AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OEI INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 8711 76-552644
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
2727 NORTH LOOP WEST, SUITE 400
HOUSTON, TEXAS 77009
PHONE: (713) 880-6200
FAX: (713) 880-6300
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL L. BURROW
CHIEF EXECUTIVE OFFICER
OEI INTERNATIONAL, INC.
2727 NORTH LOOP WEST, SUITE 400
HOUSTON, TEXAS 77009
PHONE: (713) 880-6200
FAX: (713) 880-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
ROBERT G. REEDY STEPHEN P. FARRELL
PORTER & HEDGES, L.L.P. MORGAN, LEWIS & BOCKIUS LLP
700 LOUISIANA, 35TH FLOOR 101 PARK AVENUE
HOUSTON, TEXAS 77002-2764 NEW YORK, NEW YORK 10178-0060
PHONE: (713) 226-0600 PHONE: 212-309-6000
FAX: (713) 226-0274 FAX: 212-309-6273
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------
Common Stock, $.001 par value per share .... $74,175,000 $21,882
- --------------------------------------------------------------------------------
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
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. THE SECURITIES OFFERED HEREBY 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 THE
SECURITIES OFFERED HEREBY IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 16, 1998
PROSPECTUS
Shares
OEI INTERNATIONAL, INC.
Common Stock
------------------
All of the shares of common stock, par value $.001 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by OEI
International, Inc. ("OEI"). Prior to the Offering, there has been no public
market for the Common Stock of OEI. It is currently estimated that the initial
public offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. Application is being made to list the Common
Stock on the New York Stock Exchange under the symbol "ENG."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS(1) TO COMPANY(2)
- --------------------------------------------------------------------------------
Per Share $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the several Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by OEI, estimated at
$ .
(3) OEI has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock solely to cover over-allotments, if any.
See "Underwriting." If such option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions, and Proceeds to Company
will be $ , $ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998 at the office of Salomon Smith Barney, 333 West 34th Street,
New York, NY 10001.
Salomon Smith Barney
CIBC Oppenheimer
Sanders Morris Mundy
, 1998
<PAGE>
[To be supplied by amendment]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
UNLESS OTHERWISE INDICATED, REFERENCES HEREIN TO (I) "OEI" MEAN OEI
INTERNATIONAL, INC., WHICH IS CONDUCTING THE OFFERING AND SIMULTANEOUSLY
COMBINING, IN SEPARATE TRANSACTIONS (THE "PENDING ACQUISITIONS"), FOUR OTHER
ENGINEERING FIRMS (SUCH OTHER FIRMS COLLECTIVELY, THE "ACQUIRED COMPANIES")
WITH PETROCON ENGINEERING, INC. AND ITS SUBSIDIARIES ("PETROCON") AND (II) THE
"COMPANY" MEAN OEI, PETROCON AND THE ACQUIRED COMPANIES AFTER GIVING EFFECT TO
THE PENDING ACQUISITIONS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS, INCLUDING SHARE AND PER SHARE DATA, (I) GIVES EFFECT TO THE
PENDING ACQUISITIONS, (II) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
NOT EXERCISED AND (III) GIVES EFFECT TO A -FOR-ONE SPLIT OF COMMON
STOCK EFFECTED ON , 1998.
THE COMPANY
The Company is a diversified engineering company providing engineering
services and engineered systems to a broad range of industrial, commercial and
institutional clients throughout the United States and internationally. The
Company's multidisciplined expertise enables it to offer its clients total
design and engineering solutions extending from project inception through
completion, start-up and operation, within multiple industries and across
diverse geographic markets. During 1997, the Company was involved in engineering
projects in 26 states and over 21 countries worldwide, generating pro forma
combined revenues of approximately $169.1 million, of which $119.5 million, or
70.7%, was from domestic projects, and $49.6 million, or 29.3%, was from
international work.
OEI was formed in October 1997 by Petrocon's management to conduct the
Offering, simultaneously consummate the Pending Acquisitions and continue
Petrocon's successful acquisition program. The Company, through Petrocon, has
grown significantly through acquisitions, having acquired more than 13
engineering firms since 1988. As a result of the Pending Acquisitions and the
Offering, the Company believes it will have greater financial, technical and
professional resources, which will enable it to aggressively continue its
successful acquisition strategy, enhance its technical capabilities and expand
its already diversified client base.
The Company operates in two principal segments: engineering services and
engineered systems. The Company's engineering services encompass all aspects of
the process, civil, structural, mechanical, instrument, electrical, geotechnical
and environmental engineering and design disciplines, providing its clients with
a single source for all their design, engineering and permitting needs. The
Company has designed and engineered facilities ranging from refineries,
petrochemical plants, pulp and paper processing plants and wastewater treatment
facilities, to food and beverage processing plants, pharmaceutical plants and
laboratories, electronics manufacturing facilities, hotels and casinos. The
Company's engineered systems are primarily custom designed, built, programmed
and installed on a fixed-price, turnkey basis and include control and
instrumentation systems and modular processing plants primarily for the oil and
gas, refining and chemical processing industries. During 1997, approximately
$124.5 million, or 73.6%, of the Company's pro forma combined revenues were
attributable to engineering services and $44.6 million, or 26.4%, were
attributable to engineered systems. The Company provides engineering services
and engineered systems to a number of Fortune 100 companies through a staff of
over 1,600 employees, including approximately 1,100 engineers and design
professionals as of December 31, 1997.
The Company has developed a strategic plan to:
o EXPAND AND DIVERSIFY THROUGH ACQUISITIONS. By continuing to
acquire well-established and highly respected local and regional firms
within the U.S., as well as foreign firms, the Company intends to (i)
expand into new geographic markets, (ii) broaden its areas of acknowledged
technical
3
<PAGE>
expertise, (iii) continue to strengthen its presence within existing
geographic markets and specialties and (iv) enhance its cross-marketing
opportunities.
o ACCELERATE INTERNAL GROWTH. The principal elements of the
Company's internal growth strategy are to (i) attract larger, higher margin
projects, (ii) leverage the Company's capabilities and expertise through
cross-marketing and (iii) develop partnering relationships and other
strategic alliances.
o IMPROVE OPERATING MARGINS. The Company intends to capitalize on
opportunities to achieve operating efficiencies and cost savings by
implementing strategies to (i) increase its overall staff utilization rate
by more effectively deploying and allocating its professional resources,
(ii) consolidate administrative functions and (iii) use its increased
purchasing power to gain volume discounts for itself and in connection with
its procurement services for its clients.
o OUTSOURCE CONSTRUCTION ACTIVITIES. The Company believes it can
offer clients the advantages of turnkey, lump sum projects, without
directly performing the construction activities associated with these
projects, by forming joint ventures and other partnering relationships with
construction firms. The Company believes it will benefit from such a
strategy by limiting its exposure to construction risks.
o OPERATE ON A DECENTRALIZED BASIS. The Company intends to manage
its operating companies on a decentralized basis, with local management
retaining responsibility for day-to-day operations, profitability and
growth. The Company believes that combining a decentralized management
structure with strong, centralized operating and financial controls geared
to accountability, will support the entrepreneurial and creative culture at
each of the operating companies, while allowing the Company to capitalize
on the local and regional market knowledge, goodwill, name recognition and
client relationships of each of the operating companies.
In recent years, the Company has observed and benefitted from a growing
demand for its services and systems due to, among other reasons, (i) an industry
trend towards outsourcing engineering functions as a result of reduced in-house
engineering staffs, (ii) rapid technological advancements in construction,
manufacturing and processing operations, (iii) the increased scope and
complexity of governmental, and particularly environmental, regulations and (iv)
increased capital expenditures resulting from aging infrastructures of the
United States and Western Europe, as well as the rapid growth and
industrialization of the lesser developed countries. According to ENGINEERING
NEWS-RECORD ("ENR"), its "Top 500 Design Firms," which include U.S.-based
engineer-constructor, engineer-architect and other hybrid organizations, as well
as exclusively design and planning firms, billed their clients an aggregate
$ billion in 1997. ENR also reports that the world's "Top 200 International
Design Firms" had worldwide revenues aggregating more than $ billion in
1997. Industry consultants estimate there are more than 28,000 engineering firms
in the U.S. alone, and the Company believes there are significant opportunities
for an established, professionally managed and well-capitalized engineering
company to consolidate regional, local and foreign engineering firms.
The Company's executive offices are located at 2727 North Loop West, Suite
400, Houston, Texas 77009, and its telephone number is (713) 880-6200.
4
<PAGE>
THE OFFERING
Common Stock offered by the
Company............................
Common Stock to be outstanding after
the Offering(1)....................
Use of Proceeds...................... To pay the cash portion of the purchase
price for the Pending Acquisitions, to
repay expenses incurred in connection
with the organization of OEI and the
Offering and to repay certain
indebtedness of the Company. See "Use of
Proceeds."
Proposed NYSE symbol................. ENG
- ------------
(1) The number of shares estimated to be outstanding on completion of the
Offering consists of (i) shares issued to the organizers of OEI,
including shares issued to members of OEI's executive management,
(ii) 5,053,027 shares to be issued as consideration in the Pending
Acquisitions, (iii) the shares being offered by this Prospectus
and (iv) 654,099 shares which will be placed in escrow, and which will be
subject to a maximum three-year earnout arrangement with respect to one of
the Pending Acquisitions (see "The Company -- Summary of Terms of the
Pending Acquisitions"). Such share number does not include (i) an aggregate
of shares subject to options to be granted or allocated for grant
on or prior to the closing of the Offering under the Company's 1998
Incentive Plan (the "Incentive Plan"), shares of which have an
exercise price equal to the initial public offering price per share and
768,384 of which will have a weighted average exercise price per share of
$7.68 (see "Management -- Option Grants") or (ii) an aggregate of 357,579
shares subject to warrants at an exercise price per share of $9.42 to be
issued in connection with the acquisition of Petrocon (see "The
Company -- Summary of Terms of the Pending Acquisitions").
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The Company will consummate the Pending Acquisitions concurrently with, and
as a condition to, the consummation of the Offering. For financial statement
presentation purposes, Petrocon is deemed to be the accounting acquirer. The
following summary historical financial data of Petrocon for the years ended
December 31, 1995, 1996 and 1997, and as of December 31, 1996 and 1997, have
been derived from audited consolidated financial statements of Petrocon included
elsewhere in this Prospectus. The following summary unaudited pro forma combined
financial data gives effect to the Pending Acquisitions and certain other pro
forma adjustments and is adjusted to reflect the consummation of the Offering
and the application of the estimated net proceeds therefrom. See "Selected
Historical and Pro Forma Combined Financial Data" and the Unaudited Pro Forma
Combined Financial Statements and the notes thereto included elsewhere in this
Prospectus. PETROCON
-------------------------------
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, COMBINED(1)
------------------------------- YEAR ENDED
1995 1996 1997 DECEMBER 31, 1997
--------- --------- --------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Revenues............................. $ 52,386 $ 61,851 $ 92,616 $169,065
--------- --------- --------- ------------------
Gross profit......................... 10,242 12,599 20,923 51,204
General and administrative
expenses............................. 8,336 9,498 15,213 31,009(2)
Goodwill amortization................ 23 79 254 1,732(3)
--------- --------- --------- ------------------
Income from operations............... 1,883 3,022 5,456 18,463
Interest income (expense), net....... (456) (592) (1,569) (9)(4)
Other income (expense), net.......... 382 86 442 573
--------- --------- --------- ------------------
Income from continuing operations
before provision for income
taxes.............................. 1,809 2,516 4,329 19,027
Provision for income taxes........... 599 1,051 1,574 8,203
--------- --------- --------- ------------------
Income from continuing operations.... $ 1,210 $ 1,465 $ 2,755 $ 10,824
========= ========= ========= ==================
Income per share from continuing
operations (diluted)............... $
==================
Shares used in computing pro forma
income per share from continuing
operations......................... (4)
==================
PETROCON
--------------------
DECEMBER 31, 1997
DECEMBER 31, ------------------------------
-------------------- PRO FORMA
1996 1997 COMBINED(1) AS ADJUSTED(5)
--------- --------- ------------ --------------
(IN THOUSANDS)
(UNAUDITED)
BALANCE SHEET DATA:
Working capital (deficit)............ $ (1,482) $ (3,958) $ (33,135) $ 16,051
Total assets......................... 26,377 42,054 127,093 124,052
Total debt, including current
portion.............................. 11,865 16,445 55,915 --
Stockholders' equity................. 6,753 13,919 47,718 100,704
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
6
<PAGE>
- ------------
(1) The pro forma combined statement of operations data assume the following
transactions and events were consummated on January 1, 1997: (i) the
organization of OEI and its initial issuance of shares of Common Stock; (ii)
a for-one split of the outstanding Common Stock; (iii) the Pending
Acquisitions; and (iv) the closing of the Offering and the application of
its estimated net proceeds, and are not necessarily indicative of the
results the Company would have obtained had these events actually occurred
at that date or of the Company's future results. The pro forma combined
balance sheet data assume that items (i), (ii) and (iii) above occurred on
December 31, 1997 and that the net indebtedness incurred by the Company
since December 31, 1997 occurred and existed on that date. The pro forma
combined financial data (i) are based on preliminary estimates, available
information and certain assumptions that management deems appropriate and
(ii) should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Prospectus.
