) above.
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(b) For purposes of this Section 14, a "Change in Control of NATCO"
shall mean any acquisition by any Unrelated Party of eighty percent (80%) or
more of the common stock of NATCO issued and outstanding immediately prior to
such acquisition and/or securities of NATCO which may be converted into shares
of common stock of NATCO, computing such percentage as if such securities
acquired had been converted and are issued and outstanding for the purpose of
determining such percentage (a series of acquisitions by an "Unrelated Party"
shall be treated as a single acquisition to the extent the aggregate number of
shares and/or securities referred to above acquired in such series exceeds
eighty percent (80%)). "Unrelated Party" shall mean any party or group of
parties acting together, excluding, however, the Executive, Capricorn
Investors, L.P., Capricorn Investors II, L.P., and Cummings Point Industries,
Inc.
15. NON-ASSIGNABILITY OF EXECUTIVE'S DUTIES.
This Employment Agreement is personal to the Executive and, with the
exception of the Executive's rights to compensation and benefits hereunder,
which may be transferred by will or operation of law, this Agreement shall not,
without the prior written consent of the Board, be assignable by the Executive.
16. SAVINGS CLAUSE.
If any provision of this Employment Agreement or the application
hereof is held invalid, the invalidity shall not affect other provisions or
application of this Employment Agreement that can be given effect without the
invalid provisions or application, and to this end the provisions of this
Employment Agreement are declared to be severable.
17. CONSTRUCTION.
Each party has cooperated in the drafting and preparation of this
Employment Agreement. Hence, in any construction to be made of this Employment
Agreement, the same shall not be construed against any party on the basis of
that party being the "drafter."
18. ENTIRE AGREEMENT.
This Employment Agreement supersedes all prior agreements between the
parties concerning the subject matter hereof and this Employment Agreement
constitutes the entire Employment Agreement between the parties with respect
thereto. This Employment Agreement may be modified only with a written
instrument duly executed by each of the parties. No person has any authority to
make any representations or promises on behalf of any of the parties not set
forth herein and this Employment Agreement has not been executed in reliance
upon any representation or promise except those contained herein.
19. SECTION HEADINGS.
The section headings and captions of this Employment Agreement are
for reference purposes only, are not part of the provisions hereof and shall
not effect in any way the meaning or interpretation of this Employment
Agreement.
<PAGE> 9
20. GOVERNING LAW.
This Employment Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
21. ARBITRATION.
Any dispute between the parties to this Employment Agreement relating
to or in respect of this Employment Agreement, its negotiation, execution,
performance, subject matter, or any course of conduct or dealing or actions
under or in respect of this Employment Agreement, shall be submitted to, and
resolved exclusively by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). Such
arbitration shall take place in New York, New York. Arbitration shall be
commenced by filing a demand for arbitration with the AAA within sixty (60)
days after such dispute has arisen. The prevailing party in such an arbitration
proceeding shall be entitled to recover reasonable attorneys' fees, all
reasonable out-of-pocket costs and disbursements, as well as any and all
charges that may be made for the cost of the arbitration and the fees of the
arbitrators.
22. ENFORCEMENT OF ARBITRATION AWARD.
In the event of litigation to enforce an arbitration award in
connection with or concerning the subject matter of this Employment Agreement,
the prevailing party shall be entitled to recover all reasonable costs and
expenses incurred by such party in connection therewith, including reasonable
attorneys' fees.
23. NOTICE
All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive, to him at:
Nathaniel A. Gregory
Frost Road
Greenwich, Connecticut 06830
If to NATCO, to it at:
Natco Holdings Incorporated
Brookhollow Central III
2950 North Loop West, Suite 750
Houston, Texas 77092
Attention: Chief Financial Officer
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With a copy to:
Vinson & Elkins (to be provided)
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications hereunder shall be
effective when actually received by the addressee.
24. LEGAL COUNSEL.
In entering into this Employment Agreement, the parties represent
that they have relied upon the advice of their attorneys, who are attorneys of
their own choice, and that the terms of this Employment Agreement have been
completely read and explained to them by their attorneys, and that those terms
are fully understood and voluntarily accepted by them.
In witness whereof, the parties hereto have executed this Agreement
as of the date first above written.
On behalf of
CUMMINGS POINT INDUSTRIES NATHANIEL A. GREGORY
By /s/ HERBERT S. WINOKUR, JR. /s/ NATHANIEL A. GREGORY
---------------------------- --------------------------
Title:
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EXHIBIT 10.14
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT AND ANY SHARES ACQUIRED UPON THE
EXERCISE OF THE OPTIONS GRANTED HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS STOCK OPTION AGREEMENT, dated as of this 31st day of
July, 1997, by and between Cummings Point Industries, Inc., a corporation
existing under the laws of the State of Delaware (hereinafter referred to as
"NATCO" or, together with any and all subsidiaries of NATCO, the "Company") and
Patrick McCarthy (hereinafter referred to as "the Executive").
W I T N E S S E T H
WHEREAS, the Executive received certain Rights under the 1994
Stock Appreciation Rights Plan (the "Plan") of National Tank Company, Inc., and
under Section 10(B) of the Plan, such Rights have been cancelled and, as
contemplated in this Stock Option Agreement, replaced by Options with terms and
conditions which, as closely as possible, produce the same overall economic
result to the Executive as the cancelled Rights;
and WHEREAS, in order to provide the Executive with an
incentive to devote his best skills and efforts to the success of NATCO, the
Company deems it to be in its best interests to provide the Executive with
Options to purchase shares of NATCO;
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and conditions herein, the parties hereto hereby agree as
follows:
1. OPTIONS.
(a) Subject to the terms and upon the conditions
contained herein including the vesting requirement contained in Section 6, the
Executive shall have the right, privilege, and option to purchase 100,000
shares of common stock of NATCO at a purchase price of $1.96 per share (the
"Options").
(b) If, subsequent to the date of this Agreement, the
Company shall declare and pay any stock dividend or shall divide or combine the
outstanding common stock of NATCO through any stock split, stock combination or
other recapitalization, the number of shares and purchase price for shares
under the Options shall be appropriately adjusted to reflect such stock
dividend, stock split, stock combination or other recapitalization. Such
adjustments shall be made by the Committee, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
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(c) If, subsequent to the date of this Agreement, as long
as the Company's common stock is not listed or admitted to trade on a national
securities exchange, in which case this Section 1(c) does not apply, the
Company shall declare and pay a cash dividend on the outstanding common stock
of NATCO, then the purchase price in Section 1(a) above shall be appropriately
adjusted to reflect such cash dividend. Such adjustment shall be made by the
committee, whose determination as to what adjustment shall be made, and the
extent thereof, shall be final, binding and conclusive.
2. OPTION PERIOD.
Subject to the terms and upon the conditions contained herein,
Vested Options may be exercised at any time prior to the earlier to occur of
termination of the Options pursuant to Section 5 hereof and the Expiration Date
(the "Option Period").
3. METHOD OF EXERCISE.
(a) The Options may be exercised only within the Option
Period and only (1) by notice in writing of the Executive's exercise of the
Options, delivered to the Chief Financial Officer of NATCO or mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the Chief Financial Officer of NATCO, c/o National Tank Company,
Brookhollow Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092,
and (2) by contemporaneous payment to NATCO of the full amount of the purchase
price of the common stock being purchased by the Executive pursuant to these
Options (together with any amount which is necessary to satisfy any applicable
federal, state or local tax requirements), by certified check or official bank
check payable to the order of NATCO.
(b) The Company may require of the Executive at the time
the Options are exercised, that the Executive make or enter into
representations and agreements as may be necessary or desirable, in the opinion
of the Company, in order to assure compliance with the terms of this Stock
Option Agreement and all applicable federal and state securities laws and stock
exchange regulations.
(c) The Company shall make immediate delivery of all
shares purchased by the Executive upon the exercise of the Option, provided
that if any law or regulation requires the Company to take any action with
respect to the shares being purchased by the Executive pursuant to these
Options, then the date of delivery of such shares shall be extended for the
period necessary to take such action.
4. STOCKHOLDERS AGREEMENT.
In the event the Executive exercises the Options and purchases
shares of common stock of NATCO, the shares held by the Executive shall be
subject to the terms of the Stockholders Agreement dated the 30th day of June,
1997, by and among Capricorn Investors, L.P., Capricorn Investors II, L.P. and
Cummings Point Industries, Inc., attached hereto as Exhibit A.
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5. TERMINATION OF OPTIONS.
(a) The Options, to the extent not heretofore exercised,
shall terminate and cease to be exercisable on the date on which the first of
the following events occurs:
(1) the termination of the Executive's employment
with the Company for Cause;
(2) thirty (30) days after the termination of the
Executive's employment with the Company for any reason other than
Cause;
(3) thirty (30) days after an Alteration in the
employment of the Executive by the Company;
(4) expiration of the Option Period as provided
in Section 2 of this Stock Option Agreement.
(b) The Company may at its election cause the Options to
terminate in the event of a Sale of the Company provided that the Company gives
the Executive written notice at least thirty (30) days prior to any
transaction that would result in the termination of the Executive's
Options pursuant to this Section 5(b).
6. VESTING.
(a) Except as otherwise set forth herein, as long as the
Executive continues as an officer or employee of the Company or a subsidiary,
the Options will vest over three years, with one-third (33 1/3%) vesting at the
end of each anniversary year after the Award Date, and no additional fractional
amount vesting until the completion of each anniversary year. The Executive
shall have no right to purchase shares pursuant to the Options until or unless
the Options are vested.
(b) Notwithstanding Section 6(a) above, in the event of a
Sale of the Company, the Options shall become fully vested in the following
circumstances:
(1) Upon notice by the Company of termination of
the Options pursuant to Section 5(b). Notwithstanding anything herein
to the contrary, however, termination of the Options pursuant to
Section 5(b) shall not result in the vesting of otherwise unvested
Options if the Company in the case of a Change of Control, or the
surviving corporation in the case of a merger, or any purchasing
corporation in the case of a sale of all or substantially all of the
assets of the Company, agrees to provide the Executive with a
combination of options, deferred compensation, bonuses or other
incentive programs, with terms and conditions which, as closely as
possible, produce the same overall economic result to the Executive as
the terminated but unvested Options;
(2) The Company does not terminate the Options
pursuant to Section 5(b), but a Change of Control has occurred and
there is an Alteration in the employment of
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the Executive. Notwithstanding anything herein to the contrary,
however, an Alteration shall not be deemed to have occurred in
connection with a Change of Control for purposes of this Paragraph
6(b) if (i) the Company, in the case of a Change of Control, or the
surviving corporation in the case of a merger, or the purchasing
corporation in the case of a sale of all or substantially all the
assets of the Company, agrees to employ the Executive on terms
substantially similar to the terms of Executive's employment with the
Company prior to such Change of Control (or as otherwise agreed by
such entity and the Executive), or (ii) the Alteration was for Cause.
(c) The Options shall become fully vested in the event
of: (i) death of the Executive while employed by the Company, or (ii)
termination by reason of disability (as defined from time to time by the
Committee) of the Executive while employed by the Company.
7. PURCHASE OF VESTED OPTIONS BY THE COMPANY.
(a) The Executive will be entitled to tender and NATCO
will be obligated to purchase Vested Options held by the Executive on the
following occasions ("Option Purchase Periods"):
(1) for a period of thirty (30) days after the
termination of the Executive's employment with the Company for any
reason other than Cause;
(2) for a period of thirty (30) days after an
Alteration in the employment of the Executive;
(3) for a period of thirty (30) days after notice
provided by the Company that the Options will be terminated pursuant
to Section 5(b) herein; and
(4) for a period of six (6) months prior to the
Expiration Date.
(b) The Executive will only be entitled to tender Vested
Options to the Company during an Option Purchase Period and will do so by
notice in writing, specifying the number of Vested Options being tendered,
delivered to the Chief Financial Officer of NATCO or mailed by registered or
certified mail, return receipt requested, postage pre-paid, addressed to the
Chief Financial Officer of NATCO, c/o National Tank Company, Brookhollow
Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092. The above
notwithstanding, in the event of the Executive's death, the Executive's estate
shall be deemed to have tendered the Executive's Vested Options to the Company
as of the day following the date of the Executive's death.
(c) NATCO shall purchase Vested Options properly tendered
under this Section 7 for cash. The amount in cash will be determined by
multiplying (i) the number of Vested Options being tendered times (ii) the
difference between (x) the Fair Market Value per share of the Company's common
stock on the tender date and (y) the price set forth in Section 1(a).
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(d) At the company's option, the amount paid to the
Executive to purchase Vested Options under this Section 7 may be in a lump sum,
which will be paid no later than 90 days from the date of the tender, or in 12
equal quarterly payments over a three year period bearing interest at the
Reference Rate.
(e) For purposes of Section 7(c), the Fair Market Value
per share of the Company's common stock shall mean:
(1) if the stock is listed or admitted to trade
on a national securities exchange, the average price of the stock over
the last ten trading days on the composite tape of the principal
national securities exchange on which the stock is so listed or
admitted to trade;
(2) if the stock is not listed or admitted to
trade on a national securities exchange, the mean between the last
reported bid and asked price for the stock over the last ten trading
days as furnished by (a) the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no
longer reporting such information, or (b) a service such as the
national Quotation Bureau if such bid and asked price is regularly
quoted therein; or
(3) if conditions (1) and (2) do not apply, the
Fair Market Value of the Company's Common Stock shall mean the value
established by the Committee. To the extent possible, in determining
such value, the Committee shall analyze present value of projected
cash flow, multiples in relation to comparable companies (reflecting
such liquidity discounts as are appropriate), and other such
methodologies as are typical in valuing private companies.
(f) The Company shall have the right to deduct from any
payments to be made to the Executive hereunder any amounts that federal, state
or local tax law requires to be withheld with respect to amounts payable to the
Executive upon the tender of any Vested Option.
(g) Anything herein to the contrary notwithstanding, if
at the time of the tender of a Vested Option, the Company is in default under
any loan agreements to which the Company is a party, or if any payment to
Executive under this Section 7 would cause the Company to be in default under
any such agreement, then amounts otherwise payable to an Executive hereunder
shall not be paid, and the Company shall have no obligation to make such
payment, as long as such default continues. Amounts not paid by reason of the
provisions of this Paragraph 7(g) shall accrue interest from the time such
amounts would otherwise have been paid until the time such amounts are actually
paid at a rate per annum equal to the Reference Rate.
8. NON-TRANSFERABILITY OF OPTIONS.
The Options may not be sold, hypothecated, transferred or
otherwise disposed of, and may only be exercised by the Executive, or his
estate. If the Executive's estate exercises the
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Options, the estate shall be bound by all conditions, restrictions, and
limitations that otherwise would have applied to the Executive had the
Executive exercised the Options.
9. NO RIGHTS AS STOCKHOLDER.
The Executive shall have none of the rights of a stockholder
of NATCO with respect to any of the shares of common stock issuable under the
Options unless and until such shares of common stock have been purchased by the
Executive in accordance with the terms and conditions of this Stock Option
Agreement.
10. RIGHT TO TERMINATE EMPLOYMENT.
Nothing herein shall be construed to confer upon an Executive
the right to continue in the employment of the Company or affect the right of
the Company to terminate the Executive's employment at any time.
11. NO RIGHTS AS SECURED CREDITOR.
Anything herein to the contrary expressed or implied
notwithstanding, if an Executive otherwise entitled to payment under Section 7
above does not receive payment by reason of the provisions of Section 7(g), or
for any other reason, the rights of the Executive with regard to such payment
and any accrued interest as provided herein shall be those of an unsecured
creditor of the Company and such rights shall be subordinate and junior to all
senior and institutional indebtedness, all indebtedness for borrowed money and
all secured indebtedness of the Company.
12. REPRESENTATION AS TO INVESTMENT.
The Executive represents and warrants to NATCO that all shares
purchased under this Stock Option Agreement shall be acquired for the
Executive's own account and not with a view to distribution. The Executive
acknowledges that the Executive may not sell, assign, transfer or otherwise
dispose of any shares purchased under this Stock Option Agreement, or of any of
his right, title or interest therein, in the absence of either a registration
statement under the Securities Act of 1933, as amended (the "Act") or an
exemption from the registration provisions of the Act, and agrees that
certificates representing the shares may contain a legend to such effect. The
exercise of these Options and the delivery of shares hereunder is contingent
upon the Company being furnished by the Executive with a statement in writing
at the time of such exercise confirming the accuracy of the foregoing
representation and warranty.
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13. NOTICE.
All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive, to him at:
14702 Sandy Creek Dr.
Houston, Texas 77070
If to NATCO, to it at:
Cummings Point Industries, Inc.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: President
With a copy to:
Vinson & Elkins
1001 Fannin, Suite 3619
Houston, Texas 77002-6760
Attention: Mr. William E. Joor
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications hereunder shall be
effective when actually received by the addressee.
14. AMENDMENT.
This Stock Option Agreement may only be modified, supplemented
or amended by a written instrument executed by the party against whom which
enforcement of such modification, supplement or amendment is sought.
15. HEADINGS.
The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Stock Option
Agreement.
16. GOVERNING LAW.
This Stock Option Agreement shall be governed by and construed
in accordance with the laws of the State of New York without reference to
principles of conflict of laws.
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17. INTERPRETATION OF THE AGREEMENT.
(a) Any determination required by or resolution of any
dispute arising out of this Option Agreement, and Sections 1(b), 5(b), 6(b),
7(e), or any other Section without limitation, shall be made by a Committee
(the "Committee") consisting of two members of the Board of Directors of the
Company. The determinations of the Committee shall be conclusive.
(b) No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in good faith with
respect to this Option Agreement. The Company hereby agrees to indemnify each
member of the Committee to the extent permitted by applicable law and the
By-laws of the Company for all costs, charges, expenses, liabilities and losses
incurred or arising in connection with the member's actions in interpreting
this Option Agreement.
(c) The Board of Directors, at any time it so desires,
may increase or decrease the number of members of the Committee, may remove
from membership on the Committee all or any portion of its members, and may
appoint such person or persons as it desire to fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise.
18. DEFINITIONS.
"Affiliate" means any corporation that would be a member of a
controlled group of corporations with the Company within the meaning of Section
1563(a) of the Internal Revenue Code of 1986, as amended.
"Alteration" in the employment of the Executive means,
following a Change of Control, (a) the Executive's employment with the Company
is terminated; (b) the Company, without the Executive's consent, reduces the
annual base salary of the Executive in effect immediately prior to the Change
of Control; or (c) the Company, without the Executive's consent, reassigns the
Executive to a location which is more than fifty (50) miles from the principal
location at which the Executive worked for the Company immediately prior to the
Change of Control.
"Award Date" means June 21, 1994.
"Cause" means the Executive engages in theft, dishonesty,
neglect of duty or misconduct in the discharge of the Executive's duties and
responsibilities.
"Change of Control" shall be deemed to have occurred in the
event and only in the event of a Sale of the Company.
"Expiration Date" means December 21, 2001.
"Reference Rate" means the prime rate of interest as published
in the Wall Street Journal.
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"Sale of the Company" means (a) sale of all or substantially
all of the common stock of NATCO to any party or parties other than the
Executive, regardless of whether such sale is effected in a single transaction
or a series of related transactions, provided that as a result Capricorn
Investors, L.P., Capricorn Investors II, L.P., and any Affiliate of the
Company, taken together ("Capricorn"), would thereafter own less than twenty
percent (20%) of the common stock of the Company, (b) a sale of all or
substantially all of the Company's assets or (c) a merger or consolidation of
the Company with and into another corporation if immediately after the merger
Capricorn owns less than twenty percent (20%) of the common stock of such other
corporation.
"Vested Options" means Options which are vested as provided in
Section 6(a), 6 (b) or 6(c).
In witness whereof, the parties hereto have executed this
Agreement as of the date first above written.
CUMMINGS POINT INDUSTRIES, INC.
By /s/ Nathaniel A. Gregory /s/ Patrick M. McCarthy
----------------------------- --------------------------------
Nov. 24, 1997
Title: Chairman
-------------------------
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EXHIBIT 10.15
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT AND ANY SHARES ACQUIRED UPON THE
EXERCISE OF THE OPTIONS GRANTED HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS STOCK OPTION AGREEMENT, dated as of this 31st day of
July, 1997, by and between Cummings Point Industries, Inc., a corporation
existing under the laws of the State of Delaware (hereinafter referred to as
"NATCO" or, together with any and all subsidiaries of NATCO, the "Company") and
Will Wiener (hereinafter referred to as "the Executive").
W I T N E S S E T H
WHEREAS, the Executive received certain Rights under the 1994
Stock Appreciation Rights Plan (the "Plan") of National Tank Company, Inc., and
under Section 10(B) of the Plan, such Rights have been cancelled and, as
contemplated in this Stock Option Agreement, replaced by Options with terms and
conditions which, as closely as possible, produce the same overall economic
result to the Executive as the cancelled Rights;
and WHEREAS, in order to provide the Executive with an
incentive to devote his best skills and efforts to the success of NATCO, the
Company deems it to be in its best interests to provide the Executive with
Options to purchase shares of NATCO;
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and conditions herein, the parties hereto hereby agree as
follows:
1. OPTIONS.
(a) Subject to the terms and upon the conditions
contained herein including the vesting requirement contained in Section 6, the
Executive shall have the right, privilege, and option to purchase 50,000 shares
of common stock of NATCO at a purchase price of $1.96 per share (the
"Options").