(2) The pro forma combined statement of operations data include the effect of:
(i) a reduction in compensation and benefits of approximately $2.7 million
agreed to as part of the purchase agreements by certain owners and key
employees of the Acquired Companies pursuant to the Pending Acquisitions;
(ii) the elimination of a non-cash, non recurring compensation charge of
approximately $6.4 million by the Company for the year ended December 31,
1997; and (iii) distributions by certain Acquired Companies of certain
assets prior to the closing of the Pending Acquisitions. The Unaudited Pro
Forma Combined Financial Statements do not reflect other potential cost
savings, revenue growth or costs associated with being a public company.
(3) Reflects amortization of the goodwill to be recorded over a 40-year period
as a result of the Pending Acquisitions.
(4) Computed on a basis described in Note 4 of Notes to the Unaudited Pro Forma
Combined Financial Statements.
(5) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom and repayment of $6.3 million of Petrocon
indebtedness from cash on hand. See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
Prior to making an investment decision, prospective purchasers of the
Common Stock offered hereby should consider carefully all of the information set
forth in this Prospectus and, particularly, should evaluate the following risk
factors.
LIMITED COMBINED OPERATING HISTORY; RISKS RELATED TO INTEGRATION AND INTERNAL
GROWTH
Petrocon and the Acquired Companies have operated, and will continue to
operate prior to the closing of the Pending Acquisitions, as separate,
independent businesses. Consequently, the pro forma financial information
contained herein may not be indicative of the Company's future operating results
and financial condition. The Company will rely initially on the separate
accounting and information systems of Petrocon and each of the Acquired
Companies, but the success of the Company will depend, in part, on the extent to
which it is able to centralize and integrate necessary systems and functions,
including accounting, financial reporting and job costing systems, among the
Acquired Companies. The inability of the Company to successfully centralize and
integrate these systems and functions could have a material adverse effect on
the Company's business, financial condition and results of operations, and could
adversely affect the Company's implementation of its acquisition and operating
strategies. See "Business -- Operations."
The success of the Company's internal growth strategy will depend on
various factors, including the demand for the Company's services and systems and
the Company's ability to (i) attract larger, higher margin projects, (ii)
leverage its capabilities and expertise through cross-marketing, (iii) develop
partnering relationships and other strategic alliances and (iv) achieve client
acceptance of project processes through which the Company intends to share work,
professionals and other resources among its operating companies. These factors
are, at least in part, beyond the Company's control, and there can be no
assurance the Company's internal growth strategy will be successful.
DEPENDENCE ON INDUSTRY SPENDING
The demand for the Company's services and systems depends on the level of
capital and maintenance expenditures by its industrial, commercial and
institutional clients, particularly those private sector clients involved in the
oil and gas, refining and petrochemical industries. In 1997, the revenues
attributable to the oil and gas, refining and petrochemical industries
represented $141.2 million, or 83.5% of the Company's pro forma combined
revenues. These industries historically have been cyclical in nature and
vulnerable to many of the same national and regional economic factors that
affect the economy in general. In addition, if the current or any future decline
in energy prices were to be sustained over a significant period of time, the
capital and maintenance expenditures within these industries may be adversely
affected, which could have a material adverse effect on the Company's operating
results. Other factors influencing private and public spending levels include
general economic conditions, inflation, interest rates, the availability of
financing, the availability and price of raw materials, and political
considerations.
DEPENDENCE ON LARGE PROJECTS
The Company historically has not had a continuing dependence on any single
client or a limited group of clients; however, one or a few clients have
contributed in the past, and may in the future contribute, a substantial portion
of the Company's revenues in any one year or over a period of several
consecutive years due to the size of particular engineering projects. In 1997,
the Company's five largest projects represented $14.4 million, or 8.5%, of the
Company's pro forma combined revenues. Accordingly, the Company must continually
obtain significant new engineering projects, whether from existing or new
clients, in order to generate revenues in the future as existing projects are
completed. The failure to do so would have a material adverse effect on the
Company's operating results. See "Business -- Clients."
FOREIGN OPERATIONS
In 1997, the Company derived approximately $49.6 million, or approximately
29.3%, of its pro forma combined revenues from foreign projects. Also, Petrocon
Arabia Limited ("PAL"), in which the Company has a 50% interest, had 1997
revenues of approximately $16.5 million, which are not included in the
8
<PAGE>
Company's 1997 pro forma combined revenues because the Company accounts for its
interest in PAL by the equity method. Most of PAL's revenues were derived from
work in the Middle East. International engineering and design work involves
risks that are normally associated with doing business overseas, such as risks
of war, terrorism, expropriation, civil unrest, political and economic
instability, nationalization of assets, currency fluctuation and repatriation
risks, overlap of different tax structures and sometimes ill-defined or
underdeveloped systems of contract laws and commercial codes. Additionally,
certain international risks are particular to engineering and construction,
including (i) open-ended bonds or other security instruments to guarantee bids
and performance, (ii) reliance on host country subcontractors, suppliers and
personnel, (iii) permitting, construction and payment delays occasioned by
bureaucratic inefficiencies, and (iv) difficulties in obtaining required or
appropriate insurance. See "Business -- Foreign Operations."
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The Company intends to grow primarily by acquiring engineering and design
firms which expand or complement the Company's existing operations. The
Company's acquisition strategy presents risks that, singly or in combination,
could materially adversely affect its business and financial performance. These
risks include those inherent in assessing the value, strengths, weaknesses,
contingent or other liabilities and potential profitability of acquisition
candidates, the possibility of an adverse effect on existing operations of the
Company from the diversion of management attention and resources to
acquisitions, and the possible loss of acquired client bases and key personnel,
including engineers, designers, scientists and other professionals. The success
of the Company's acquisition strategy will depend on the extent to which
acquisition candidates continue to be available and whether the Company will be
able to acquire, successfully integrate and profitably manage additional
businesses. The Company believes that competitive and other pressures are
causing engineering firms of all sizes to combine at the local, regional,
national and international levels. Therefore, competition for acquisition
candidates could materially increase their cost. The timing, size and success of
the Company's acquisition efforts, and the associated capital commitments,
cannot readily be predicted. Accordingly, no assurance can be given the
Company's acquisition strategy will succeed. See "Business -- Business
Strategy" and "Business -- Acquisition Strategy."
NEED FOR ADDITIONAL FINANCING
All of the net proceeds of the Offering will be used in connection with the
Pending Acquisitions. See "Use of Proceeds." The Company's acquisition
strategy will require substantial additional capital. The Company currently
intends to use cash and shares of Common Stock in making future acquisitions.
Using internally generated cash or debt to complete acquisitions could
substantially limit the Company's operational and financial flexibility. The
extent to which the Company will be able or willing to use Common Stock for
acquisitions will depend on the market value of the Common Stock from time to
time and the willingness of potential sellers to accept the Common Stock as full
or partial payment. Using Common Stock for acquisitions may result in a
significant dilution to then existing Company stockholders. To the extent the
Company is unable to use Common Stock to make future acquisitions, its growth
may be limited by its ability to raise capital for this purpose through debt or
additional equity financings. The Company cannot assure that it will be able to
obtain the necessary capital to finance a successful acquisition program while
meeting its other cash needs. If the Company is unable to obtain additional
capital on acceptable terms, it may be required to reduce the scope of its
presently anticipated expansion. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Pro Forma Combined -- Liquidity
and Capital Resources."
The Company has recently received a commitment letter from
to provide the Company with a $ million credit
facility (the "New Credit Facility"), which may be used for refinancing of
certain indebtedness of the Company, acquisitions, working capital and other
general corporate purposes. The Company expects the New Credit Facility will
require compliance with various affirmative and negative covenants (including
maintenance of certain financial ratios) which could limit the Company's
operational and financial flexibility. The New Credit Facility is subject to
negotiation of definitive documentation and certain other customary conditions,
and there can be no assurance that the
9
<PAGE>
Company will be able to obtain the New Credit Facility on terms acceptable to
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Pro Forma Combined -- Liquidity and Capital
Resources."
PRICING AND RELATED RISK SHARING
Historically, a high percentage of the Company's projects have been
undertaken on a relatively riskless cost plus fee (either fixed or a percentage)
basis. However, project owners are increasingly seeking, and the Company and its
competitors are accepting and even initiating, pricing alternatives designed to
shift to the service provider, or requiring the service provider to at least
share in, the risks of cost overruns and inefficiencies in the delivery of
services. These alternatives include fixed-price, guaranteed maximum price,
incentive fee, competitive bidding and other "value based" pricing
arrangements. The Company expects this trend to continue in the future, with the
result that the Company will be required to maintain and continually improve,
relative to its competitors, both the precision of its cost estimates and the
efficiency with which it delivers its services. If the Company's discipline in
either of these areas declines or fails to keep pace with that of its
competitors, both the volume of awarded projects and their margins may be
affected adversely. See "-- Competition," "Business -- Contracts" and
"Business -- Competition."
COMPETITION
The Company competes nationally and internationally with many engineering
and construction management firms that are substantially larger and have
substantially greater financial, professional and other resources than the
Company. The Company also faces competition from many regional and local firms.
Barriers to entry for engineering firms are relatively low, and the risk of new
competitors entering the market, particularly in local and regional areas, and
particularly with respect to speciality areas, is high. See
"Business -- Competition."
NATURE OF BACKLOG
At December 31, 1997, the Company's combined backlog was $100.5 million
compared to $63.3 million at December 31, 1996. The combined backlog, most of
which is expected to be completed within the next 12 months, includes only
contracts for which the Company has received authorization to proceed with the
work. Although this backlog represents only work which is under contract, it is
not necessarily indicative of the Company's future revenues or earnings related
to the performance of the work included in backlog. The Company's contracts are
subject to standard industry cancellation provisions, including cancellation on
short notice or upon completion of designated stages. Authorizations to proceed
are for periods generally shorter than the duration of the work the Company
expects to perform for a particular client, and substantial scope-of-work
adjustments are common. For these and other reasons beyond the Company's
control, work represented in backlog may be delayed or cancelled, and backlog
should not be relied upon as an indicator of the Company's future performance.
See "Business -- Backlog."
COMPLETION GUARANTEES
In certain instances, the Company guarantees project completion by a
scheduled date or by achievement of certain acceptance and performance testing
or milestone levels. At December 31, 1997, the Company had underway projects
aggregating approximately $46.9 million in contract amount, which are subject to
some form of completion or performance guarantee. If the Company fails to meet
any required completion or performance requirement and is unable to remedy the
failure within any applicable cure period, the Company could incur financial
penalties in the form of liquidated damages or could be required to redesign or
repeat the service or replace or repair the system. While the Company has in the
past undertaken a limited number of guaranteed projects and has not incurred
material obligations with respect to such projects, the Company may in the
future undertake more guaranteed projects, which could have a material adverse
effect on the Company if it is unable to satisfy future guarantee requirements.
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RELIANCE ON SKILLED PROFESSIONALS AND MANAGEMENT PERSONNEL
The Company derives its revenues from, and its reputation is based on, the
efforts of engineers, scientists, chemists, designers and other highly skilled
and experienced technical personnel. Demand for these professionals is high,
their qualifications render them particularly mobile, and they are particularly
attentive to their workplace environment. The on-going risk of losing qualified
and experienced professionals from the Company could increase because of actual
or perceived changes resulting from becoming part of a larger and perhaps
culturally different organization. The business of the Company could be affected
adversely if the Company's ability to retain skilled professionals becomes
impaired for any reason.
The Company also depends in large part on the continuing efforts of its
executive officers and senior management, and will likely depend on the senior
management of any significant business it acquires in the future. That
dependence may be intensified by the Company's decentralized operating strategy.
If members of senior management leave the Company, until the Company attracts
and retains qualified replacements, the Company's business or prospects could be
affected adversely. Further, the historical growth of the Company can in some
measure be attributed to the entrepreneurial spirit of its senior management. To
the extent the circumstances of the Pending Acquisitions are perceived by
certain members of senior management as an impediment to this entrepreneurial
attitude, the impetus for the Company's continued growth following the Pending
Acquisitions could diminish.
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES AND ASSOCIATES
The net proceeds from the Offering will be used: (i) to pay the cash
portion of the aggregate purchase price for the Pending Acquisitions
(approximately $27.8 million); (ii) to repay certain outstanding indebtedness of
the Company (approximately $21.8 million); (iii) to place in escrow
approximately $3.4 million, which will be subject to a maximum three year
earnout arrangement with respect to one of the Pending Acquisitions; and (iv) to
pay certain expenses of the Offering and the Pending Acquisitions. See "Use of
Proceeds." The cash payable to the former stockholders of Petrocon and the
Acquired Companies will include approximately $2.7 million payable to persons
who will become directors or executive officers of OEI. The Offering will enable
the Company to repay $2.5 million of advances by Equus II Incorporated ("Equus
II"), which were used to pay expenses of the Offering, and will benefit the
existing stockholders of the Company by creating a public market for the Common
Stock. For a more detailed discussion of the use of proceeds of the Offering,
and the benefits to be received by persons who are or will become directors or
executive officers of OEI or beneficial holders of 5% or more of the Common
Stock on consummation of the Offering and the Pending Acquisitions, see "Use of
Proceeds" and "Certain Transactions -- Pending Acquisitions Involving Certain
Officers, Directors and Stockholders."
LIABILITY CLAIMS AND INSURANCE
Providing engineering and design services involves the risk of contract,
professional errors and omissions and other liability claims, as well as adverse
publicity. Further, many of the Company's contracts with its clients require the
Company to indemnify the clients not only for the Company's negligence, but also
for the concurrent negligence of the clients. While the Company maintains
liability insurance coverage, including for professional errors and omissions,
in amounts it considers adequate, there can be no assurance that claims outside
of or exceeding its insurance coverage will not be made, or that the Company
will be able to continue to obtain adequate insurance coverage at rates it
considers reasonable. See "Business -- Risk Management; Litigation."
SEASONALITY
Holidays and inclement weather during the Company's fourth quarter exert
downward pressure on the Company's revenues for that quarter, which is only
partially offset by the year-end efforts on the part of many of the Company's
clients, particularly in the energy and public sectors, to spend any remaining
funds budgeted for capital expenditures during the year. The annual budgeting
and approval process under which these clients operate is normally not completed
until after the beginning of each new year, which, when combined with continuing
inclement weather, can depress the Company's operating results for the first
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quarter. Principally due to these factors, the Company's revenues during its
first and fourth quarters tend to be, but are not always, lower than in its
second and third quarters.
GOVERNMENT REGULATION
The Company and its clients are subject to various foreign, federal, state
and local laws and regulations, including those relating to the environment,
health and safety. To date, the Company has mostly benefited from these laws and
regulations because of their impact on its clients, and the cost of the
Company's own compliance has not been material, but the fact that such laws and
regulations are changed frequently makes uncertain both the Company's future
benefits and costs associated with such laws and regulations. The modification
of existing laws or regulations or the adoption of new laws or regulations
affecting the Company's clients or its own operations or industry could
adversely affect the Company.
SIGNIFICANT INTANGIBLE ASSETS
As a result of the Pending Acquisitions, goodwill will account for a
material portion of the Company's total assets. On a pro forma combined basis,
goodwill was recorded at approximately $68.4 million at December 31, 1997,
representing approximately 55.2% of the Company's total assets. The Company's
goodwill is to be amortized over a 40-year period resulting in annual non-cash
amortization charges against income of approximately $1.7 million. The Company
may record additional goodwill and related amortization charges in connection
with the implementation of its acquisition strategy. See "-- Dependence on
Acquisitions for Growth."
YEAR 2000 COMPLIANCE
The Company uses computer software programs and operating systems in its
internal operations, including applications used in financial business systems
and various administration functions, and also utilizes software programs in
providing certain engineering services and engineered systems. To the extent
that these software applications contain code that is unable to appropriately
interpret upcoming calendar year 2000, some level of modification of such source
code or applications will be necessary. The Company is currently in the process
of evaluating its computer software programs and operating systems to ensure
such programs and systems will be able to process transactions in the year 2000.
However, the Company does not believe that the costs to modify its programs or
systems will be material to its financial condition or results of operations.
The Company does not currently have information concerning the year 2000
compliance of its clients and suppliers. The failure of the Company's clients
and suppliers to achieve year 2000 compliance could have a material adverse
effect on the Company's financial condition and results of operations.
SIGNIFICANT VOTING CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Upon closing of the Pending Acquisitions and the Offering, the respective
stockholders of Petrocon and the Acquired Companies, OEI's initial financing
source (Equus II) and the executive officers of OEI (all but one of whom is also
an executive officer of Petrocon), will beneficially own in the aggregate
approximately % of the outstanding Common Stock. If these persons were to
act in concert, they would be able to exercise control over the Company's
affairs, including the election of the entire Board of Directors and, subject to
Section 203 of the Delaware General Corporation Law (the "DGCL"), any matter
submitted to a vote of stockholders. See "Principal Stockholders."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Upon closing of the Pending Acquisitions and the Offering,
shares of Common Stock will be outstanding. The shares sold in the
Offering (other than shares purchased by affiliates of the Company) will be
freely tradable. The remaining shares outstanding may be resold publicly only
following their effective registration under the Securities Act of 1933, as
amended (the "Securities Act"), or under an available exemption from the
registration requirements of the Securities Act, such as the exemption provided
by Securities Act Rule 144 promulgated by the Securities and Exchange Commission
(the "SEC"). Under Rule 144, all those remaining shares will be eligible for
Rule 144 sales, subject to certain
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volume limitations and other requirements, on the day following the first
anniversary of the date the Offering closes. The holders of a substantial number
of those remaining shares have certain registration rights granted by OEI in
connection with the Pending Acquisitions, subject to a two-year lockup period.
Upon closing of the Offering, options and warrants to purchase up to a
total of shares of Common Stock will be outstanding, of which options
and warrants to purchase 566,076 shares will be exercisable immediately after
the closing. The Company intends to register all the shares subject to options
granted under the Incentive Plan and the Company's 1998 Employee Stock Purchase
Plan (the "Employee Purchase Plan") under the Securities Act for public
resale.
The Company, the OEI directors, executive officers and current stockholders
(including Equus II) and all persons who acquire shares of Common Stock in
connection with the Pending Acquisitions have agreed not to offer, sell or
otherwise dispose of any shares for a period of two years following the date of
this Prospectus without the prior written consent of Smith Barney Inc., except
that the Company may issue, subject to certain conditions, Common Stock in
connection with acquisitions and pursuant to awards under the Incentive Plan and
the Employee Purchase Plan (see "Management -- Incentive Plan").
The Company intends to register additional shares of Common Stock
under the Securities Act during 1998, for use in connection with future
acquisitions. These shares generally will be freely tradable after their
issuance by persons not affiliated with the Company, unless the Company is able
to contractually restrict their resale. Sales of these shares during the Lockup
Period would require the prior written consent of Smith Barney, Inc.
Availability for sale, or sale, of the shares of Common Stock eligible for
future sale could adversely affect the market price of the Common Stock from
time to time. See "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $ per
share and (ii) may experience further dilution in that value from future
issuances of shares of Common Stock. See "Dilution."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Before the Offering, no public market for the Common Stock has existed, and
the initial public offering price negotiated by the Company and the
representatives of the Underwriters may not be indicative of the price at which
the Common Stock will trade after the Offering. See "Underwriting" for the
factors to be considered in determining the initial public offering price. The
Company has applied for listing of the Common Stock on the New York Stock
Exchange, but no assurance can be given that an active trading market for the
Common Stock will develop or, if it does, that it will continue after the
Offering. The market price of the Common Stock after the Offering may be subject
to significant fluctuations from time to time in response to many factors,
including variations in the reported financial results of the Company and
changing conditions in the economy in general, in the Company's industry in
particular, or in the industry of one of the Company's major client groups. In
addition, the stock markets experience significant price and volume volatility
from time to time which may affect the market price of the Common Stock for
reasons unrelated to the Company or its performance.
POTENTIAL ANTI-TAKEOVER EFFECTS
OEI's Certificate of Incorporation, as amended (the "Charter"),
authorizes the issuance, without stockholder approval, of one or more series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends, distributions and voting rights) as the board of directors
of OEI (the "Board of Directors") may determine. See "Description of Capital
Stock -- Preferred Stock."
Certain provisions of the Charter, OEI's bylaws and the DGCL may delay,
discourage, inhibit, prevent or render more difficult an attempt to obtain
control of the Company, whether by means of a tender offer, business
combination, proxy contest or otherwise. These provisions include the Charter
authorization of
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"blank check" preferred stock, classification of the Board of Directors, a
limitation on the removal of directors only for cause, and then only on approval
of holders of two-thirds of the outstanding voting stock, a restriction on the
ability of stockholders to take actions by written consent and a DGCL
restriction on business combinations with certain interested parties. See
"Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
Prospectus may include forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Business -- Business Strategy,"
"Business -- Acquisition Strategy," "Business -- Business Development and
Marketing" and "Business -- Clients," as well as in this Prospectus
generally. While forward-looking statements are sometimes presented with
numerical specificity, they are based on a variety of assumptions made by
management regarding future circumstances over which the Company has little or
no control. A number of important factors, including those identified in this
paragraph or discussed elsewhere in this Prospectus, could cause the Company's
actual results to differ materially from those depicted in forward-looking
statements or financial information. Actual results may differ from
forward-looking results for a number of reasons, including the following: (i)
changes in world economic conditions (including, but not limited to, the
potential instability of governments and legal systems in countries in which the
Company conducts business, and significant changes in energy prices and currency
valuations); (ii) changes in client demands as they affect levels of capital and
maintenance expenditures (including, but not limited to, the effect of strikes
at clients' facilities, variations in backlog and the impact of changes in
business cycles); (iii) competitive factors (including, but not limited to,
changes in client contract terms and procedures and the introduction of new
design and other processes by existing and new competitors); (iv) changes in
operating costs (including, but not limited to, the effect of changes in the
Company's engineering processes, changes in costs associated with varying levels
of operations, changes resulting from different levels of clients' demands and
changes in cost of labor and benefits); (v) the success of the Company's
operating plan (including, but not limited to, its ability to achieve the total
planned benefits of its strategic plan, its ability to integrate acquisitions
into Company operations, and the ability of recently acquired companies to
achieve satisfactory operating results); and (vi) unanticipated litigation,
claims or assessments (including, but not limited to, claims or problems related
to contract, professional errors and omissions and other liability claims).
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THE COMPANY
OEI was formed in October 1997 by Petrocon's management to conduct the
Offering, simultaneously consummate the Pending Acquisitions and continue
Petrocon's successful acquisition program. Petrocon is a multidisciplined
engineering company, which provides a full range of process, civil, structural,
mechanical, instrument and electrical engineering and design services,
principally to the oil and gas, petroleum processing and pulp and paper
industries both domestically and abroad. Petrocon also designs, engineers,
programs and installs automated control systems for specific applications,
primarily for the downstream petroleum and chemical processing industries.
Petrocon, formed in 1988, is headquartered in Beaumont, Texas, with offices in
Houston, Texas, Lake Charles and Baton Rouge, Louisiana, Saudi Arabia and Abu
Dhabi. At December 31, 1997, Petrocon had approximately 1,144 employees,
including 854 engineers, designers and draftsmen and 125 construction managers,
inspectors and technicians. Petrocon has experienced significant growth in its
ten-year history, having increased its revenues from approximately $4.0 million
in 1988, to approximately $92.6 million in 1997, in large part through
acquisitions. Since 1988, Petrocon has made more than 13 acquisitions, gaining
in the process valuable experience in negotiating, closing and successfully
integrating acquisitions. According to ENR'S 1997 ranking of the top 500
engineering and design firms in the United States, Petrocon ranked th in terms
of client billings.
Concurrently with, and as a condition to, the closing of the Offering, OEI
will consummate the Pending Acquisitions. For a description of the transactions
in which Petrocon and the Acquired Companies will be acquired and the
consideration to be paid by OEI for each of them, see "-- Summary of Terms of
the Pending Acquisitions" and "Certain Transactions -- Organization of OEI."
The Acquired Companies are:
PS&S: Paulus, Sokolowski and Sartor, Inc. ("PS&S") provides total
design, engineering, geotechnical and environmental services to the
pharmaceutical, industrial, entertainment and utility industries, as well as to
commercial, institutional and public sector clients in the United States and
abroad. PS&S was founded in 1962 and is headquartered in Warren, New Jersey,
with regional offices in Atlantic City, New Jersey and Tampa, Florida. At
December 31, 1997, PS&S's staff consisted of approximately 202 employees,
including over 160 engineers, designers and draftsmen. For 1997, PS&S had
revenues of approximately $21.7 million and was ranked rd, based on client
billings, in ENR'S ranking of the top 500 engineering and design firms in the
United States.
GEI: Gulsby Engineering, Inc. (together with its subsidiary, "GEI")
designs, engineers, builds and installs modular processing plants for the oil
and gas industry. GEI was founded in 1977 and maintains its offices and
fabrication facilities in Houston, Texas. While GEI specializes in cryogenic
turbo-expander units which employ extremely low temperatures in the processing
of natural gas, it also designs and fabricates a large range of modular
treatment and processing facilities for the refining and petrochemical
industries, including plants for gas treatment, sulfur, dehydration and
fractionation, crude stabilization and production, MTBE, waste heat recovery,
cogeneration and amine treatment. At December 31, 1997, GEI's staff consisted of
approximately 54 employees, including a team of 13 chemical, electrical and
mechanical engineers and designers. For 1997, GEI had revenues of approximately
$18.3 million.
W-I: W-Industries, Inc. ("W-I") designs, engineers, assembles, programs
and installs control and instrumentation systems for specific applications in
the upstream and offshore oil and gas and processing industries, including both
conventional pneumatic and hydraulic control systems and sophisticated
microprocessor-based controls employing programmable logic. W-I was founded in
1984 and maintains its headquarters and engineering and assembly plant
facilities in Houston, Texas. At December 31, 1997, W-I's staff consisted of
approximately 103 employees, including 17 engineers and designers representing
the instrument, electrical and mechanical disciplines. For 1997, W-I had
revenues of approximately $20.6 million.