(b) If, subsequent to the date of this Agreement, the
Company shall declare and pay any stock dividend or shall divide or combine the
outstanding common stock of NATCO through any stock split, stock combination or
other recapitalization, the number of shares and purchase price for shares
under the Options shall be appropriately adjusted to reflect such stock
dividend, stock split, stock combination or other recapitalization. Such
adjustments shall be made by the Committee, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
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(c) If, subsequent to the date of this Agreement, as long
as the Company's common stock is not listed or admitted to trade on a national
securities exchange, in which case this Section 1(c) does not apply, the
Company shall declare and pay a cash dividend on the outstanding common stock
of NATCO, then the purchase price in Section 1(a) above shall be appropriately
adjusted to reflect such cash dividend. Such adjustment shall be made by the
committee, whose determination as to what adjustment shall be made, and the
extent thereof, shall be final, binding and conclusive.
2. OPTION PERIOD.
Subject to the terms and upon the conditions contained herein,
Vested Options may be exercised at any time prior to the earlier to occur of
termination of the Options pursuant to Section 5 hereof and the Expiration Date
(the "Option Period").
3. METHOD OF EXERCISE.
(a) The Options may be exercised only within the Option
Period and only (1) by notice in writing of the Executive's exercise of the
Options, delivered to the Chief Financial Officer of NATCO or mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the Chief Financial Officer of NATCO, c/o National Tank Company,
Brookhollow Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092,
and (2) by contemporaneous payment to NATCO of the full amount of the purchase
price of the common stock being purchased by the Executive pursuant to these
Options (together with any amount which is necessary to satisfy any applicable
federal, state or local tax requirements), by certified check or official bank
check payable to the order of NATCO.
(b) The Company may require of the Executive at the time
the Options are exercised, that the Executive make or enter into
representations and agreements as may be necessary or desirable, in the opinion
of the Company, in order to assure compliance with the terms of this Stock
Option Agreement and all applicable federal and state securities laws and stock
exchange regulations.
(c) The Company shall make immediate delivery of all
shares purchased by the Executive upon the exercise of the Option, provided
that if any law or regulation requires the Company to take any action with
respect to the shares being purchased by the Executive pursuant to these
Options, then the date of delivery of such shares shall be extended for the
period necessary to take such action.
4. STOCKHOLDERS AGREEMENT.
In the event the Executive exercises the Options and purchases
shares of common stock of NATCO, the shares held by the Executive shall be
subject to the terms of the Stockholders Agreement dated the 30th day of June,
1997, by and among Capricorn Investors, L.P., Capricorn Investors II, L.P. and
Cummings Point Industries, Inc., attached hereto as Exhibit A.
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5. TERMINATION OF OPTIONS.
(a) The Options, to the extent not heretofore exercised,
shall terminate and cease to be exercisable on the date on which the first of
the following events occurs:
(1) the termination of the Executive's employment
with the Company for Cause;
(2) thirty (30) days after the termination of the
Executive's employment with the Company for any reason other than
Cause;
(3) thirty (30) days after an Alteration in the
employment of the Executive by the Company;
(4) expiration of the Option Period as provided
in Section 2 of this Stock Option Agreement.
(b) The Company may at its election cause the Options to
terminate in the event of a Sale of the Company provided that the Company gives
the Executive written notice at least thirty (30) days prior to any
transaction that would result in the termination of the Executive's
Options pursuant to this Section 5(b).
6. VESTING.
(a) Except as otherwise set forth herein, as long as the
Executive continues as an officer or employee of the Company or a subsidiary,
the Options will vest over three years, with one-third (33 1/3%) vesting at the
end of each anniversary year after the Award Date, and no additional fractional
amount vesting until the completion of each anniversary year. The Executive
shall have no right to purchase shares pursuant to the Options until or unless
the Options are vested.
(b) Notwithstanding Section 6(a) above, in the event of a
Sale of the Company, the Options shall become fully vested in the following
circumstances:
(1) Upon notice by the Company of termination of
the Options pursuant to Section 5(b). Notwithstanding anything herein
to the contrary, however, termination of the Options pursuant to
Section 5(b) shall not result in the vesting of otherwise unvested
Options if the Company in the case of a Change of Control, or the
surviving corporation in the case of a merger, or any purchasing
corporation in the case of a sale of all or substantially all of the
assets of the Company, agrees to provide the Executive with a
combination of options, deferred compensation, bonuses or other
incentive programs, with terms and conditions which, as closely as
possible, produce the same overall economic result to the Executive as
the terminated but unvested Options;
(2) The Company does not terminate the Options
pursuant to Section 5(b), but a Change of Control has occurred and
there is an Alteration in the employment of
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the Executive. Notwithstanding anything herein to the contrary,
however, an Alteration shall not be deemed to have occurred in
connection with a Change of Control for purposes of this Paragraph
6(b) if (i) the Company, in the case of a Change of Control, or the
surviving corporation in the case of a merger, or the purchasing
corporation in the case of a sale of all or substantially all the
assets of the Company, agrees to employ the Executive on terms
substantially similar to the terms of Executive's employment with the
Company prior to such Change of Control (or as otherwise agreed by
such entity and the Executive), or (ii) the Alteration was for Cause.
(c) The Options shall become fully vested in the event
of: (i) death of the Executive while employed by the Company, or (ii)
termination by reason of disability (as defined from time to time by the
Committee) of the Executive while employed by the Company.
7. PURCHASE OF VESTED OPTIONS BY THE COMPANY.
(a) The Executive will be entitled to tender and NATCO
will be obligated to purchase Vested Options held by the Executive on the
following occasions ("Option Purchase Periods"):
(1) for a period of thirty (30) days after the
termination of the Executive's employment with the Company for any
reason other than Cause;
(2) for a period of thirty (30) days after an
Alteration in the employment of the Executive;
(3) for a period of thirty (30) days after notice
provided by the Company that the Options will be terminated pursuant
to Section 5(b) herein; and
(4) for a period of six (6) months prior to the
Expiration Date.
(b) The Executive will only be entitled to tender Vested
Options to the Company during an Option Purchase Period and will do so by
notice in writing, specifying the number of Vested Options being tendered,
delivered to the Chief Financial Officer of NATCO or mailed by registered or
certified mail, return receipt requested, postage pre-paid, addressed to the
Chief Financial Officer of NATCO, c/o National Tank Company, Brookhollow
Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092. The above
notwithstanding, in the event of the Executive's death, the Executive's estate
shall be deemed to have tendered the Executive's Vested Options to the Company
as of the day following the date of the Executive's death.
(c) NATCO shall purchase Vested Options properly tendered
under this Section 7 for cash. The amount in cash will be determined by
multiplying (i) the number of Vested Options being tendered times (ii) the
difference between (x) the Fair Market Value per share of the Company's common
stock on the tender date and (y) the price set forth in Section 1(a).
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(d) At the company's option, the amount paid to the
Executive to purchase Vested Options under this Section 7 may be in a lump sum,
which will be paid no later than 90 days from the date of the tender, or in 12
equal quarterly payments over a three year period bearing interest at the
Reference Rate.
(e) For purposes of Section 7(c), the Fair Market Value
per share of the Company's common stock shall mean:
(1) if the stock is listed or admitted to trade
on a national securities exchange, the average price of the stock over
the last ten trading days on the composite tape of the principal
national securities exchange on which the stock is so listed or
admitted to trade;
(2) if the stock is not listed or admitted to
trade on a national securities exchange, the mean between the last
reported bid and asked price for the stock over the last ten trading
days as furnished by (a) the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no
longer reporting such information, or (b) a service such as the
national Quotation Bureau if such bid and asked price is regularly
quoted therein; or
(3) if conditions (1) and (2) do not apply, the
Fair Market Value of the Company's Common Stock shall mean the value
established by the Committee. To the extent possible, in determining
such value, the Committee shall analyze present value of projected
cash flow, multiples in relation to comparable companies (reflecting
such liquidity discounts as are appropriate), and other such
methodologies as are typical in valuing private companies.
(f) The Company shall have the right to deduct from any
payments to be made to the Executive hereunder any amounts that federal, state
or local tax law requires to be withheld with respect to amounts payable to the
Executive upon the tender of any Vested Option.
(g) Anything herein to the contrary notwithstanding, if
at the time of the tender of a Vested Option, the Company is in default under
any loan agreements to which the Company is a party, or if any payment to
Executive under this Section 7 would cause the Company to be in default under
any such agreement, then amounts otherwise payable to an Executive hereunder
shall not be paid, and the Company shall have no obligation to make such
payment, as long as such default continues. Amounts not paid by reason of the
provisions of this Paragraph 7(g) shall accrue interest from the time such
amounts would otherwise have been paid until the time such amounts are actually
paid at a rate per annum equal to the Reference Rate.
8. NON-TRANSFERABILITY OF OPTIONS.
The Options may not be sold, hypothecated, transferred or
otherwise disposed of, and may only be exercised by the Executive, or his
estate. If the Executive's estate exercises the
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Options, the estate shall be bound by all conditions, restrictions, and
limitations that otherwise would have applied to the Executive had the
Executive exercised the Options.
9. NO RIGHTS AS STOCKHOLDER.
The Executive shall have none of the rights of a stockholder
of NATCO with respect to any of the shares of common stock issuable under the
Options unless and until such shares of common stock have been purchased by the
Executive in accordance with the terms and conditions of this Stock Option
Agreement.
10. RIGHT TO TERMINATE EMPLOYMENT.
Nothing herein shall be construed to confer upon an Executive
the right to continue in the employment of the Company or affect the right of
the Company to terminate the Executive's employment at any time.
11. NO RIGHTS AS SECURED CREDITOR.
Anything herein to the contrary expressed or implied
notwithstanding, if an Executive otherwise entitled to payment under Section 7
above does not receive payment by reason of the provisions of Section 7(g), or
for any other reason, the rights of the Executive with regard to such payment
and any accrued interest as provided herein shall be those of an unsecured
creditor of the Company and such rights shall be subordinate and junior to all
senior and institutional indebtedness, all indebtedness for borrowed money and
all secured indebtedness of the Company.
12. REPRESENTATION AS TO INVESTMENT.
The Executive represents and warrants to NATCO that all shares
purchased under this Stock Option Agreement shall be acquired for the
Executive's own account and not with a view to distribution. The Executive
acknowledges that the Executive may not sell, assign, transfer or otherwise
dispose of any shares purchased under this Stock Option Agreement, or of any of
his right, title or interest therein, in the absence of either a registration
statement under the Securities Act of 1933, as amended (the "Act") or an
exemption from the registration provisions of the Act, and agrees that
certificates representing the shares may contain a legend to such effect. The
exercise of these Options and the delivery of shares hereunder is contingent
upon the Company being furnished by the Executive with a statement in writing
at the time of such exercise confirming the accuracy of the foregoing
representation and warranty.
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13. NOTICE.
All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive, to him at:
If to NATCO, to it at:
Cummings Point Industries, Inc.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: President
With a copy to:
Vinson & Elkins
1001 Fannin, Suite 3619
Houston, Texas 77002-6760
Attention: Mr. William E. Joor
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications hereunder shall be
effective when actually received by the addressee.
14. AMENDMENT.
This Stock Option Agreement may only be modified, supplemented
or amended by a written instrument executed by the party against whom which
enforcement of such modification, supplement or amendment is sought.
15. HEADINGS.
The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Stock Option
Agreement.
16. GOVERNING LAW.
This Stock Option Agreement shall be governed by and construed
in accordance with the laws of the State of New York without reference to
principles of conflict of laws.
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17. INTERPRETATION OF THE AGREEMENT.
(a) Any determination required by or resolution of any
dispute arising out of this Option Agreement, and Sections 1(b), 5(b), 6(b),
7(e), or any other Section without limitation, shall be made by a Committee
(the "Committee") consisting of two members of the Board of Directors of the
Company. The determinations of the Committee shall be conclusive.
(b) No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in good faith with
respect to this Option Agreement. The Company hereby agrees to indemnify each
member of the Committee to the extent permitted by applicable law and the
By-laws of the Company for all costs, charges, expenses, liabilities and losses
incurred or arising in connection with the member's actions in interpreting
this Option Agreement.
(c) The Board of Directors, at any time it so desires,
may increase or decrease the number of members of the Committee, may remove
from membership on the Committee all or any portion of its members, and may
appoint such person or persons as it desire to fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise.
18. DEFINITIONS.
"Affiliate" means any corporation that would be a member of a
controlled group of corporations with the Company within the meaning of Section
1563(a) of the Internal Revenue Code of 1986, as amended.
"Alteration" in the employment of the Executive means,
following a Change of Control, (a) the Executive's employment with the Company
is terminated; (b) the Company, without the Executive's consent, reduces the
annual base salary of the Executive in effect immediately prior to the Change
of Control; or (c) the Company, without the Executive's consent, reassigns the
Executive to a location which is more than fifty (50) miles from the principal
location at which the Executive worked for the Company immediately prior to the
Change of Control.
"Award Date" means June 21, 1994.
"Cause" means the Executive engages in theft, dishonesty,
neglect of duty or misconduct in the discharge of the Executive's duties and
responsibilities.
"Change of Control" shall be deemed to have occurred in the
event and only in the event of a Sale of the Company.
"Expiration Date" means December 21, 2001.
"Reference Rate" means the prime rate of interest as published
in the Wall Street Journal.
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"Sale of the Company" means (a) sale of all or substantially
all of the common stock of NATCO to any party or parties other than the
Executive, regardless of whether such sale is effected in a single transaction
or a series of related transactions, provided that as a result Capricorn
Investors, L.P., Capricorn Investors II, L.P., and any Affiliate of the
Company, taken together ("Capricorn"), would thereafter own less than twenty
percent (20%) of the common stock of the Company, (b) a sale of all or
substantially all of the Company's assets or (c) a merger or consolidation of
the Company with and into another corporation if immediately after the merger
Capricorn owns less than twenty percent (20%) of the common stock of such other
corporation.
"Vested Options" means Options which are vested as provided in
Section 6(a), 6 (b) or 6(c).
In witness whereof, the parties hereto have executed this
Agreement as of the date first above written.
CUMMINGS POINT INDUSTRIES, INC.
By /s/ N. A. Gregory /s/ William B. Wiener
---------------------------- --------------------------------
Title: Chairman
-------------------------
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EXHIBIT 10.16
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT AND ANY SHARES ACQUIRED UPON THE
EXERCISE OF THE OPTIONS GRANTED HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS STOCK OPTION AGREEMENT, dated as of this 31st day of
July, 1997, by and between Cummings Point Industries, Inc., a corporation
existing under the laws of the State of Delaware (hereinafter referred to as
"NATCO" or, together with any and all subsidiaries of NATCO, the "Company") and
Frank Smith (hereinafter referred to as "the Executive").
W I T N E S S E T H
WHEREAS, the Executive received certain Rights under the 1994
Stock Appreciation Rights Plan (the "Plan") of National Tank Company, Inc., and
under Section 10(B) of the Plan, such Rights have been cancelled and, as
contemplated in this Stock Option Agreement, replaced by Options with terms and
conditions which, as closely as possible, produce the same overall economic
result to the Executive as the cancelled Rights;
and WHEREAS, in order to provide the Executive with an
incentive to devote his best skills and efforts to the success of NATCO, the
Company deems it to be in its best interests to provide the Executive with
Options to purchase shares of NATCO;
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and conditions herein, the parties hereto hereby agree as
follows:
1. OPTIONS.
(a) Subject to the terms and upon the conditions
contained herein including the vesting requirement contained in Section 6, the
Executive shall have the right, privilege, and option to purchase 25,000 shares
of common stock of NATCO at a purchase price of $1.96 per share (the
"Options").
(b) If, subsequent to the date of this Agreement, the
Company shall declare and pay any stock dividend or shall divide or combine the
outstanding common stock of NATCO through any stock split, stock combination or
other recapitalization, the number of shares and purchase price for shares
under the Options shall be appropriately adjusted to reflect such stock
dividend, stock split, stock combination or other recapitalization. Such
adjustments shall be made by the Committee, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
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(c) If, subsequent to the date of this Agreement, as long
as the Company's common stock is not listed or admitted to trade on a national
securities exchange, in which case this Section 1(c) does not apply, the
Company shall declare and pay a cash dividend on the outstanding common stock
of NATCO, then the purchase price in Section 1(a) above shall be appropriately
adjusted to reflect such cash dividend. Such adjustment shall be made by the
committee, whose determination as to what adjustment shall be made, and the
extent thereof, shall be final, binding and conclusive.
2. OPTION PERIOD.
Subject to the terms and upon the conditions contained herein,
Vested Options may be exercised at any time prior to the earlier to occur of
termination of the Options pursuant to Section 5 hereof and the Expiration Date
(the "Option Period").
3. METHOD OF EXERCISE.
(a) The Options may be exercised only within the Option
Period and only (1) by notice in writing of the Executive's exercise of the
Options, delivered to the Chief Financial Officer of NATCO or mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the Chief Financial Officer of NATCO, c/o National Tank Company,
Brookhollow Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092,
and (2) by contemporaneous payment to NATCO of the full amount of the purchase
price of the common stock being purchased by the Executive pursuant to these
Options (together with any amount which is necessary to satisfy any applicable
federal, state or local tax requirements), by certified check or official bank
check payable to the order of NATCO.
(b) The Company may require of the Executive at the time
the Options are exercised, that the Executive make or enter into
representations and agreements as may be necessary or desirable, in the opinion
of the Company, in order to assure compliance with the terms of this Stock
Option Agreement and all applicable federal and state securities laws and stock
exchange regulations.
(c) The Company shall make immediate delivery of all
shares purchased by the Executive upon the exercise of the Option, provided
that if any law or regulation requires the Company to take any action with
respect to the shares being purchased by the Executive pursuant to these
Options, then the date of delivery of such shares shall be extended for the
period necessary to take such action.
4. STOCKHOLDERS AGREEMENT.
In the event the Executive exercises the Options and purchases
shares of common stock of NATCO, the shares held by the Executive shall be
subject to the terms of the Stockholders Agreement dated the 30th day of June,
1997, by and among Capricorn Investors, L.P., Capricorn Investors II, L.P. and
Cummings Point Industries, Inc., attached hereto as Exhibit A.
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5. TERMINATION OF OPTIONS.
(a) The Options, to the extent not heretofore exercised,
shall terminate and cease to be exercisable on the date on which the first of
the following events occurs:
(1) the termination of the Executive's employment
with the Company for Cause;
(2) thirty (30) days after the termination of the
Executive's employment with the Company for any reason other than
Cause;
(3) thirty (30) days after an Alteration in the
employment of the Executive by the Company;
(4) expiration of the Option Period as provided
in Section 2 of this Stock Option Agreement.
(b) The Company may at its election cause the Options to
terminate in the event of a Sale of the Company provided that the Company gives
the Executive written notice at least thirty (30) days prior to any
transaction that would result in the termination of the Executive's
Options pursuant to this Section 5(b).
6. VESTING.
(a) Except as otherwise set forth herein, as long as the
Executive continues as an officer or employee of the Company or a subsidiary,
the Options will vest over three years, with one-third (33 1/3%) vesting at the
end of each anniversary year after the Award Date, and no additional fractional
amount vesting until the completion of each anniversary year. The Executive
shall have no right to purchase shares pursuant to the Options until or unless
the Options are vested.
(b) Notwithstanding Section 6(a) above, in the event of a
Sale of the Company, the Options shall become fully vested in the following
circumstances:
(1) Upon notice by the Company of termination of
the Options pursuant to Section 5(b). Notwithstanding anything herein
to the contrary, however, termination of the Options pursuant to
Section 5(b) shall not result in the vesting of otherwise unvested
Options if the Company in the case of a Change of Control, or the
surviving corporation in the case of a merger, or any purchasing
corporation in the case of a sale of all or substantially all of the
assets of the Company, agrees to provide the Executive with a
combination of options, deferred compensation, bonuses or other
incentive programs, with terms and conditions which, as closely as
possible, produce the same overall economic result to the Executive as
the terminated but unvested Options;
(2) The Company does not terminate the Options
pursuant to Section 5(b), but a Change of Control has occurred and
there is an Alteration in the employment of
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the Executive. Notwithstanding anything herein to the contrary,
however, an Alteration shall not be deemed to have occurred in
connection with a Change of Control for purposes of this Paragraph
6(b) if (i) the Company, in the case of a Change of Control, or the
surviving corporation in the case of a merger, or the purchasing
corporation in the case of a sale of all or substantially all the
assets of the Company, agrees to employ the Executive on terms
substantially similar to the terms of Executive's employment with the
Company prior to such Change of Control (or as otherwise agreed by
such entity and the Executive), or (ii) the Alteration was for Cause.
(c) The Options shall become fully vested in the event
of: (i) death of the Executive while employed by the Company, or (ii)
termination by reason of disability (as defined from time to time by the
Committee) of the Executive while employed by the Company.
7. PURCHASE OF VESTED OPTIONS BY THE COMPANY.
(a) The Executive will be entitled to tender and NATCO
will be obligated to purchase Vested Options held by the Executive on the
following occasions ("Option Purchase Periods"):
(1) for a period of thirty (30) days after the
termination of the Executive's employment with the Company for any
reason other than Cause;
(2) for a period of thirty (30) days after an
Alteration in the employment of the Executive;
(3) for a period of thirty (30) days after notice
provided by the Company that the Options will be terminated pursuant
to Section 5(b) herein; and
(4) for a period of six (6) months prior to the
Expiration Date.