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C&I: Chemical & Industrial Engineering, Inc. ("C&I") provides full
engineering, procurement and construction management services, with
state-of-the-art 3D modeling capabilities, principally to the refining,
chemical, food and beverage, pharmaceutical and utility industries, both
domestically and internationally. C&I was founded in 1983 and maintains its
executive and engineering offices in Louisville, Kentucky. At December 31, 1997,
C&I's staff consisted of approximately 111 employees, including approximately 75
engineers. For 1997, C&I had revenues of approximately $15.9 million and was
ranked th, based on client billings, in ENR'S 1997 ranking of the top
500 engineering and design firms in the United States.
SUMMARY OF TERMS OF THE PENDING ACQUISITIONS: Subject to certain
adjustments described below, the aggregate consideration payable to consummate
the Pending Acquisitions consists of (i) approximately $27.8 million in cash,
(ii) 5,053,027 shares of Common Stock, (iii) 654,099 shares of Common Stock and
approximately $3.4 million, which will be placed in escrow, and which will be
subject to a maximum three-year earnout arrangement with respect to one of the
Pending Acquisitions, (iv) options to purchase 768,384 shares of Common Stock to
be issued in connection with the Petrocon acquisition (the "Replacement
Options") and (v) warrants to purchase 357,579 shares of Common Stock to be
issued in connection with the Petrocon acquisition (the "Replacement
Warrants"). The Replacement Options and Replacement Warrants will be in the
money at the closing of the Offering in the aggregate amount of approximately
$ million (assuming an initial public offering price of $ per share).
The Company will assume and repay upon or shortly after the Closing of the
Offering, certain of the then outstanding indebtedness of Petrocon and the
Acquired Companies, which as of December 31, 1997 aggregated approximately $28.1
million ($21.8 million of which will be repaid from proceeds of the Offering and
$6.3 million of which will be repaid from cash on hand), attributable as
follows: Petrocon -- $16.4 million; PS&S -- $1.9 million; GEI -- $3.6 million;
W-I -- $6.1 million; and C&I -- $0.1 million. The Company will also repay to
Equus II funds advanced to OEI to pay expenses of the Offering (estimated to be
approximately $2.5 million as of the closing of the Offering). Before the
closing of the Pending Acquisitions, W-I and PS&S, each of which is an S
corporation, are expected to distribute cash to their respective stockholders in
amounts accumulated in their respective accumulated adjustment accounts ("AAA
accounts") after December 31, 1997. An AAA account generally represents
undistributed earnings of an S corporation on which taxes have been or will be
paid by its stockholders. Before the closing of the Pending Acquisitions,
certain of the Acquired Companies will make other distributions to their
stockholders of certain assets and related liabilities with an aggregate net
book value of approximately $9.0 million.
The Replacement Options and Replacement Warrants to be issued in the
Petrocon acquisition will replace options and warrants to purchase shares of
Petrocon common stock granted to employees and issued in connection with a prior
Petrocon acquisition. The aggregate purchase price which would have otherwise
been payable for Petrocon has been reduced by $4.2 million as a result of the
grant of the Replacement Options and Replacement Warrants.
The purchase price for Petrocon was reduced by $2.0 million based on a
negotiated discounted value of projected annual earnout payments due by Petrocon
to the former shareholders of RPM Engineering, Inc. ("RPM") through 2001 in
connection with the RPM acquisition in October 1996. The additional earnout
payments, if any, will be accounted for as additional goodwill and amortized
over the applicable amortization period. See Note 15 to the Notes to the
Petrocon Consolidated Financial Statements.
A portion of the purchase price for GEI will be subject to a maximum
three-year earnout arrangement. Upon the closing of the GEI acquisition,
approximately $3.4 million in cash and 654,099 shares of Common Stock will be
placed in escrow and held for subsequent distribution to the former GEI
stockholders, or returned to the Company, depending on the future financial
performance of GEI. Distributions from the escrow will be made annually to the
former GEI stockholders if certain cumulative financial performance thresholds
are achieved by GEI within the three-year period, or earlier if those thresholds
are achieved sooner. The additional earnout payments, if any, will be accounted
for as additional goodwill and amortized
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over the applicable amortization period. Any escrowed stock and cash not
distributed to the former GEI stockholders after three years will be returned by
the escrow agent to the Company.
The consideration being paid by the Company for each Acquired Company was
determined by customary and usual negotiations between the Company and
representatives of that Acquired Company. The consideration being paid for
Petrocon was determined using the same valuation methodology used to negotiate
the consideration being paid to the stockholders of the Acquired Companies,
except that in the determination of the Petrocon consideration, a higher pricing
multiple was applied to Petrocon's adjusted earnings. See "Certain
Transactions."
The closing of each Pending Acquisition is subject to customary conditions.
They include, among others: the continuing accuracy of the respective
representations and warranties made by Petrocon and the Acquired Companies,
their respective principal stockholders and OEI; the performance of each of
their respective covenants included in the agreements relating to the Pending
Acquisitions; and the absence of a material adverse change in the results of
operations, financial condition or business of Petrocon and each Acquired
Company.
No assurance can be given that the conditions to the closing of all the
Pending Acquisitions will be satisfied or waived or that each of the Pending
Acquisitions will close. For information regarding the employment agreements to
be entered into by certain key officers of Petrocon and the Acquired Companies,
see "Management -- Employment Agreements."
STRATEGIC BENEFITS OF ACQUIRED COMPANIES: The Company believes the
Acquired Companies provide the following strategic benefits, among others: PS&S
provides the Company with additional engineering services expertise in the
geotechnical and environmental disciplines, as well as broadening the Company's
client base to include the pharmaceutical and entertainment industries. GEI
contributes modular plant systems expertise, which the Company believes can be
cross-marketed to clients of certain of the other operating companies. W-I
enhances the Company's control systems capabilities, while at the same time
expanding the Company's client base into the upstream oil and gas market. C&I
expands the geographic coverage of the Company's engineering services segment,
broadens the Company's client base into the food and beverage and pharmaceutical
industries and provides the Company with state-of-the-art 3D modeling
capabilities that can be utilized at other operating companies.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by this Prospectus, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company (including
the repayment of approximately $2.5 million of advances by Equus II to fund a
portion of the Offering expenses), are estimated to be approximately $53.0
million (approximately $61.4 million if the Underwriters exercise their
over-allotment option in full), assuming an initial public offering price of
$ per share (the midpoint of the estimated initial public offering price
range). Of the net Offering proceeds, approximately $27.8 million will be used
to pay the cash portion of the purchase prices for the Pending Acquisitions,
approximately $21.8 million will be used concurrently for the repayment of
certain outstanding indebtedness of Petrocon and the Acquired Companies
(excluding the repayment of the $2.5 million of advances by Equus II referred to
above) and approximately $3.4 million will be placed in escrow with respect to
one of the Pending Acquisitions. See "The Company -- Summary of Terms of the
Pending Acquisitions" and "Certain Transactions -- Organization of OEI."
The indebtedness to be repaid from the proceeds of the Offering (some of
which has been guaranteed by stockholders of the Acquired Companies) bears
interest at rates ranging from 5.9% to 10.0% per annum. Such indebtedness would
otherwise mature at various dates through January 2004.
DIVIDEND POLICY
It is the Company's current intention to retain earnings to finance the
expansion of its business. Any future dividends will be at the discretion of the
Board of Directors after taking into account various factors, including, among
others, the Company's financial condition, results of operations, cash flows
from operations, current and anticipated cash needs and expansion plans, the
income tax laws then in effect, the requirements of Delaware law, the
restrictions imposed by the New Credit Facility and any restrictions that may be
imposed by the Company's future credit facilities. The Company expects that its
New Credit Facility will require compliance with various loan covenants,
including restrictions on the payment of dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Pro
Forma Combined -- Liquidity and Capital Resources."
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CAPITALIZATION
The following table sets forth the short-term debt and current maturities
of long-term obligations and capitalization as of December 31, 1997 of the
Company on a pro forma combined basis: (i) giving effect to the Pending
Acquisitions and the net incurrence of indebtedness by the Company since
December 31, 1997; and (ii) as adjusted giving effect to the Offering and the
application of the estimated net proceeds therefrom. See "Use of Proceeds" and
Unaudited Pro Forma Combined Financial Statements and the related notes thereto
included elsewhere in this Prospectus.
DECEMBER 31, 1997
------------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Short-term debt and current maturities
of long-term obligations(1)........... $52,115 $ --
========= ===========
Long-term obligations, less current
maturities............................ $ 3,800 $ --
--------- -----------
Stockholders' equity:
Preferred stock: $.001 par value
1,000,000 authorized; none issued
and outstanding..................
Common stock: $.001 par value
40,000,000 shares authorized;
outstanding pro forma;
and outstanding, as
adjusted(2)......................
Additional paid-in capital.........
Retained earnings..................
--------- -----------
Total stockholders' equity.... 47,718 100,704
--------- -----------
Total capitalization.......... $51,518 $ 100,704
========= ===========
- ------------
(1) The pro forma combined balance includes $27.8 million of cash consideration
payable in connection with the Pending Acquisitions.
(2) Includes an aggregate 654,099 shares which will be placed in escrow and will
be subject to a maximum three-year earnout arrangement with respect to one
of the Pending Acquisitions (see "The Company -- Summary of Terms of the
Pending Acquisitions"), and excludes (i) an aggregate of shares
subject to options to be granted or allocated for grant on or prior to the
closing of the Offering under the Incentive Plan, of which will have
an exercise price equal to the initial public offering price per share and
768,384 of Replacement Options which will have a weighted average exercise
price per share of $7.68, and (ii) an aggregate of 357,579 shares subject to
the Replacement Warrants to be issued in connection with the Petrocon
acquisition and which have an exercise price per share of $9.42. See
"Management -- Incentive Plan," "Certain Transactions -- Organization of
OEI" and "The Company -- Summary of Terms of the Pending Acquisitions."
19
<PAGE>
DILUTION
The deficit in pro forma combined net tangible book value of the Company as
of December 31, 1997 was approximately $ million, or approximately $ per
share, after giving effect to the Pending Acquisitions and the net incurrence of
indebtedness by the Company since December 31, 1997. The deficit in pro forma
net tangible book value per share represents the amount by which the Company's
pro forma total liabilities exceeded the Company's pro forma net tangible assets
as of December 31, 1997, divided by the number of shares to be outstanding after
giving effect to the Pending Acquisitions. After giving effect to the sale of
the shares offered hereby and deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the Company's pro forma net tangible book value as of December 31, 1997
would have been approximately $ million, or approximately $ per share, based
on an assumed initial public offering price of $ per share (the midpoint of
the estimated initial public offering price range). This represents an immediate
increase in pro forma net tangible book value of approximately $ per share to
existing stockholders and an immediate dilution of approximately $ per share
to new investors purchasing shares in the Offering. The following table
illustrates this per share pro forma dilution:
Initial public offering price per
share................................ $
Pro forma net tangible book
value (deficit) per share
before the Offering............ $ ()
Increase in pro forma tangible
value attributable to new
investors......................
Pro forma net tangible book value per
share after the Offering.............
---------
Dilution per share to new
investors............................ $
=========
The following table sets forth, on a pro forma basis to give effect to the
Pending Acquisitions and the closing of the Offering and the application of the
estimated net proceeds therefrom as of December 31, 1997, the number of shares
of Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid to the Company by existing
stockholders (including persons acquiring Common Stock in the Pending
Acquisitions) and the new investors purchasing shares of Common Stock in the
Offering (before deducting the underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION(1) AVERAGE
---------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
Existing stockholders................ % $ ( ) ( )% $ ( )
New investors........................
---------- -------- -------- --------
Total...................... 100.0% $ 100.0%
========== ======== ======== ========
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the pro forma
shareholders' equity of the Company less pro forma goodwill before giving
effect to the post-merger adjustments set forth on the Unaudited Pro Forma
Combined Balance Sheet included herein.
20
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company will consummate the Pending Acquisitions concurrently with, and
as a condition to, the consummation of the Offering. For financial statement
presentation purposes, Petrocon is deemed to be the accounting acquirer. The
following selected historical financial data of Petrocon for the years ended
December 31, 1995, 1996 and 1997, and as of December 31, 1996 and 1997, have
been derived from the audited consolidated financial statements of Petrocon
included elsewhere in this Prospectus. The following selected historical
financial data for Petrocon for the years ended December 31, 1993 and 1994, and
as of December 31, 1993, 1994 and 1995, have been derived from unaudited
consolidated financial statements of Petrocon which have been prepared on the
same basis as the audited financial statements and, in the opinion of Petrocon,
reflect all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of such data. The following summary unaudited pro forma
combined financial data gives effect to the Pending Acquisitions and certain
other pro forma adjustments and is adjusted to reflect the consummation of the
Offering and the application of the estimated net proceeds therefrom. See the
Unaudited Pro Forma Combined Financial Statements and the notes thereto included
in this Prospectus.