(b) The Executive will only be entitled to tender Vested
Options to the Company during an Option Purchase Period and will do so by
notice in writing, specifying the number of Vested Options being tendered,
delivered to the Chief Financial Officer of NATCO or mailed by registered or
certified mail, return receipt requested, postage pre-paid, addressed to the
Chief Financial Officer of NATCO, c/o National Tank Company, Brookhollow
Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092. The above
notwithstanding, in the event of the Executive's death, the Executive's estate
shall be deemed to have tendered the Executive's Vested Options to the Company
as of the day following the date of the Executive's death.
(c) NATCO shall purchase Vested Options properly tendered
under this Section 7 for cash. The amount in cash will be determined by
multiplying (i) the number of Vested Options being tendered times (ii) the
difference between (x) the Fair Market Value per share of the Company's common
stock on the tender date and (y) the price set forth in Section 1(a).
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(d) At the company's option, the amount paid to the
Executive to purchase Vested Options under this Section 7 may be in a lump sum,
which will be paid no later than 90 days from the date of the tender, or in 12
equal quarterly payments over a three year period bearing interest at the
Reference Rate.
(e) For purposes of Section 7(c), the Fair Market Value
per share of the Company's common stock shall mean:
(1) if the stock is listed or admitted to trade
on a national securities exchange, the average price of the stock over
the last ten trading days on the composite tape of the principal
national securities exchange on which the stock is so listed or
admitted to trade;
(2) if the stock is not listed or admitted to
trade on a national securities exchange, the mean between the last
reported bid and asked price for the stock over the last ten trading
days as furnished by (a) the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no
longer reporting such information, or (b) a service such as the
national Quotation Bureau if such bid and asked price is regularly
quoted therein; or
(3) if conditions (1) and (2) do not apply, the
Fair Market Value of the Company's Common Stock shall mean the value
established by the Committee. To the extent possible, in determining
such value, the Committee shall analyze present value of projected
cash flow, multiples in relation to comparable companies (reflecting
such liquidity discounts as are appropriate), and other such
methodologies as are typical in valuing private companies.
(f) The Company shall have the right to deduct from any
payments to be made to the Executive hereunder any amounts that federal, state
or local tax law requires to be withheld with respect to amounts payable to the
Executive upon the tender of any Vested Option.
(g) Anything herein to the contrary notwithstanding, if
at the time of the tender of a Vested Option, the Company is in default under
any loan agreements to which the Company is a party, or if any payment to
Executive under this Section 7 would cause the Company to be in default under
any such agreement, then amounts otherwise payable to an Executive hereunder
shall not be paid, and the Company shall have no obligation to make such
payment, as long as such default continues. Amounts not paid by reason of the
provisions of this Paragraph 7(g) shall accrue interest from the time such
amounts would otherwise have been paid until the time such amounts are actually
paid at a rate per annum equal to the Reference Rate.
8. NON-TRANSFERABILITY OF OPTIONS.
The Options may not be sold, hypothecated, transferred or
otherwise disposed of, and may only be exercised by the Executive, or his
estate. If the Executive's estate exercises the
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Options, the estate shall be bound by all conditions, restrictions, and
limitations that otherwise would have applied to the Executive had the
Executive exercised the Options.
9. NO RIGHTS AS STOCKHOLDER.
The Executive shall have none of the rights of a stockholder
of NATCO with respect to any of the shares of common stock issuable under the
Options unless and until such shares of common stock have been purchased by the
Executive in accordance with the terms and conditions of this Stock Option
Agreement.
10. RIGHT TO TERMINATE EMPLOYMENT.
Nothing herein shall be construed to confer upon an Executive
the right to continue in the employment of the Company or affect the right of
the Company to terminate the Executive's employment at any time.
11. NO RIGHTS AS SECURED CREDITOR.
Anything herein to the contrary expressed or implied
notwithstanding, if an Executive otherwise entitled to payment under Section 7
above does not receive payment by reason of the provisions of Section 7(g), or
for any other reason, the rights of the Executive with regard to such payment
and any accrued interest as provided herein shall be those of an unsecured
creditor of the Company and such rights shall be subordinate and junior to all
senior and institutional indebtedness, all indebtedness for borrowed money and
all secured indebtedness of the Company.
12. REPRESENTATION AS TO INVESTMENT.
The Executive represents and warrants to NATCO that all shares
purchased under this Stock Option Agreement shall be acquired for the
Executive's own account and not with a view to distribution. The Executive
acknowledges that the Executive may not sell, assign, transfer or otherwise
dispose of any shares purchased under this Stock Option Agreement, or of any of
his right, title or interest therein, in the absence of either a registration
statement under the Securities Act of 1933, as amended (the "Act") or an
exemption from the registration provisions of the Act, and agrees that
certificates representing the shares may contain a legend to such effect. The
exercise of these Options and the delivery of shares hereunder is contingent
upon the Company being furnished by the Executive with a statement in writing
at the time of such exercise confirming the accuracy of the foregoing
representation and warranty.
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13. NOTICE.
All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive, to him at:
If to NATCO, to it at:
Cummings Point Industries, Inc.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: President
With a copy to:
Vinson & Elkins
1001 Fannin, Suite 3619
Houston, Texas 77002-6760
Attention: Mr. William E. Joor
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications hereunder shall be
effective when actually received by the addressee.
14. AMENDMENT.
This Stock Option Agreement may only be modified, supplemented
or amended by a written instrument executed by the party against whom which
enforcement of such modification, supplement or amendment is sought.
15. HEADINGS.
The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Stock Option
Agreement.
16. GOVERNING LAW.
This Stock Option Agreement shall be governed by and construed
in accordance with the laws of the State of New York without reference to
principles of conflict of laws.
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17. INTERPRETATION OF THE AGREEMENT.
(a) Any determination required by or resolution of any
dispute arising out of this Option Agreement, and Sections 1(b), 5(b), 6(b),
7(e), or any other Section without limitation, shall be made by a Committee
(the "Committee") consisting of two members of the Board of Directors of the
Company. The determinations of the Committee shall be conclusive.
(b) No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in good faith with
respect to this Option Agreement. The Company hereby agrees to indemnify each
member of the Committee to the extent permitted by applicable law and the
By-laws of the Company for all costs, charges, expenses, liabilities and losses
incurred or arising in connection with the member's actions in interpreting
this Option Agreement.
(c) The Board of Directors, at any time it so desires,
may increase or decrease the number of members of the Committee, may remove
from membership on the Committee all or any portion of its members, and may
appoint such person or persons as it desire to fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise.
18. DEFINITIONS.
"Affiliate" means any corporation that would be a member of a
controlled group of corporations with the Company within the meaning of Section
1563(a) of the Internal Revenue Code of 1986, as amended.
"Alteration" in the employment of the Executive means,
following a Change of Control, (a) the Executive's employment with the Company
is terminated; (b) the Company, without the Executive's consent, reduces the
annual base salary of the Executive in effect immediately prior to the Change
of Control; or (c) the Company, without the Executive's consent, reassigns the
Executive to a location which is more than fifty (50) miles from the principal
location at which the Executive worked for the Company immediately prior to the
Change of Control.
"Award Date" means June 21, 1994.
"Cause" means the Executive engages in theft, dishonesty,
neglect of duty or misconduct in the discharge of the Executive's duties and
responsibilities.
"Change of Control" shall be deemed to have occurred in the
event and only in the event of a Sale of the Company.
"Expiration Date" means December 21, 2001.
"Reference Rate" means the prime rate of interest as published
in the Wall Street Journal.
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"Sale of the Company" means (a) sale of all or substantially
all of the common stock of NATCO to any party or parties other than the
Executive, regardless of whether such sale is effected in a single transaction
or a series of related transactions, provided that as a result Capricorn
Investors, L.P., Capricorn Investors II, L.P., and any Affiliate of the
Company, taken together ("Capricorn"), would thereafter own less than twenty
percent (20%) of the common stock of the Company, (b) a sale of all or
substantially all of the Company's assets or (c) a merger or consolidation of
the Company with and into another corporation if immediately after the merger
Capricorn owns less than twenty percent (20%) of the common stock of such other
corporation.
"Vested Options" means Options which are vested as provided in
Section 6(a), 6 (b) or 6(c).
In witness whereof, the parties hereto have executed this
Agreement as of the date first above written.
CUMMINGS POINT INDUSTRIES, INC.
By /s/ N. A. Gregory /s/ FRANK SMITH
----------------------------- --------------------------------
Title: Chairman
-------------------------
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EXHIBIT 10.17
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT AND ANY SHARES ACQUIRED UPON THE
EXERCISE OF THE OPTIONS GRANTED HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS STOCK OPTION AGREEMENT, dated as of this 31st day of
July, 1997, by and between Cummings Point Industries, Inc., a corporation
existing under the laws of the State of Delaware (hereinafter referred to as
"NATCO" or, together with any and all subsidiaries of NATCO, the "Company") and
Frank Smith (hereinafter referred to as "the Executive").
W I T N E S S E T H
WHEREAS, in order to provide the Executive with an incentive
to devote his best skills and efforts to the success of NATCO, the Company
deems it to be in its best interests to provide the Executive with Options to
purchase shares of NATCO;
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and conditions herein, the parties hereto hereby agree as
follows:
1. OPTIONS.
(a) Subject to the terms and upon the conditions
contained herein including the vesting requirement contained in Section 6, the
Executive shall have the right, privilege, and option to purchase 25,000 shares
of common stock of NATCO at a purchase price of $6.71 per share (the
"Options").
(b) If, subsequent to the date of this Agreement, the
Company shall declare and pay any stock dividend or shall divide or combine the
outstanding common stock of NATCO through any stock split, stock combination or
other recapitalization, the number of shares and purchase price for shares
under the Options shall be appropriately adjusted to reflect such stock
dividend, stock split, stock combination or other recapitalization. Such
adjustments shall be made by the Committee, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
(c) If, subsequent to the date of this Agreement, as long
as the Company's common stock is not listed or admitted to trade on a national
securities exchange, in which case this Section 1(c) does not apply, the
Company shall declare and pay a cash dividend on the outstanding common stock
of NATCO, then the purchase price in Section 1(a) above shall be appropriately
adjusted to reflect such cash dividend. Such adjustment shall be made by the
committee, whose determination as to what adjustment shall be made, and the
extent thereof, shall be final, binding and conclusive.
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2. OPTION PERIOD.
Subject to the terms and upon the conditions contained herein,
Vested Options may be exercised at any time prior to the earlier to occur of
termination of the Options pursuant to Section 5 hereof and the Expiration Date
(the "Option Period").