<TABLE>
<CAPTION>
PETROCON
----------------------------------------------------- PRO FORMA
COMBINED(1)
YEAR ENDED DECEMBER 31, -----------------
----------------------------------------------------- YEAR ENDED
1993 1994 1995 1996 1997 DECEMBER 31, 1997
--------- --------- --------- --------- --------- -----------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 48,113 $ 51,524 $ 52,386 $ 61,851 $ 92,616 $ 169,065
--------- --------- --------- --------- --------- -----------------
Gross profit..................... 9,162 9,317 10,242 12,599 20,923 51,204
General and administrative
expenses....................... 7,989 7,274 8,336 9,498 15,213 31,009(2)
Goodwill amortization............ -- -- 23 79 254 1,732(3)
--------- --------- --------- --------- --------- -----------------
Income from operations........... 1,173 2,043 1,883 3,022 5,456 18,463
Interest income (expense), net... (291) (358) (456) (592) (1,569) (9)(4)
Other income (expense), net...... (93) 739 382 86 442 573
--------- --------- --------- --------- --------- -----------------
Income from continuing operations
before provision for income
taxes.......................... 789 2,424 1,809 2,516 4,329 19,027
Provision for income taxes....... 307 720 599 1,051 1,574 8,203
--------- --------- --------- --------- --------- -----------------
Income from continuing
operations..................... $ 482 $ 1,704 $ 1,210 $ 1,465 $ 2,755 $ 10,824
========= ========= ========= ========= ========= =================
Income per share from continuing
operations..................... $
=================
Shares used in computing pro
forma income per share from
continuing operations.......... (4)
=================
PETROCON
-----------------------------------------------------
DECEMBER 31, 1997
DECEMBER 31, -----------------------------
----------------------------------------------------- PRO FORMA AS
1993 1994 1995 1996 1997 COMBINED (1) ADJUSTED (5)
--------- --------- --------- --------- --------- ------------- ------------
BALANCE SHEET DATA:
Working capital (deficit)........... $ 73 $ 1,044 $ 2,402 $ (1,482) $ (3,958) $ (33,135) $ 16,051
Total assets........................ 21,013 18,007 20,014 26,377 42,054 127,093 124,052
Total debt, including current
portion........................... 4,950 5,121 5,495 11,865 16,445 55,915 --
Stockholders' equity................ 3,331 4,271 3,865 6,753 13,919 47,718 100,704
</TABLE>
- ------------
(1) The pro forma combined statement of operations data assume that the
following transactions and events were consummated on January 1, 1997: (i)
the organization of OEI and its initial issuance of shares of Common Stock;
(ii) a -for-one split of the outstanding Common Stock; (iii) the
Pending Acquisitions; and (iv) the closing of the Offering and the
application of its estimated net proceeds, and are not necessarily
indicative of the results the Company would have obtained had these events
actually occurred at that date or of the Company's future results. The pro
forma combined balance sheet data
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
21
<PAGE>
assume that items (i), (ii) and (iii) above occurred on December 31, 1997
and that the net indebtedness incurred by the Company since December 31,
1997 occurred and existed on that date. The pro forma combined financial
data (i) are based on preliminary estimates, available information and
certain assumptions that management deems appropriate and (ii) should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus.
(2) The pro forma combined statement of operations data include the effect of:
(i) a reduction in compensation and benefits of approximately $2.7 million
agreed to as part of the purchase agreements by certain owners and key
employees of the Acquired Companies pursuant to the Pending Acquisitions;
(ii) the elimination of a non-cash, non-recurring compensation charge of
approximately $6.4 million by the Company for the year ended December 31,
1997; and (iii) distributions by certain Acquired Companies of certain
assets prior to the closing of the Pending Acquisitions. The Unaudited Pro
Forma Combined Financial Statements do not reflect other potential cost
savings, revenue growth or costs associated with being a public company.
(3) Reflects amortization of the goodwill to be recorded over a 40-year period
as a result of the Pending Acquisitions.
(4) Computed on a basis described in Note 4 of Notes to the Unaudited Pro Forma
Combined Financial Statements.
(5) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom and repayment of $6.3 million of Petrocon
indebtedness from cash on hand. See "Use of Proceeds."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes thereto and "Selected Historical and Pro Forma
Combined Financial Data" appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues are primarily derived from engineering, design and
related services provided to its clients. Direct costs consist primarily of
labor, material and other related expenses necessary to complete the various
engineering and design projects. General and administrative expenses consist
primarily of executive compensation and related benefits, administrative
salaries and benefits, office supplies, rent, utilities, insurance and
professional fees.
Petrocon and the Acquired Companies have been managed throughout the
periods discussed below as independent private companies, and their results of
operations reflect different tax structures (S corporations and C corporations),
which have influenced, among other things, their historical levels of owners'
compensation. Some owners of these companies and certain key employees have
prospectively agreed to certain reductions in their compensation and benefits in
connection with the Pending Acquisitions.
OEI has conducted no operations to date other than in connection with the
Offering and the Pending Acquisitions. The Company intends to integrate these
businesses and their operations and administrative functions. The integration
process may present opportunities to reduce costs through the elimination of
duplicate functions and through economies of scale, but will necessitate
additional costs and expenditures for corporate management and administration.
The Company will also incur corporate expenses related to being a public
company, implementation of an acquisition program and systems integration. These
various costs and possible cost-savings may make comparison of historical
operating results not comparable to, nor indicative of, future performance. No
such cost savings were reflected in the pro forma combined statement of
operations data, except for compensation reductions provided for in the
agreements entered into in connection with certain of the Pending Acquisitions
and other known cost eliminations.
In October 1997 and March 1998, OEI sold shares of Common Stock to
its management, all but one of whom are members of the management of Petrocon.
As a result, the Company recorded a non-recurring, non-cash compensation charge
of $6.4 million and $0.4 million in the fourth quarter of 1997 and first quarter
of 1998, respectively, representing the difference between the amount paid for
the shares and the estimated fair value of the shares, which value has been
discounted from the estimated initial public offering price due primarily to
restrictions on the sale and transferability of the shares issued.
In July 1996, the SEC issued Staff Accounting Bulletin No. 97 ("SAB 97")
relating to business combinations immediately prior to an initial public
offering. SAB 97 requires that these combinations be accounted for using the
purchase method of accounting. Under the purchase method, the owners of the
company that receive the largest portion of voting rights in the combined
enterprise as a result of the Pending Acquisitions are presumed to be the
accounting acquirer. Accordingly, Petrocon has been designated as the accounting
acquirer. For the Acquired Companies, $59.1 million, representing the excess of
the fair value of the merger consideration to be received over the fair value of
the net assets to be acquired, will be recorded as goodwill on the Company's
balance sheet. This goodwill will be amortized over a 40-year period as a
non-cash charge to the Company's statements of operations. The pro forma impact
of this amortization expense, which is non-deductible for federal income tax
purposes, is $1.5 million per year on an after-tax basis.
PRO FORMA COMBINED -- LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, on a pro forma combined basis, after giving effect to
(i) the net incurrence of indebtedness by the Company since December 31, 1997,
(ii) the Pending Acquisitions, (iii) the closing of the Offering and the
Company's application of the net proceeds therefrom to repay certain
indebtedness of Petrocon and the Acquired Companies (approximately $21.8
million), (iv) the repayment of an additional
23
<PAGE>
$6.3 million of Petrocon indebtedness from cash on hand and (v) $0.1 million of
advances by Equus II, which have been used to pay a portion of the expenses of
the Offering (which advances are estimated to aggregate $2.5 million at the time
the Offering closes), the Company would have had an aggregate of $3.7 million of
cash and short-term investments, $18.0 million of working capital and no
long-term debt obligations.
The Company has recently received a commitment letter from to
provide the New Credit Facility, which would be available upon the closing of
the Offering. According to the proposed New Credit Facility terms, the Company
would have a line of credit of up to $ million, which may be used for
general corporate purposes, including refinancing of certain indebtedness of
Petrocon and the Acquired Companies, acquisitions, capital expenditures and
working capital. The Company expects the New Credit Facility will require
compliance with various affirmative and negative covenants, including, among
others, (i) maintenance of certain financial ratios, (ii) a restriction on
additional indebtedness and (iii) restrictions on liens, guarantees, advances,
dividends and business activities unrelated to the Company's existing
operations. Failure to comply with such covenants and restrictions would
constitute a default under the New Credit Facility. The New Credit Facility is
subject to negotiation of definitive documentation and certain other customary
conditions, and there can be no assurance that the Company will be able to
obtain the New Credit Facility on terms acceptable to the Company.
The Company intends to pursue further acquisition opportunities. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, borrowings (including amounts available under the New Credit
Facility) and cash flow from operations. To the extent the Company funds a
significant portion of the consideration for future acquisitions with cash, it
may have to increase the amount available under the New Credit Facility or
obtain other sources of financing. There can be no assurance such financing will
be available on terms acceptable to the Company. The Company expects that its
cash flow from operations will provide cash sufficient to meet the Company's
normal working capital needs, debt service requirements and planned capital
expenditures for property and equipment (exclusive of acquisitions of other
businesses) for at least the next several years. On a combined basis, the
Company made capital expenditures for property and equipment of approximately
$1.6 million and $1.9 million in 1996 and 1997, respectively. The Company's
capital expenditures for 1998 are expected to be approximately $1.3 million,
primarily for computer equipment and software, excluding capital expenditures
for acquisitions.
Due to the relatively low levels of inflation experienced in 1997,
inflation did not have a significant effect on the pro forma combined results of
operations of the Company in that period.
SEASONALITY
The Company historically has experienced quarterly fluctuations in
revenues, operating income and cash flows. In recent years, the Company has
experienced greater revenue, operating income and cash flows in the second and
third calendar quarters as compared with the other two calendar quarters,
primarily as a result of holidays and inclement weather during the first and
fourth calendar quarters and delays in expenditures until after completion of
the Company's clients annual budgeting process, which normally occurs during the
first calendar quarter.
IMPACT OF YEAR 2000
The Company is currently in the process of evaluating its computer software
programs and operating systems to ensure such programs and systems will be able
to process transactions in the year 2000. However, the Company does not believe
that the costs to modify its programs or systems will be material to its
financial condition or results of operations. The Company does not currently
have information concerning the year 2000 compliance of its clients and
suppliers. The failure of the Company's clients and suppliers to achieve year
2000 compliance could have a material adverse effect on the Company's financial
condition and results of operations.
24
<PAGE>
PETROCON -- RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship that certain items in Petrocon's Consolidated Statements of Income
bear to revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 52,386 100.0% $ 61,851 100.0% $ 92,616 100.0%
Direct costs............................ 42,144 80.4 49,252 79.6 71,693 77.4
--------- --------- --------- --------- --------- ---------
Gross profit............................ 10,242 19.6 12,599 20.4 20,923 22.6
General and administrative expenses..... 8,359 16.0 9,577 15.5 15,467 16.7
--------- --------- --------- --------- --------- ---------
Income from operations.................. 1,883 3.6 3,022 4.9 5,456 5.9
Other income (expense).................. (74) (0.1) (506) (0.8) (1,127) (1.2)
--------- --------- --------- --------- --------- ---------
Income from continuing operations before
income tax............................ 1,809 3.5 2,516 4.1 4,329 4.7
Provision for income tax................ 599 1.2 1,051 1.7 1,574 1.7
--------- --------- --------- --------- --------- ---------
Income from continuing operations....... $ 1,210 2.3% $ 1,465 2.4% $ 2,755 3.0%
========= ========= ========= ========= ========= =========
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for 1997 increased by $30.7 million, or 49.6% to $92.6 million
from $61.9 million for 1996. This increase was principally due to the
acquisitions of Alliance Engineering, Inc. ("AEI"), RPM/Barnard & Burke
("RPM") and Triangle Engineers & Constructors, Inc. ("TE&C") in February
1997, October 1996 and July 1996, respectively. These entities contributed
revenues of $39.7 million in 1997 as compared to $6.1 million in 1996. This
increase was partially offset by a reduction in revenues at Petrocon (excluding
revenues attributable to the acquisitions) primarily as a result of the transfer
of an aggregate of approximately $3.5 million of revenues to PAL and the
acquired companies.
Gross profit for 1997 increased by $8.3 million, or 65.9%, to $20.9 million
from $12.6 million for 1996. The gross margin increased to 22.6% in 1997 from
20.4% in 1996. This increase was principally due to the acquisitions of AEI and
RPM, which achieved generally higher gross margins than the other Petrocon
subsidiaries. AEI, RPM and TE&C contributed aggregate gross profit for 1997 of
$10.6 million as compared to $1.6 million for 1996.
General and administrative expenses for 1997 increased by $5.9 million to
$15.5 million from $9.6 million for 1996, primarily as a result of the AEI, RPM,
and TE&C acquisitions, the addition during June 1996 of a corporate acquisition
staff and an increase in office work as contrasted with in-plant assignments.
AEI, RPM and TE&C accounted for $7.4 million of general and administrative
expenses for 1997 as compared to only $1.2 million in 1996. In addition, office
work generally carries higher general and administrative expenses but also
generates higher margins than in-plant assignments.
Other income (expense) for 1997 increased by $(0.6) million to $(1.1)
million from $(0.5) million for 1996. This increase was primarily due to (i) a
$1.0 million increase in interest expense resulting from increased borrowings
needed to fund acquisitions, a shareholder preferred stock buy-back program and
working capital requirements and (ii) a $0.4 million charge related to the
write-off of certain leasehold improvements and other property. These expense
increases were partially offset by a $1.0 million increase in the earnings of
PAL reported under the equity method.
Income from continuing operations for 1997 increased by $1.3 million, or
86.7%, to $2.8 million from $1.5 million for 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues for 1996 increased by $9.5 million, or 18.1%, to $61.9 million
from $52.4 million in 1995. This increase was primarily the result of the
acquisitions of RPM and TE&C, which contributed revenues of $6.1 million in
1996. In addition, internal growth accounted for an increase of $3.4 million
based in part on the receipt of significant incentive payments on several large
projects completed in 1996.
Gross profit for 1996 increased by $2.4 million, or 23.5%, to $12.6 million
from $10.2 million for 1995, primarily due to the increase in revenues and from
the RPM and TE&C acquisitions. The gross
25
<PAGE>
margin increased to 20.4% in 1996 from 19.6% in 1995. This improvement was
principally due to the RPM acquisition, which achieved generally a higher gross
margin than the other Petrocon subsidiaries.
General and administrative expenses for 1996 increased by $1.2 million to
$9.6 million from $8.4 million for 1995, primarily as a result of the RPM and
TE&C acquisitions and the addition of the corporate acquisition staff in June
1996. RPM and TE&C accounted for $1.2 million of general and administrative
expenses in 1996.
Other income (expense) for 1996 increased by $(0.4) million to $(0.5)
million from $(0.1) million for 1995. This increase related principally to (i) a
$0.1 million increase in interest expense due to increased borrowings to fund
acquisitions and the shareholder preferred stock buy-back program and (ii) a
$0.5 million decrease in the earnings of PAL reported under the equity method.
The decrease in the earnings of PAL resulted primarily from the imposition of
quota requirements under certain client contracts that have since been resolved.
Income from continuing operations for 1996 increased $0.3 million to $1.5
million from $1.2 million for 1995.
PETROCON -- LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Petrocon had cash and cash equivalents of $2.3
million. In addition, Petrocon has a $14 million revolving credit facility, of
which $11.6 million was outstanding at December 31, 1997. This credit facility
is secured by the Company's accounts receivable and requires Petrocon to
maintain certain financial covenants regarding net worth and cash flow, as well
as certain financial ratios, including fixed charge coverage and specified
levels of certain other items. The credit facility expires in August 1999. The
Company intends to repay this credit facility with proceeds from the Offering
and enter into the New Credit Facility. See "Use of Proceeds" and "-- Pro
Forma Combined -- Liquidity and Capital Resources."
For 1997, net cash provided by operations totaled $3.3 million as compared
to $4.6 million for 1996. Cash provided by operations for 1997 consisted of net
income of $2.8 million, plus non-cash revenue and expenses of $1.8 million, less
changes in working capital of $(1.3) million in the aggregate.
Non-cash revenue and expenses for 1997 included depreciation and
amortization expense of $1.8 million. Changes in working capital included a $3.3
million increase in accounts receivable as a result of the higher revenues in
1997, and a $1.4 million increase in costs and estimated earnings in excess of
billings on uncompleted contracts due to an increase in projects in progress but
not completed at year end. This use of working capital was partially offset by
increases in accounts payable of $0.8 million and accrued salaries and fringe
benefits of $2.8 million, primarily due to the higher revenues in 1997 and the
AEI acquisition.
Capital expenditures for 1997 were $1.2 million, principally for the
purchase of computer equipment and software and certain AEI leasehold
improvements.
In February 1997, a wholly-owned subsidiary of Petrocon merged with AEI.
Cash used for the acquisition, net of cash acquired, was $3.1 million in the
aggregate. In August 1997, Petrocon repurchased 154,531 shares of its
outstanding Series A preferred stock in exchange for cash of $0.9 million and
other consideration. At December 31, 1997, net increases in amounts outstanding
under PEI's credit facility and notes payable were $3.8 million in the
aggregate, principally to fund the AEI acquisition and for working capital
requirements.
Petrocon capital expenditures for 1998 are expected to be approximately
$1.0 million, primarily for Petrocon computer equipment and software.
26
<PAGE>
INDUSTRY OVERVIEW
GENERAL
Engineering is an integral part of virtually every type of construction,
manufacturing, processing, natural resource extraction, power generation or
transportation activity. Firms providing engineering services range from small,
local firms employing several or even a single engineer, to global organizations
whose professionals number in the thousands and which have worldwide
capabilities. Some engineering firms confine their activities to "pure"
planning and design functions, while many combine their engineering work with
varying degrees of construction, architectural and other activities. Some
engineering firms are specialized, either on a discipline or industry basis, and
others are multidisciplined and serve a broader base of clients.
Given the breadth of activities constituting "engineering" and the
diversity of the firms conducting these activities, generalizations and
characterizations are difficult and largely subjective. ENR annually reports on
and ranks by client billings what it calls "The Top 500 Design Firms," which
include U.S.-based engineer-constructor, engineer-architect and other hybrid
organizations, as well as exclusively design and planning firms. Ranked
companies classify themselves as concentrating in specified areas of work.
According to ENR'S report for 1997, its 500 top ranked firms as a group billed
their clients $ billion in 1997, representing a % [INCREASE]
[DECREASE] over 1996. For 1996, the "Top 500's" total reported client billings
by areas of work were as follows [UPDATE W/'97 NUMBERS]:
BILLINGS
(IN BILLIONS PERCENT
TYPE OF WORK OF DOLLARS) OF TOTAL
- ------------------------------------- ------------- --------
General Building..................... 5.0 16.8
Transportation....................... 4.6 15.4
Hazardous Waste...................... 4.5 15.1
Petroleum............................ 4.0 13.4
Industrial Process................... 3.0 10.1
Sewerage/Solid Waste................. 2.6 8.7
Power................................ 1.7 5.7
Manufacturing........................ 1.6 5.4
Water Supply......................... 1.5 5.0
Other................................ 1.3 4.4
Of the total 1997 billings reported by ENR'S "Top 500," $
billion, or %, was represented by domestic billings, and $
billion, or %, was represented by international work. Out of the "Top 500"
firms, firms reported increases in their professional staff during 1997,
versus firms which reported losses or no change in professional staff,
and firms reported higher backlogs at the end of the year, while
firms reported lower or unchanged backlog levels.
INDUSTRY CONDITIONS
The markets served by the ENR ranked firms and the many thousands of
unranked U.S. and foreign-based design and engineering firms make up a global
construction market estimated to exceed $3 trillion annually. In the United
States, over the last decade, the annual value of construction put in place has
been assessed by the U.S. Department of Commerce at over $400 billion in current
dollars. The market for engineering services has experienced significant growth
in recent years as reflected by an increase in annual billings by ENR'S "Top
500" of $[*] billion, or [*]%, from $29.4 billion in 1995 to $[*] billion in
1997. The Company believes there will be a continued strong demand for
engineering services within the United States and internationally due to, among
other things, the following factors:
ANTICIPATED SPENDING ON INFRASTRUCTURES. The United States
infrastructure needs have been much publicized. Upgrades and expansions of
the existing infrastructure, including highways, water and sewer lines and
gas and other power utilities are currently estimated by the Associated
General Contractors of America to require more than $3 trillion over the
next 20 years, averaging approximately $180 billion each year. Similarily,
significant infrastructure expenditures are expected in
27
<PAGE>
Europe, with construction spending estimated at approximately $500 billion
per year. In lesser developed countries, increasing urbanization and the
growing demand for an improved standard of living are expected to generate
substantial engineering and construction infrastructure projects.
CONTINUED IMPROVEMENT OF INDUSTRIAL OPERATING AND PROCESSING
EFFICIENCIES. The industrial construction market both within the United
States and abroad is expected to continue to be driven by competitive and
technological forces. Global competition is believed by management to be
motivating plant owners to increase their spending on solutions that
further automate and streamline their businesses. As a result, the global
demand for technically diverse engineering services is expected to continue
to increase.
CONTINUED INCREASES IN REGULATORY REQUIREMENTS IMPACTING U.S.
INDUSTRY. Regulations regarding the environmental and safety compliance of
U.S. businesses continue to create significant construction and engineering
opportunities. For example, the EPA currently estimates that U.S. pulp and
paper manufacturers will be required to make more than $1.8 billion in
total capital expenditures and $277 million annually to comply with surface
water discharge limitations currently in effect. The EPA further estimates
that approximately $140 billion must be spent over the next 20 years to
conform U.S. wastewater and hazardous waste disposal sites to comply with
current regulatory requirements.
CONTINUED TRENDS IN OUTSOURCING OF PLANT OPERATION AND
MAINTENANCE. Technical staffing by engineering firms should continue to
expand as refineries and manufacturing and processing plants rely
increasingly on outside firms to provide engineering services related to
plant operations and maintenance. Industrial clients have continued to
reduce their in-house engineering staffs related to these areas as a result
of outsourcing non-core business functions and industry downsizing.
Industry studies estimate that between 20% and 50% of the total cost of
running a plant is represented by maintenance and that the total potential
plant maintenance market ranges from $300 billion to $500 billion annually.
TREND TOWARD CONSOLIDATION
The Company believes that more than 28,000 U.S. firms, and an even greater
number of foreign firms, offer some form of engineering and design services. The
Company also believes that these firms are combining at the local, national and
international levels as they seek to expand their geographic coverage, broaden
their professional capabilities, expand within existing geographic markets and
specialties, and leverage their engineering capabilities through
cross-marketing. The Company believes that the same motivating factors that have
led some of Europe's largest firms to acquire or obtain controlling interests in
some of the largest and best known engineering firms in the United States, and
VICE VERSA, will continue to induce combinations among local, regional, national
and foreign firms of every size and type.
The Company further believes that at the mid-size and regional firm level,
several other factors are contributing to an increasing number of firms seeking
to combine with other, larger organizations. Frequently, the founders and
principals of these firms are engineers or designers first, and professional
business managers second. Their firm's growth has imposed on them greater
management responsibilities at the expense of their professional practice, and
many are seeking either relief from or assistance with their management burdens.
Also, regardless of their legal form, many such firms, over the life of their
development, have assumed partnership-like characteristics as growing numbers of
professionals have become equity owners in the firm, a process which often
raises difficult governance and other issues that can be solved by a combination
with a larger, professionally managed firm. Furthermore, many of these firms
recognize their need for overhead reductions, but feel constrained in making
them by what often are non-economic factors. The Company believes that in many
instances, such firms may view their acquisition as an opportunity to achieve
appropriate and necessary overhead reductions without having to self-impose
them. Finally, the growth opportunities of these firms are often limited by
bonding and other performance guarantee requirements which are beyond their
financial capabilities, but which could be satisfied by access to greater
financial resources through association with a larger firm.
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BUSINESS
GENERAL
The Company is a diversified engineering company providing engineering
services and engineered systems to a broad range of industrial, commercial and
institutional clients throughout the United States and internationally. The
Company's multidisciplined expertise enables it to offer its clients total
design and engineering solutions extending from project inception through
completion, start-up and operation, within multiple industries and across
diverse geographic markets. During 1997, the Company was involved in engineering
projects in 26 states and over 21 countries worldwide, generating pro forma
combined revenues of $169.1 million, of which $119.5 million, or 70.7%, was from
domestic projects, and $49.6 million, or 29.3%, was from international work.
OEI was formed in October 1997 by Petrocon's management to conduct the
offering, simultaneously consummate the Pending Acquisitions and continue
Petrocon's successful acquisition program. The Company, through Petrocon, has
grown significantly through acquisitions, having acquired more than 13
engineering firms since 1988. As a result of the Pending Acquisitions and the
Offering, the Company believes it will have greater financial, technical and
professional resources, which will enable it to aggressively continue its
successful acquisition strategy, enhance its technical capabilities and expand
its already diversified client base.
The Company operates in two principal segments: engineering services and
engineered systems. The Company's engineering services encompass all aspects of
the process, civil, structural, mechanical, instrument, electrical, geotechnical
and environmental engineering and design disciplines, providing its clients with
a single source for all their design, engineering and permitting needs. The
Company has designed and engineered facilities ranging from refineries,
petrochemical plants, pulp and paper processing plants and wastewater treatment
facilities, to food and beverage processing plants, pharmaceutical plants and
laboratories, electronics manufacturing facilities, hotels and casinos. The
Company's engineered systems are primarily custom designed, built, programmed
and installed on a fixed-price, turnkey basis and include control and
instrumentation systems and modular processing plants primarily for the oil and
gas, refining and chemical processing industries. During 1997, approximately
$124.5 million, or 73.6%, of the Company's pro forma combined revenues were
attributable to engineering services and $44.6 million, or 26.4%, were
attributable to engineered systems. The Company provides engineering services
and engineered systems to a number of Fortune 100 companies through a staff of
over 1,600 employees, including approximately 1,100 engineers and design
professionals as of December 31, 1997.