3. METHOD OF EXERCISE.
(a) The Options may be exercised only within the Option
Period and only (1) by notice in writing of the Executive's exercise of the
Options, delivered to the Chief Financial Officer of NATCO or mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the Chief Financial Officer of NATCO, c/o National Tank Company,
Brookhollow Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092,
and (2) by contemporaneous payment to NATCO of the full amount of the purchase
price of the common stock being purchased by the Executive pursuant to these
Options (together with any amount which is necessary to satisfy any applicable
federal, state or local tax requirements), by certified check or official bank
check payable to the order of NATCO.
(b) The Company may require of the Executive at the time
the Options are exercised, that the Executive make or enter into
representations and agreements as may be necessary or desirable, in the opinion
of the Company, in order to assure compliance with the terms of this Stock
Option Agreement and all applicable federal and state securities laws and stock
exchange regulations.
(c) The Company shall make immediate delivery of all
shares purchased by the Executive upon the exercise of the Option, provided
that if any law or regulation requires the Company to take any action with
respect to the shares being purchased by the Executive pursuant to these
Options, then the date of delivery of such shares shall be extended for the
period necessary to take such action.
4. STOCKHOLDERS AGREEMENT.
In the event the Executive exercises the Options and purchases
shares of common stock of NATCO, the shares held by the Executive shall be
subject to the terms of the Stockholders Agreement dated the 30th day of June,
1997, by and among Capricorn Investors, L.P., Capricorn Investors II, L.P. and
Cummings Point Industries, Inc., attached hereto as Exhibit A.
5. TERMINATION OF OPTIONS.
(a) The Options, to the extent not heretofore exercised,
shall terminate and cease to be exercisable on the date on which the first of
the following events occurs:
(1) the termination of the Executive's employment
with the Company for Cause;
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(2) thirty (30) days after the termination of the
Executive's employment with the Company for any reason other than
Cause;
(3) thirty (30) days after an Alteration in the
employment of the Executive by the Company;
(4) expiration of the Option Period as provided
in Section 2 of this Stock Option Agreement.
(b) The Company may at its election cause the Options to
terminate in the event of a Sale of the Company provided that the Company gives
the Executive written notice at least thirty (30) days prior to any
transaction that would result in the termination of the Executive's
Options pursuant to this Section 5(b).
6. VESTING.
(a) Except as otherwise set forth herein, as long as the
Executive continues as an officer or employee of the Company or a subsidiary,
the Options will vest over four years, with one-fourth (25%) vesting at the end
of each anniversary year after the Award Date, and no additional fractional
amount vesting until the completion of each anniversary year. The Executive
shall have no right to purchase shares pursuant to the Options until or unless
the Options are vested.
(b) Notwithstanding Section 6(a) above, in the event of a
Sale of the Company, the Options shall become fully vested in the following
circumstances:
(1) Upon notice by the Company of termination of
the Options pursuant to Section 5(b). Notwithstanding anything herein
to the contrary, however, termination of the Options pursuant to
Section 5(b) shall not result in the vesting of otherwise unvested
Options if the Company in the case of a Change of Control, or the
surviving corporation in the case of a merger, or any purchasing
corporation in the case of a sale of all or substantially all of the
assets of the Company, agrees to provide the Executive with a
combination of options, deferred compensation, bonuses or other
incentive programs, with terms and conditions which, as closely as
possible, produce the same overall economic result to the Executive as
the terminated but unvested Options;
(2) The Company does not terminate the Options
pursuant to Section 5(b), but a Change of Control has occurred and
there is an Alteration in the employment of the Executive.
Notwithstanding anything herein to the contrary, however, an
Alteration shall not be deemed to have occurred in connection with a
Change of Control for purposes of this Paragraph 6(b) if (i) the
Company, in the case of a Change of Control, or the surviving
corporation in the case of a merger, or the purchasing corporation in
the case of a sale of all or substantially all the assets of the
Company, agrees to employ the Executive on terms substantially similar
to the terms of Executive's employment with the Company prior
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to such Change of Control (or as otherwise agreed by such entity and
the Executive), or (ii) the Alteration was for Cause.
(c) The Options shall become fully vested in the event
of: (i) death of the Executive while employed by the Company, or (ii)
termination by reason of disability (as defined from time to time by the
Committee) of the Executive while employed by the Company.
7. PURCHASE OF VESTED OPTIONS BY THE COMPANY.
(a) The Executive will be entitled to tender and NATCO
will be obligated to purchase Vested Options held by the Executive on the
following occasions ("Option Purchase Periods"):
(1) for a period of thirty (30) days after the
termination of the Executive's employment with the Company for any
reason other than Cause;
(2) for a period of thirty (30) days after an
Alteration in the employment of the Executive;
(3) for a period of thirty (30) days after notice
provided by the Company that the Options will be terminated pursuant
to Section 5(b) herein; and
(4) for a period of six (6) months prior to the
Expiration Date.
(b) The Executive will only be entitled to tender Vested
Options to the Company during an Option Purchase Period and will do so by
notice in writing, specifying the number of Vested Options being tendered,
delivered to the Chief Financial Officer of NATCO or mailed by registered or
certified mail, return receipt requested, postage pre-paid, addressed to the
Chief Financial Officer of NATCO, c/o National Tank Company, Brookhollow
Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092. The above
notwithstanding, in the event of the Executive's death, the Executive's estate
shall be deemed to have tendered the Executive's Vested Options to the Company
as of the day following the date of the Executive's death.
(c) NATCO shall purchase Vested Options properly tendered
under this Section 7 for cash. The amount in cash will be determined by
multiplying (i) the number of Vested Options being tendered times (ii) the
difference between (x) the Fair Market Value per share of the Company's common
stock on the tender date and (y) the price set forth in Section 1(a).
(d) At the company's option, the amount paid to the
Executive to purchase Vested Options under this Section 7 may be in a lump sum,
which will be paid no later than 90 days from the date of the tender, or in 12
equal quarterly payments over a three year period bearing interest at the
Reference Rate.
(e) For purposes of Section 7(c), the Fair Market Value
per share of the Company's common stock shall mean:
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(1) if the stock is listed or admitted to trade
on a national securities exchange, the average price of the stock over
the last ten trading days on the composite tape of the principal
national securities exchange on which the stock is so listed or
admitted to trade;
(2) if the stock is not listed or admitted to
trade on a national securities exchange, the mean between the last
reported bid and asked price for the stock over the last ten trading
days as furnished by (a) the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no
longer reporting such information, or (b) a service such as the
national Quotation Bureau if such bid and asked price is regularly
quoted therein; or
(3) if conditions (1) and (2) do not apply, the
Fair Market Value of the Company's Common Stock shall mean the value
established by the Committee. To the extent possible, in determining
such value, the Committee shall analyze present value of projected
cash flow, multiples in relation to comparable companies (reflecting
such liquidity discounts as are appropriate), and other such
methodologies as are typical in valuing private companies.
(f) The Company shall have the right to deduct from any
payments to be made to the Executive hereunder any amounts that federal, state
or local tax law requires to be withheld with respect to amounts payable to the
Executive upon the tender of any Vested Option.
(g) Anything herein to the contrary notwithstanding, if
at the time of the tender of a Vested Option, the Company is in default under
any loan agreements to which the Company is a party, or if any payment to
Executive under this Section 7 would cause the Company to be in default under
any such agreement, then amounts otherwise payable to an Executive hereunder
shall not be paid, and the Company shall have no obligation to make such
payment, as long as such default continues. Amounts not paid by reason of the
provisions of this Paragraph 7(g) shall accrue interest from the time such
amounts would otherwise have been paid until the time such amounts are actually
paid at a rate per annum equal to the Reference Rate.
8. NON-TRANSFERABILITY OF OPTIONS.
The Options may not be sold, hypothecated, transferred or
otherwise disposed of, and may only be exercised by the Executive, or his
estate. If the Executive's estate exercises the Options, the estate shall be
bound by all conditions, restrictions, and limitations that otherwise would
have applied to the Executive had the Executive exercised the Options.
9. NO RIGHTS AS STOCKHOLDER.
The Executive shall have none of the rights of a stockholder
of NATCO with respect to any of the shares of common stock issuable under the
Options unless and until such
5
<PAGE> 6
shares of common stock have been purchased by the Executive in accordance with
the terms and conditions of this Stock Option Agreement.
10. RIGHT TO TERMINATE EMPLOYMENT.
Nothing herein shall be construed to confer upon an Executive
the right to continue in the employment of the Company or affect the right of
the Company to terminate the Executive's employment at any time.
11. NO RIGHTS AS SECURED CREDITOR.
Anything herein to the contrary expressed or implied
notwithstanding, if an Executive otherwise entitled to payment under Section 7
above does not receive payment by reason of the provisions of Section 7(g), or
for any other reason, the rights of the Executive with regard to such payment
and any accrued interest as provided herein shall be those of an unsecured
creditor of the Company and such rights shall be subordinate and junior to all
senior and institutional indebtedness, all indebtedness for borrowed money and
all secured indebtedness of the Company.
12. REPRESENTATION AS TO INVESTMENT.
The Executive represents and warrants to NATCO that all shares
purchased under this Stock Option Agreement shall be acquired for the
Executive's own account and not with a view to distribution. The Executive
acknowledges that the Executive may not sell, assign, transfer or otherwise
dispose of any shares purchased under this Stock Option Agreement, or of any of
his right, title or interest therein, in the absence of either a registration
statement under the Securities Act of 1933, as amended (the "Act") or an
exemption from the registration provisions of the Act, and agrees that
certificates representing the shares may contain a legend to such effect. The
exercise of these Options and the delivery of shares hereunder is contingent
upon the Company being furnished by the Executive with a statement in writing
at the time of such exercise confirming the accuracy of the foregoing
representation and warranty.
13. NOTICE.
All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
6
<PAGE> 7
If to the Executive, to him at:
If to NATCO, to it at:
Cummings Point Industries, Inc.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: President
With a copy to:
Vinson & Elkins
1001 Fannin, Suite 3619
Houston, Texas 77002-6760
Attention: Mr. William E. Joor
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications hereunder shall be
effective when actually received by the addressee.
14. AMENDMENT.
This Stock Option Agreement may only be modified, supplemented
or amended by a written instrument executed by the party against whom which
enforcement of such modification, supplement or amendment is sought.
15. HEADINGS.
The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Stock Option
Agreement.
16. GOVERNING LAW.
This Stock Option Agreement shall be governed by and construed
in accordance with the laws of the State of New York without reference to
principles of conflict of laws.
17. INTERPRETATION OF THE AGREEMENT.
(a) Any determination required by or resolution of any
dispute arising out of this Option Agreement, and Sections 1(b), 5(b), 6(b),
7(e), or any other Section without limitation, shall be made by a Committee
(the "Committee") consisting of two members of the Board of Directors of the
Company. The determinations of the Committee shall be conclusive.