BUSINESS STRATEGY
The Company has developed a strategic plan to:
EXPAND AND DIVERSIFY THROUGH ACQUISITIONS. The Company intends to
aggressively continue its acquisition program targeted at well-established,
profitable engineering companies offering engineering services and engineered
systems similar or complementary to those offered by the Company. See
"-- Acquisition Strategy" and "-- Acquisition History." The key elements of
the Company's acquisition strategy are to:
ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand its
geographic coverage by acquiring well-established and highly respected
local and regional firms within the U.S., as well as foreign firms, with
operations in geographic areas not currently served by the Company.
EXPAND AREAS OF TECHNICAL EXPERTISE. The Company intends to expand
the scope of its technical expertise by acquiring firms with acknowledged
expertise and experience in specialized service areas that are not offered
by the Company or in which the Company does not enjoy a widely recognized
reputation. This would provide the Company's existing and future clients
with a broader range of services.
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STRENGTHEN PRESENCE WITHIN EXISTING GEOGRAPHIC MARKETS AND
SPECIALTIES. The Company intends to acquire firms in markets currently
served and specialties currently offered by the Company in order to
increase the professional resources available to the Company and secure
larger projects.
ENHANCE CROSS-MARKETING OPPORTUNITIES The Company also intends to
enhance its cross-marketing opportunities by acquiring other engineering
firms whose services and systems can be packaged or cross-marketed with the
Company's existing services and systems.
ACCELERATE INTERNAL GROWTH. The principal elements of the Company's
internal growth strategy are to (i) attract larger, higher-margin projects by
virtue of increased financial, professional and technical resources, (ii)
leverage the Company's capabilities and expertise through cross-marketing and
(iii) develop new partnering relationships and other strategic alliances.
IMPROVE OPERATING MARGINS. The Company believes that combining Petrocon
and the Acquired Companies will provide significant opportunities to increase
the Company's profitability. The key components of this strategy are to:
INCREASE OPERATING EFFICIENCIES. The Company believes that it will be
able to increase its overall staff utilization rate by more effectively
deploying and allocating its professional resources. The Company intends to
accomplish this goal with the aid of computer networking, which will allow
work to be sent instantly by computer to the location of available
resources, and by extending the concepts of the Company's "Vision 2000,"
a project-driven approach which the Company has had in place for almost
four years and which has helped Petrocon lower significantly its
non-billable hours and maximize its rate of chargeability. The Company also
expects improvements in its overall staff utilization rate as a result of:
(i) increased utilization of highly specialized personnel based upon a
larger number of Company-wide engineering projects; (ii) increased
flexibility to make staff adjustments at those operating companies located
in geographic areas with more limited talent pools; and (iii) the
Company-wide application of Petrocon's operating experience in the Texas
Gulf Coast area, which is one of the country's most competitive
environments for engineering services.
CENTRALIZE APPROPRIATE ADMINISTRATIVE FUNCTIONS. The Company believes
that opportunities exist to improve operating margins by consolidating the
administrative functions of the Company, such as finance, insurance,
employee benefits and accounting.
EXPLOIT PURCHASING POWER. The Company expects to use its increased
purchasing power to gain volume discounts both for itself and in connection
with its procurement services for its clients. These discounts will enable
the Company to secure larger margins on its turnkey projects and
fixed-price contracts, and to potentially secure additional contracts in
situations where these discounts can be passed through to its clients.
OUTSOURCE CONSTRUCTION ACTIVITIES. While the Company recognizes the
current trend among project owners and operators toward turnkey projects, under
which a single firm provides all engineering, procurement and construction
services associated with a project, the Company believes it can offer clients
these projects, without assuming all of their associated construction risks, by
forming joint ventures and other partnering relationships with specialized
construction firms. Similarly, in instances where the Company is asked or
required to take an equity interest in a project, the Company intends to seek
financial partners with capital available for that purpose, rather than
deploying its own capital in meeting any project equity requirements. The
Company believes that combining Petrocon and the Acquired Companies will result
in a larger firm, both financially and in terms of professional resources, and
thus a more attractive partnering candidate for potential construction and
financial partners.
OPERATE ON A DECENTRALIZED BASIS. The Company intends to manage its
operating companies and subsequently acquired companies on a decentralized
basis, with local management retaining responsibility for day-to-day operations,
profitability and growth. The Company's executive management intends to closely
monitor operating results of its operating companies and will provide direction
and guidance on operational matters, such as staff utilization rates, backlog
control and marketing and cross-selling opportunities, in an effort to improve
profitability at each operating level. The Company believes that
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combining a decentralized management structure with strong, centralized
operating and financial controls geared to accountability will support the
entrepreneurial and creative culture at each of its operating companies, while
allowing the Company to capitalize on the local and regional market knowledge,
goodwill, name recognition and client relationships of each of the operating
companies.
ACQUISITION STRATEGY
The Company intends to aggressively continue its acquisition program
targeting well-established and profitable companies offering engineering
services and engineered systems similar or complementary to those offered by the
Company. Acquisitions will be expected to expand the Company's geographic
coverage, broaden its technical capabilities or expertise, improve its market
share within existing geographic markets or specialties, or provide increased
cross-selling opportunities. Certain acquisitions will be large enough to
maintain their own operating and management structure, while other smaller
acquisitions will be folded into an existing operation without significantly
increasing the Company's infrastructure. From among the many thousands of
engineering companies estimated to be active in the United States, and the many
more thousands of foreign firms, the Company believes there will be no shortage
of acquisition candidates. The Company will selectively pursue acquisition
candidates based on the Company's acquisition criteria, such as profitability,
revenue growth potential, similar or complementary services, systems and client
bases that provide potential cross-selling opportunities, established
reputation, qualified and experienced management, professional and technical
personnel and geographic and cultural compatibility.
The Company believes it will be regarded by acquisition candidates as an
attractive acquirer because of: (i) the Company's strategy for creating a
professionally managed engineering firm of internationally recognized stature;
(ii) the Company's decentralized operating strategy which emphasizes an ongoing
role for owners, management and key personnel of acquired firms, as well as
meaningful equity positions for these individuals which will enable them to
participate in the Company's growth and realize improved liquidity; (iii) the
Company's objective of maintaining a professional environment which will attempt
to preserve and capitalize on the entrepreneurial spirit, creativity and
ingenuity of the acquired firms' owners and professional personnel; (iv) the
potential for growth of both the acquired entity and the Company overall by
virtue of increasing the scope and variety of services which the acquired firm
and the Company can together make available to their existing client bases, as
well as increasing the size and variety of the projects which can be undertaken
by the acquired firm as a result of its access to greater financial, technical
and professional resources; and (v) the potential for increased profitability of
the acquired company due to centralization of administrative functions, enhanced
information and design systems capabilities and purchasing economies.
The Company intends to use various combinations of its Common Stock, cash
and notes as consideration for future acquisitions. The consideration for each
future acquisition will vary on a case-by-case basis. The Company will finance
future acquisitions through funds provided by operations, by the New Credit
Facility and from the proceeds of future equity and debt financings. During
1998, the Company intends to register shares of Common Stock
under the Securities Act for use in connection with future acquisitions.
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ACQUISITION HISTORY
Since 1988, the Company has experienced substantial growth through
acquisitions. Key members of the Company's management team have worked together
for several years at Petrocon, which has made over 13 acquisitions to date. In
the process, the Company's management has gained valuable experience in
sourcing, negotiating, closing and successfully integrating acquisitions. The
following table describes eight of the more strategically significant
acquisitions by the Company since 1988:
<TABLE>
<CAPTION>
PRE-ACQUISITION
YEAR REVENUES(1)
COMPANY ACQUIRED ACQUIRED (IN MILLIONS) DESCRIPTION
- ------------------------------ -------- --------------- ------------------------------
<S> <C> <C>
Engineering Division of Austin 1988 $ 6.5 Multidisciplined engineering
Industries, Inc. services to the process
industries in the Texas and
Louisiana Gulf Coast Area
DLH Associates 1991 $ 1.2 Intrumentation and
programmable logic control
systems
Coastal Technical Corporation 1991 $ 8.0 Technical personnel
outsourcing
HTC, Inc. 1992 $ 0.6 Instrumentation and
programmable logic control
systems
Eagleton Saudi Arabia Limited 1992 $12.0(3) Engineering services to the
(PAL)(2) petroleum industry in the
Middle East
Triangle Engineers & 1996 $ 7.5 Multidisciplined engineering
Constructors, Inc. services to the petroleum and
chemical industries in the
Gulf Coast area
RPM/Barnard & Burke 1996 $19.0 Services to the downstream oil
and gas industry in the
Mississippi River corridor of
Louisiana
Alliance Engineering, Inc. 1997 $14.0 Process design serving the
upstream segment of the oil
and gas industry, with subsea
structural design specialty
</TABLE>
- ------------
(1) Represents unaudited revenues for the fiscal year ending in the year
immediately preceding the year of the acquisition.
(2) Acquisition of a 50% interest in what is now PAL.
(3) Represents 100% of PAL's revenues. No PAL revenues are included in the
Company's revenues because it uses the equity method to account for PAL.
Through these acquisitions, the Company has demonstrated the ability to
implement its acquisition strategy. The Company expanded internationally through
its acquisition of a 50% interest in PAL (formerly Eagleton Saudi Arabia
Limited), which has provided the Company with a presence in the Middle East and
surrounding countries. PAL has also provided cross-selling opportunities by
assisting the Company in securing engineering projects for its U.S-based
operating companies. The Company broadened its technical expertise in control
systems through a series of acquisitions, including DLH Associates and HTC,
Inc., which enabled the Company to immediately compete for a growing number of
control system project opportunities. The Company acquired Coastal Technical
Corporation to take advantage of an industry trend of outsourcing certain
in-plant engineering functions and as a hedge against cyclical downturns. The
acquisitions of RPM/Barnard & Burke, Triangle Engineers & Constructors, Inc. and
Alliance Engineering, Inc. have strengthened the Company's position in the Gulf
Coast region, while at the same time expanding the Company's engineering
capabilities in the upstream oil and gas market. These acquisitions also
permitted the Company to gain additional plant engineering projects with certain
of its long-term alliance clients by adding new office locations in close
proximity to their plants.
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ENGINEERING ACTIVITIES
The Company groups its engineering activities into two principal segments:
engineering services and engineered systems. The following table sets forth, for
the periods indicated, the contribution to the Company's combined revenues from
each of these segments:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN MILLIONS)
Engineering Services................. $ 80.8 $ 94.7 $ 124.5
Engineered Systems................... 19.6 39.7 44.6
--------- --------- ---------
Total........................... $ 100.4 $ 134.4 $ 169.1
========= ========= =========
ENGINEERING SERVICES. The Company's engineering service capabilities
encompass all aspects of the process, civil, structural, mechanical, instrument,
electrical, geotechnical and environmental engineering disciplines, providing
its clients with a single source for all their design, engineering and
permitting needs. This multidisciplined expertise enables the Company to offer
total design and engineering solutions extending from product inception through
completion, start-up and operation, within multiple industries and across
diverse geographic markets.
The Company's services include feasibility studies, conceptual design,
detail engineering, site and environmental planning, evaluation and permitting,
procurement, project and construction management, inspection and verification,
maintenance, plant operations, quality assurance/control and information
technology. The Company has designed and engineered facilities ranging from
refineries, petrochemical plants, pulp and paper processing plants and
wastewater treatment facilities, to food and beverage processing plants,
pharmaceutical plants and laboratories, electronics manufacturing facilities,
hotels and casinos.
The nature and variety of the Company's engineering services are
illustrated by the following representative listing of projects completed by the
Company:
o Total design, integration and project management for a substantial
refinery upgrade project for Lyondell-Citgo in the Houston, Texas
area.
o Total design, procurement, installation supervision and startup of a
fruit processing plant in southern India.
o Engineering, procurement and construction management services for a
significant distributed control system upgrade for a major refinery in
the Middle East.
o Engineering, design, procurement, construction support and startup
services for a process system to blend coffee for Pepsi-Cola
International.
o Full range of environmental planning, permitting and engineering
consulting services relating to a 25,000 seat waterfront amphitheater
located in New Jersey.
o Design and permitting services related to a gas/odor collection system
project for a major New York landfill.
o Total engineering and design services for a marine research
laboratory, which includes a state-of-the-art 32,000 gallon aquarium
with seawater filtration and water temperature and lighting controls
for simulation of various aquatic conditions.
o Process engineering services for a substantial chemical plant project
in mainland China for a major U.S. chemical company.
The Company also provides engineers, designers and draftsmen to its clients
for assignment inside the clients' facilities. These staffing arrangements,
primarily with refineries and petrochemical and processing plants in the Texas
and Louisiana Gulf Coast region, include: partnering relationships with clients;
in-plant task forces operating under the Company's supervision; and
employee-lending arrangements where Company employees work under the client's
supervision. At December 31, 1997, approximately 400 Company
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<PAGE>
personnel were contracted for some form of in-plant assignment. The Company
intends to continue pursuing a strategy of placing employees on in-plant
assignments in order to take advantage of what it believes to be a sustained
trend toward outsourcing and single sourcing among plant owners and operators,
and as a hedge against cyclical slumps resulting from general economic or
industry specific conditions.
ENGINEERED SYSTEMS. The Company provides two primary types of engineered
systems: control and instrumentation systems and modular processing plants.
CONTROL AND INSTRUMENTATION SYSTEMS. The Company designs, engineers,
assembles, programs, installs, integrates and services control and
instrumentation systems for specific applications, principally in various energy
and processing related industries. The Company's control and instrumentation
systems are custom designed and include both conventional pneumatic and
hydraulic control systems and sophisticated electronic, microprocessor-based
controls employing programmable logic. Typical applications for the Company's
control and instrumentation systems include oil and gas production safety
systems, fire and gas detection systems, pipeline compressor station and data
acquisition systems, surface controls for subsea production systems and control
systems for oil and gas wells, engine and gas turbine driven compressors, pumps,
boilers and heaters, and processing equipment. The Company offers turnkey
electrical and instrumentation field construction services for equipment
packages, offshore oil and gas production facilities, pipeline compressor
stations, refineries and processing plants. All facets of control and
instrumentation system design, engineering, assembly and testing are performed
in-house by the Company, and the Company's full service field installation and
technical staff performs complete electrical and instrumentation installation
projects, start-up and commissioning services, modifications to existing
systems, on-site training and routine maintenance procedures for client
operating personnel. The Company's control systems unit does not produce
products for inventory and purchases component parts for its systems only on an
as-needed basis.
MODULAR PROCESSING PLANTS. The Company designs, engineers, fabricates and
installs modular processing plants for the oil and gas and petrochemical
industries. The Company specializes in cryogenic turbo-expander units which
employ extreme low temperatures in the processing of natural gas for the
extraction of ethane and heavier gas liquids and the removal of nitrogen and
other inerts. The Company also designs and builds extraction plants using
conventional refrigeration to remove propane and heavier gas liquids from
natural gas. Other modular plants designed and built by the Company include
plants for gas treatment, sulfur, dehydration and fractionation, crude
stabilization and production, MTBE, waste heat recovery and cogeneration, and
amine treatment. The Company has designed and built plants ranging in capacity
up to 450 million standard cubic feet per day for extraction plants, 250 million
standard cubic feet per day for gas treatment plants, 600 tons per day for
sulfur plants, 60,000 barrels per day for fractionation plants and 1.2 billion
cubic feet per day for gas dehydration plants.
All mechanical, structural, civil, piping, electrical and instrumentation
engineering incorporated in the Company's modular plants is performed by the
Company. The Company's modular plants are constructed at its fabrication
facility in Houston, Texas. The plants are built on skids and transported to
their site either by the Company or its client depending on the client's
preference. If requested by the client, the Company provides full on-site
installation, testing and commissioning services for its modular plants.
The Company believes that its modular plants offer advantages over
comparable plants constructed on site, including quicker and more predictable
delivery schedules, higher quality assurance due to the controlled environment
in which the plants are built, and lower costs attributable to simplified
materials delivery, quantifiable labor costs and simplified field installation.
Historically, the Company has undertaken only a small number of high-margin
modular plant projects annually, and most of its plants were for installation in
the oil and gas producing regions of the United States, principally in Texas,
Louisiana, Oklahoma and New Mexico. In recent years, the Company has been
concentrating on building plants for foreign clients, for installation abroad,
since the Company believes foreign projects generally offer greater profit
opportunities. In 1997, the Company's two largest foreign projects were built
for installation in Argentina and the Ivory Coast, respectively.
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<PAGE>
BUSINESS DEVELOPMENT AND MARKETING
The Company believes marketing and business development are Company-wide
responsibilities, and all of the Company's project and other managers are
formally encouraged to be actively involved in business development efforts
through the maintenance of professional and personal relationships and through
the identification and pursuit of new business opportunities. Company managers
closely monitor the Company's client list to insure that all existing clients
are contacted on a regular basis so that the Company remains before the client
and aware of all current and proposed client projects.
The Company also has 20 full-time business development managers who are
responsible for both maintaining existing client relationships and identifying
new clients, projects and markets. The Company business development managers are
located in Houston (six) and Beaumont (four), Texas; Baton Rouge (four) and Lake
Charles (one), Louisiana; Louisville, Kentucky (three); and Warren, New Jersey
(two). The Company has two full-time business development managers responsible
primarily for international business development. In addition, the Company
retains business development agents in Mexico City, three Saudi Arabia locations
and Lagos, Nigeria.
In addition to the regional business development managers, the Company has
recently created the position of Executive Vice President of Marketing and
Development to implement, control, monitor, report and evaluate marketing
policies and procedures to be adopted on a corporate level and approved by the
President. These policies and procedures will be set after consultation with
management of the Company's primary operating locations and will be modified
from time to time as market and Company conditions warrant. Other
responsibilities of the Executive Vice President of Marketing and Development
will include developing, implementing, monitoring and evaluating policies and
procedures relating to cost-effective integration techniques at the operating
company level with emphasis on resource allocation, such as staff utilization,
work-load variances and man-hour cost-to-billing differentials, in an effort to
achieve periodic and long-term consolidated financial planning objectives, while
at the same time maintaining acceptable internal growth rates at the operating
companies.
OPERATIONS
The Company intends to operate on a decentralized basis, with the
management of each operating company responsible for day-to-day operations,
profitability and growth. However, the Company intends to centralize certain
administrative activities from its executive offices. Centralized activities
will include accounting for the consolidated group, financing, business
development support, management information systems support, contract
administration, insurance and safety administration and audits. In addition, all
operating locations will be required to adhere to Company-wide policies and
procedures relating to financial reporting, internal controls, purchasing and
human resources and administration.
The Company will also initiate "best practices" among all the operating
companies for project monitoring and cost controls, backlog reporting, risk
management and, where determined by the Company to be advisable, engineering
policies and procedures. The Company intends to establish a President's Council,
comprised of the president of OEI and the presidents of each of the Company's
significant operating companies, to meet periodically for the purpose of
implementing "best practices" and identifying areas where opportunities for
synergies may be realized.
The Company intends to integrate in the near term the existing computer
system of Petrocon with each of the primary facilities of the Company's
significant operations. This system should increase the Company's overall staff
utilization rate by allowing the Company to instantly transmit work to the
location of available resources. The Company has recently retained an
integration coordinator to implement the integration of this system and other
centralized administrative functions.
COMPETITION
In its engineering services segment, the Company competes nationally and
internationally with a large number of other firms of all sizes, ranging from
the industry's largest firms which operate on a worldwide basis to much smaller
regional and local firms. Among the firms larger than the Company, many offer a
35
<PAGE>
broader range of services than does the Company, many concentrate their services
in one or more of the Company's service areas, and many have greater financial
and professional resources than the Company. The Company does not believe that
any one firm dominates or contributes a significantly large percentage of the
total volume of work performed in any particular service area.
Competition in the Company's engineering services segment is primarily
centered on performance and the ability to provide the engineering, planning and
project execution skills required to complete projects in a timely and cost
efficient manner, as well as price. The high level of competition in this area
of the Company's business has fostered a trend away from the relatively riskless
cost-plus fee arrangements to pricing alternatives designed to shift to the
service provider, or requiring the service provider to at least share in, the
risks of cost overruns and inefficiencies in the delivery of services. These
alternatives include fixed-price, guaranteed maximum price, incentive fee,
competitive bidding, and other "value based" pricing arrangements. See "Risk
Factors -- Pricing and Related Risk Sharing" and "-- Contracts."
In its engineered systems segment, the Company emphasizes, and believes it
is known for, the engineering quality and performance characteristics of its
systems, its total turnkey capabilities, its innovative design solutions and its
ability to meet promised delivery dates. The emphasis both clients and the
Company place on pricing tends to vary with cyclical conditions in the oil and
gas, petroleum and processing industries, with pricing becoming a more important
factor during industry downturns. The Company's control systems and modular
processing plants compete with similar systems built by other companies both
larger and smaller than the Company, some of which compete primarily on the
basis of pricing.
FOREIGN OPERATIONS
The Company has performed engineering and construction management services
in over 25 countries, both directly and through its 50% interest in PAL, which
is headquartered in Al Khobar, Saudi Arabia and serves the entire Arabian Gulf
Region. In addition to its Al Khobar headquarters, PAL has branch offices in
Riyadh, Yanbu and Abu Dhabi, from which it services clients in Bahrain, Kuwait,
Oman, Qatar, Saudi Arabia and the United Arab Emirates. Through agents and
partners, the Company maintains offices in Mexico City, Mexico and Lagos,
Nigeria.
For the years ended December 31, 1995, 1996 and 1997, combined revenues
from Company projects outside of the United States, excluding all PAL projects,
were approximately 19.2%, 29.3% and 29.3% of total revenues, respectively. The
Company accounts for its 50% interest in PAL by the equity method, and therefore
no PAL revenues are included in the Company's revenues. For the years ended
December 31, 1995, 1996 and 1997, PAL had revenues of approximately $9.2
million, $8.1 million and $16.5 million, respectively.
CONTRACTS
The price provisions of the Company's contracts with its clients vary
greatly. However, these provisions can generally be grouped into one of three
categories: cost-plus; guaranteed maximum price; and fixed-price.
COST-PLUS contracts provide for reimbursement of costs incurred by the
Company plus a predetermined fee or a fee based on a percentage of costs
incurred. This pricing arrangement presents the least risk to the Company.
GUARANTEED MAXIMUM PRICE contracts are performed in the same manner as cost
plus contracts, except the total actual cost plus the fee cannot exceed the
guaranteed price negotiated between the Company and its client. If it does, then
the Company may bear all or a portion of the excess. Where the cost and fee are
less than the guaranteed price, the Company may share the savings with the
client on a predetermined basis.
FIXED-PRICE contracts include both negotiated fixed-price contracts and
lump sum bid contracts that require the Company to perform work for a stated
amount. Under a negotiated fixed-price contract, the Company is first selected
as the contractor, and then the contract price is negotiated. Negotiated
fixed-price contracts are frequently agreed to in turnkey arrangements where the
Company has the opportunity to
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<PAGE>
perform feasibility studies and design work before negotiating the price. Under
lump sum bid contracts, the Company must bid against other firms based upon
specifications furnished by the client. Contract bidding carries certain
inherent risks, including the possibility of ambiguities in specifications,
problems with new technologies, strike delays, work stoppages and other
unforseen developments and changes that may occur over the contract period, that
are reallocated through the negotiation process. Although both forms of contract
involve a firm price for the customer, the lump sum bid contract presents the
greater degree of risk to the Company.
The Company's control systems and modular processing plants are contracted
primarily on a lump sum, turnkey basis either FOB the Company or installed on
site. For modular processing plants, the client typically makes an initial
payment upon commencement of the project and progress payments at various stages
of the project. Retainages beyond the completion date, designed to insure plant
performance and compliance with specifications, are common.
Most of the Company's contracts related to its engineering services
activities have historically been undertaken on a cost-plus basis. However, the
trend in the industry is away from this form of relatively riskless pricing,
with project owners increasingly requiring pricing alternatives that shift to
the service provider certain or all of the risk associated with cost overruns
and other service delivery inefficiencies. These alternatives include guaranteed
maximum price, fixed-price, incentive fee and other forms of "value-based"
pricing arrangements. The Company expects this trend to continue in the future,
with the result that the Company will be required to maintain and continually
improve, relative to its competitors, both the precision of its cost estimates
and the efficiency with which it delivers services. If managed properly, these
forms of pricing arrangements provide the Company with the potential for higher
margins. However, if the Company's discipline in either its cost estimates or
service efficiency declines or fails to keep pace with that of its competitors
the volume of awarded projects and their margins may be affected adversely. See
"-- Competition."
The following table reflects the amount and approximate percentage of the
Company's combined revenues for each of the last three years, derived from each
of the Company's three basic types of contract pricing provisions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- --------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Cost-plus............................ $ 74.8 74.5% $ 84.9 63.2% $ 112.3 66.4%
Guaranteed maximum price............. 6.1 6.1 5.9 4.4 6.7 4.0
Fixed-price.......................... 19.5 19.4 43.6 32.4 50.1 29.6
--------- --------- --------- --------- --------- ---------
Total........................... $ 100.4 100.0% $ 134.4 100.0% $ 169.1 100.0%
========= ========= ========= ========= ========= =========
</TABLE>
In cases relating to the Company's engineering service projects where the
Company is responsible for equipment or materials procurement and places a
markup on the procurement costs, the Company records on its accounts the
revenues and expenses associated with the procurement services. On other
projects involving procurement services where the Company charges no mark-up on
the equipment or materials provided to its client, the revenues and expenses
associated with the Company's procurement services are not recorded on its
accounts.
In accordance with industry practice, most of the Company's contracts are
subject to termination at the discretion of the client. Most contracts provide
for reimbursement of costs incurred and payment of fees earned by the Company
through the date of termination. Many of the Company's contracts also provide
indemnification to the client for losses and expenses incurred by the client as
a result of the Company's negligence and, in certain instances, the concurrent
negligence of the client. While the Company historically has not incurred
material losses with respect to these claims and maintains insurance in amounts
it considers adequate, no assurance can be given that the Company will not have
significant indemnification claims in the future, that claims made will not be
outside or exceed the