(b) No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in good faith with
respect to this Option Agreement. The
7
<PAGE> 8
Company hereby agrees to indemnify each member of the Committee to the extent
permitted by applicable law and the By-laws of the Company for all costs,
charges, expenses, liabilities and losses incurred or arising in connection
with the member's actions in interpreting this Option Agreement.
(c) The Board of Directors, at any time it so desires,
may increase or decrease the number of members of the Committee, may remove
from membership on the Committee all or any portion of its members, and may
appoint such person or persons as it desire to fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise.
18. DEFINITIONS.
"Affiliate" means any corporation that would be a member of a
controlled group of corporations with the Company within the meaning of Section
1563(a) of the Internal Revenue Code of 1986, as amended.
"Alteration" in the employment of the Executive means,
following a Change of Control, (a) the Executive's employment with the Company
is terminated; (b) the Company, without the Executive's consent, reduces the
annual base salary of the Executive in effect immediately prior to the Change
of Control; or (c) the Company, without the Executive's consent, reassigns the
Executive to a location which is more than fifty (50) miles from the principal
location at which the Executive worked for the Company immediately prior to the
Change of Control.
"Award Date" means July 1, 1997.
"Cause" means the Executive engages in theft, dishonesty,
neglect of duty or misconduct in the discharge of the Executive's duties and
responsibilities.
"Change of Control" shall be deemed to have occurred in the
event and only in the event of a Sale of the Company.
"Expiration Date" means January 1, 2005.
"Reference Rate" means the prime rate of interest as published
in the Wall Street Journal.
"Sale of the Company" means (a) sale of all or substantially
all of the common stock of NATCO to any party or parties other than the
Executive, regardless of whether such sale is effected in a single transaction
or a series of related transactions, provided that as a result Capricorn
Investors, L.P., Capricorn Investors II, L.P., and any Affiliate of the
Company, taken together ("Capricorn"), would thereafter own less than twenty
percent (20%) of the common stock of the Company, (b) a sale of all or
substantially all of the Company's assets or (c) a merger or consolidation of
the Company with and into another corporation if immediately after the merger
Capricorn owns less than twenty percent (20%) of the common stock of such other
corporation.
8
<PAGE> 9
"Vested Options" means Options which are vested as provided in
Section 6(a), 6(b) or 6(c).
In witness whereof, the parties hereto have executed this
Agreement as of the date first above written.
CUMMINGS POINT INDUSTRIES, INC.
By
----------------------------- --------------------------------
Title:
-------------------------
9
<PAGE> 1
EXHIBIT 10.18
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT AND ANY SHARES ACQUIRED UPON THE
EXERCISE OF THE OPTIONS GRANTED HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS STOCK OPTION AGREEMENT, dated as of this 31st day of
July, 1997, by and between Cummings Point Industries, Inc., a corporation
existing under the laws of the State of Delaware (hereinafter referred to as
"NATCO" or, together with any and all subsidiaries of NATCO, the "Company") and
Dave Volz (hereinafter referred to as "the Executive").
W I T N E S S E T H
WHEREAS, in order to provide the Executive with an incentive
to devote his best skills and efforts to the success of NATCO, the Company
deems it to be in its best interests to provide the Executive with Options to
purchase shares of NATCO;
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and conditions herein, the parties hereto hereby agree as
follows:
1. OPTIONS.
(a) Subject to the terms and upon the conditions
contained herein including the vesting requirement contained in Section 6, the
Executive shall have the right, privilege, and option to purchase 50,000 shares
of common stock of NATCO at a purchase price of $6.71 per share (the
"Options").
(b) If, subsequent to the date of this Agreement, the
Company shall declare and pay any stock dividend or shall divide or combine the
outstanding common stock of NATCO through any stock split, stock combination or
other recapitalization, the number of shares and purchase price for shares
under the Options shall be appropriately adjusted to reflect such stock
dividend, stock split, stock combination or other recapitalization. Such
adjustments shall be made by the Committee, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
(c) If, subsequent to the date of this Agreement, as long
as the Company's common stock is not listed or admitted to trade on a national
securities exchange, in which case this Section 1(c) does not apply, the
Company shall declare and pay a cash dividend on the outstanding common stock
of NATCO, then the purchase price in Section 1(a) above shall be appropriately
adjusted to reflect such cash dividend. Such adjustment shall be made by the
committee, whose determination as to what adjustment shall be made, and the
extent thereof, shall be final, binding and conclusive.
1
<PAGE> 2
2. OPTION PERIOD.
Subject to the terms and upon the conditions contained herein,
Vested Options may be exercised at any time prior to the earlier to occur of
termination of the Options pursuant to Section 5 hereof and the Expiration Date
(the "Option Period").
3. METHOD OF EXERCISE.
(a) The Options may be exercised only within the Option
Period and only (1) by notice in writing of the Executive's exercise of the
Options, delivered to the Chief Financial Officer of NATCO or mailed by
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the Chief Financial Officer of NATCO, c/o National Tank Company,
Brookhollow Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092,
and (2) by contemporaneous payment to NATCO of the full amount of the purchase
price of the common stock being purchased by the Executive pursuant to these
Options (together with any amount which is necessary to satisfy any applicable
federal, state or local tax requirements), by certified check or official bank
check payable to the order of NATCO.
(b) The Company may require of the Executive at the time
the Options are exercised, that the Executive make or enter into
representations and agreements as may be necessary or desirable, in the opinion
of the Company, in order to assure compliance with the terms of this Stock
Option Agreement and all applicable federal and state securities laws and stock
exchange regulations.
(c) The Company shall make immediate delivery of all
shares purchased by the Executive upon the exercise of the Option, provided
that if any law or regulation requires the Company to take any action with
respect to the shares being purchased by the Executive pursuant to these
Options, then the date of delivery of such shares shall be extended for the
period necessary to take such action.
4. STOCKHOLDERS AGREEMENT.
In the event the Executive exercises the Options and purchases
shares of common stock of NATCO, the shares held by the Executive shall be
subject to the terms of the Stockholders Agreement dated the 30th day of June,
1997, by and among Capricorn Investors, L.P., Capricorn Investors II, L.P. and
Cummings Point Industries, Inc., attached hereto as Exhibit A.
5. TERMINATION OF OPTIONS.
(a) The Options, to the extent not heretofore exercised,
shall terminate and cease to be exercisable on the date on which the first of
the following events occurs:
(1) the termination of the Executive's employment
with the Company for Cause;
2
<PAGE> 3
(2) thirty (30) days after the termination of the
Executive's employment with the Company for any reason other than
Cause;
(3) thirty (30) days after an Alteration in the
employment of the Executive by the Company;
(4) expiration of the Option Period as provided
in Section 2 of this Stock Option Agreement.
(b) The Company may at its election cause the Options to
terminate in the event of a Sale of the Company provided that the Company gives
the Executive written notice at least thirty (30) days prior to any
transaction that would result in the termination of the Executive's
Options pursuant to this Section 5(b).
6. VESTING.
(a) Except as otherwise set forth herein, as long as the
Executive continues as an officer or employee of the Company or a subsidiary,
the Options will vest over four years, with one-fourth (25%) vesting at the end
of each anniversary year after the Award Date, and no additional fractional
amount vesting until the completion of each anniversary year. The Executive
shall have no right to purchase shares pursuant to the Options until or unless
the Options are vested.
(b) Notwithstanding Section 6(a) above, in the event of a
Sale of the Company, the Options shall become fully vested in the following
circumstances:
(1) Upon notice by the Company of termination of
the Options pursuant to Section 5(b). Notwithstanding anything herein
to the contrary, however, termination of the Options pursuant to
Section 5(b) shall not result in the vesting of otherwise unvested
Options if the Company in the case of a Change of Control, or the
surviving corporation in the case of a merger, or any purchasing
corporation in the case of a sale of all or substantially all of the
assets of the Company, agrees to provide the Executive with a
combination of options, deferred compensation, bonuses or other
incentive programs, with terms and conditions which, as closely as
possible, produce the same overall economic result to the Executive as
the terminated but unvested Options;
(2) The Company does not terminate the Options
pursuant to Section 5(b), but a Change of Control has occurred and
there is an Alteration in the employment of the Executive.
Notwithstanding anything herein to the contrary, however, an
Alteration shall not be deemed to have occurred in connection with a
Change of Control for purposes of this Paragraph 6(b) if (i) the
Company, in the case of a Change of Control, or the surviving
corporation in the case of a merger, or the purchasing corporation in
the case of a sale of all or substantially all the assets of the
Company, agrees to employ the Executive on terms substantially similar
to the terms of Executive's employment with the Company prior
3
<PAGE> 4
to such Change of Control (or as otherwise agreed by such entity and
the Executive), or (ii) the Alteration was for Cause.
(c) The Options shall become fully vested in the event
of: (i) death of the Executive while employed by the Company, or (ii)
termination by reason of disability (as defined from time to time by the
Committee) of the Executive while employed by the Company.
7. PURCHASE OF VESTED OPTIONS BY THE COMPANY.
(a) The Executive will be entitled to tender and NATCO
will be obligated to purchase Vested Options held by the Executive on the
following occasions ("Option Purchase Periods"):
(1) for a period of thirty (30) days after the
termination of the Executive's employment with the Company for any
reason other than Cause;
(2) for a period of thirty (30) days after an
Alteration in the employment of the Executive;
(3) for a period of thirty (30) days after notice
provided by the Company that the Options will be terminated pursuant
to Section 5(b) herein; and
(4) for a period of six (6) months prior to the
Expiration Date.
(b) The Executive will only be entitled to tender Vested
Options to the Company during an Option Purchase Period and will do so by
notice in writing, specifying the number of Vested Options being tendered,
delivered to the Chief Financial Officer of NATCO or mailed by registered or
certified mail, return receipt requested, postage pre-paid, addressed to the
Chief Financial Officer of NATCO, c/o National Tank Company, Brookhollow
Central III, Suite 750, 2950 North Loop West, Houston, Texas 77092. The above
notwithstanding, in the event of the Executive's death, the Executive's estate
shall be deemed to have tendered the Executive's Vested Options to the Company
as of the day following the date of the Executive's death.
(c) NATCO shall purchase Vested Options properly tendered
under this Section 7 for cash. The amount in cash will be determined by
multiplying (i) the number of Vested Options being tendered times (ii) the
difference between (x) the Fair Market Value per share of the Company's common
stock on the tender date and (y) the price set forth in Section 1(a).
(d) At the company's option, the amount paid to the
Executive to purchase Vested Options under this Section 7 may be in a lump sum,
which will be paid no later than 90 days from the date of the tender, or in 12
equal quarterly payments over a three year period bearing interest at the
Reference Rate.
(e) For purposes of Section 7(c), the Fair Market Value
per share of the Company's common stock shall mean:
4
<PAGE> 5
(1) if the stock is listed or admitted to trade
on a national securities exchange, the average price of the stock over
the last ten trading days on the composite tape of the principal
national securities exchange on which the stock is so listed or
admitted to trade;
(2) if the stock is not listed or admitted to
trade on a national securities exchange, the mean between the last
reported bid and asked price for the stock over the last ten trading
days as furnished by (a) the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no
longer reporting such information, or (b) a service such as the
national Quotation Bureau if such bid and asked price is regularly
quoted therein; or
(3) if conditions (1) and (2) do not apply, the
Fair Market Value of the Company's Common Stock shall mean the value
established by the Committee. To the extent possible, in determining
such value, the Committee shall analyze present value of projected
cash flow, multiples in relation to comparable companies (reflecting
such liquidity discounts as are appropriate), and other such
methodologies as are typical in valuing private companies.
(f) The Company shall have the right to deduct from any
payments to be made to the Executive hereunder any amounts that federal, state
or local tax law requires to be withheld with respect to amounts payable to the
Executive upon the tender of any Vested Option.
(g) Anything herein to the contrary notwithstanding, if
at the time of the tender of a Vested Option, the Company is in default under
any loan agreements to which the Company is a party, or if any payment to
Executive under this Section 7 would cause the Company to be in default under
any such agreement, then amounts otherwise payable to an Executive hereunder
shall not be paid, and the Company shall have no obligation to make such
payment, as long as such default continues. Amounts not paid by reason of the
provisions of this Paragraph 7(g) shall accrue interest from the time such
amounts would otherwise have been paid until the time such amounts are actually
paid at a rate per annum equal to the Reference Rate.
8. NON-TRANSFERABILITY OF OPTIONS.
The Options may not be sold, hypothecated, transferred or
otherwise disposed of, and may only be exercised by the Executive, or his
estate. If the Executive's estate exercises the Options, the estate shall be
bound by all conditions, restrictions, and limitations that otherwise would
have applied to the Executive had the Executive exercised the Options.
9. NO RIGHTS AS STOCKHOLDER.
The Executive shall have none of the rights of a stockholder
of NATCO with respect to any of the shares of common stock issuable under the
Options unless and until such
5
<PAGE> 6
shares of common stock have been purchased by the Executive in accordance with
the terms and conditions of this Stock Option Agreement.
10. RIGHT TO TERMINATE EMPLOYMENT.
Nothing herein shall be construed to confer upon an Executive
the right to continue in the employment of the Company or affect the right of
the Company to terminate the Executive's employment at any time.
11. NO RIGHTS AS SECURED CREDITOR.
Anything herein to the contrary expressed or implied
notwithstanding, if an Executive otherwise entitled to payment under Section 7
above does not receive payment by reason of the provisions of Section 7(g), or
for any other reason, the rights of the Executive with regard to such payment
and any accrued interest as provided herein shall be those of an unsecured
creditor of the Company and such rights shall be subordinate and junior to all
senior and institutional indebtedness, all indebtedness for borrowed money and
all secured indebtedness of the Company.
12. REPRESENTATION AS TO INVESTMENT.
The Executive represents and warrants to NATCO that all shares
purchased under this Stock Option Agreement shall be acquired for the
Executive's own account and not with a view to distribution. The Executive
acknowledges that the Executive may not sell, assign, transfer or otherwise
dispose of any shares purchased under this Stock Option Agreement, or of any of
his right, title or interest therein, in the absence of either a registration
statement under the Securities Act of 1933, as amended (the "Act") or an
exemption from the registration provisions of the Act, and agrees that
certificates representing the shares may contain a legend to such effect. The
exercise of these Options and the delivery of shares hereunder is contingent
upon the Company being furnished by the Executive with a statement in writing
at the time of such exercise confirming the accuracy of the foregoing
representation and warranty.
13. NOTICE.
All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
6
<PAGE> 7
If to the Executive, to him at:
If to NATCO, to it at:
Cummings Point Industries, Inc.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: President
With a copy to:
Vinson & Elkins
1001 Fannin, Suite 3619
Houston, Texas 77002-6760
Attention: Mr. William E. Joor
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications hereunder shall be
effective when actually received by the addressee.
14. AMENDMENT.
This Stock Option Agreement may only be modified, supplemented
or amended by a written instrument executed by the party against whom which
enforcement of such modification, supplement or amendment is sought.
15. HEADINGS.
The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Stock Option
Agreement.
16. GOVERNING LAW.
This Stock Option Agreement shall be governed by and construed
in accordance with the laws of the State of New York without reference to
principles of conflict of laws.
17. INTERPRETATION OF THE AGREEMENT.
(a) Any determination required by or resolution of any
dispute arising out of this Option Agreement, and Sections 1(b), 5(b), 6(b),
7(e), or any other Section without limitation, shall be made by a Committee
(the "Committee") consisting of two members of the Board of Directors of the
Company. The determinations of the Committee shall be conclusive.
(b) No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in good faith with
respect to this Option Agreement. The
7
<PAGE> 8
Company hereby agrees to indemnify each member of the Committee to the extent
permitted by applicable law and the By-laws of the Company for all costs,
charges, expenses, liabilities and losses incurred or arising in connection
with the member's actions in interpreting this Option Agreement.
(c) The Board of Directors, at any time it so desires,
may increase or decrease the number of members of the Committee, may remove
from membership on the Committee all or any portion of its members, and may
appoint such person or persons as it desire to fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise.
18. DEFINITIONS.
"Affiliate" means any corporation that would be a member of a
controlled group of corporations with the Company within the meaning of Section
1563(a) of the Internal Revenue Code of 1986, as amended.
"Alteration" in the employment of the Executive means,
following a Change of Control, (a) the Executive's employment with the Company
is terminated; (b) the Company, without the Executive's consent, reduces the
annual base salary of the Executive in effect immediately prior to the Change
of Control; or (c) the Company, without the Executive's consent, reassigns the
Executive to a location which is more than fifty (50) miles from the principal
location at which the Executive worked for the Company immediately prior to the
Change of Control.
"Award Date" means July 1, 1997.
"Cause" means the Executive engages in theft, dishonesty,
neglect of duty or misconduct in the discharge of the Executive's duties and
responsibilities.
"Change of Control" shall be deemed to have occurred in the
event and only in the event of a Sale of the Company.
"Expiration Date" means January 1, 2005.
"Reference Rate" means the prime rate of interest as published
in the Wall Street Journal.
"Sale of the Company" means (a) sale of all or substantially
all of the common stock of NATCO to any party or parties other than the
Executive, regardless of whether such sale is effected in a single transaction
or a series of related transactions, provided that as a result Capricorn
Investors, L.P., Capricorn Investors II, L.P., and any Affiliate of the
Company, taken together ("Capricorn"), would thereafter own less than twenty
percent (20%) of the common stock of the Company, (b) a sale of all or
substantially all of the Company's assets or (c) a merger or consolidation of
the Company with and into another corporation if immediately after the merger
Capricorn owns less than twenty percent (20%) of the common stock of such other
corporation.
8
<PAGE> 9
"Vested Options" means Options which are vested as provided in
Section 6(a), 6(b) or 6(c).
In witness whereof, the parties hereto have executed this
Agreement as of the date first above written.
CUMMINGS POINT INDUSTRIES, INC.
By /s/ N. A. Gregory /s/ Dave Volz
----------------------------- --------------------------------
Title: Chairman
-------------------------
9
<PAGE> 1
EXHIBIT 21.1
The following companies will constitute all of the
subsidiaries of the Registrant as of the consummation of the Offering:
- -------------------------------------------------------------------------------
State or other Jurisdiction of
Subsidiary Incorporation or Organization
- -------------------------------------------------------------------------------
NATCO Holdings, Inc. (1) Delaware
- -------------------------------------------------------------------------------
NATCO Singapore Pte. Ltd. (2) Singapore
- -------------------------------------------------------------------------------
NATCO (U.K.) Ltd. (3) United Kingdom
- -------------------------------------------------------------------------------
NATCO Oilfield Construction, Inc. (2) California
- -------------------------------------------------------------------------------
Oilfield Construction Company, Inc. (4) California
- -------------------------------------------------------------------------------
National Tank Company (2) Delaware
- -------------------------------------------------------------------------------
NATCO Japan Company, Ltd. (5) Japan
- -------------------------------------------------------------------------------
National Tank Company S.A. (6) Venezuela
- -------------------------------------------------------------------------------
NATCO Canada, Ltd. (6) Canada
- -------------------------------------------------------------------------------
NATCO London, Inc. (6) Delaware
- -------------------------------------------------------------------------------
Total Engineering Services Team, Inc. (6) Louisiana
- -------------------------------------------------------------------------------
TEST, Inc. (7) Louisiana
- -------------------------------------------------------------------------------
TEST International (7) Cayman Islands
- -------------------------------------------------------------------------------
TEST International E.C. (7) Bahrain
- -------------------------------------------------------------------------------
TEST Saudi Arabia Ltd. (8) Saudi Arabia
- -------------------------------------------------------------------------------
(1) Wholly-owned subsidiary of the Registrant
(2) Wholly-owned subsidiary of NATCO Holdings, Inc.
(3) 99%-owned subsidiary of NATCO Holdings, Inc.
(4) Wholly-owned subsidiary of NATCO Oilfield Construction, Inc.
(5) 85%-owned subsidiary of National Tank Company
(6) Wholly-owned subsidiary of National Tank Company
(7) Wholly-owned subsidiary of Total Engineering Services Team, Inc.
(8) 50%-owned subsidiary of Total Engineering Services Team, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
NATCO Group Inc.
(formerly Cummings Point Industries, Inc.)
We consent to the use of our reports on the consolidated financial statements of
NATCO Group Inc. as of March 31, 1997 and 1996 and for each of the years in the
three-year period ended March 31, 1997 and on the financial statements of Total
Engineering Services Team, Inc. as of December 31, 1996 and 1995 and for each of
the years in the three-year period ended December 31, 1996, included herein and
to the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Houston, Texas
March 26, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 27, 1998, with respect to the financial
statements of The Cynara Company included in the Registration Statement (Form
S-1) and related Prospectus of NATCO Group Inc. for the registration of its
common stock.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
March 26, 1998
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,998
<SECURITIES> 0
<RECEIVABLES> 48,270
<ALLOWANCES> 907
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<CURRENT-ASSETS> 74,779
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0
0
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</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT
The undersigned hereby consents to being named in the Registration
Statement on Form S-1 (the "Registration Statement") of NATCO Group Inc.
("NATCO") as a director to be appointed upon consummation of the initial public
offering (the "IPO") of NATCO. The undersigned further consents to serve as a
director of NATCO following the consummation of such IPO.
IN WITNESS WHEREOF, the undersigned has executed this Consent
effective as of the 10th day of March, 1998.
/s/ GEORGE K. HICKCOX, JR.
--------------------------
George K. Hickox, Jr.
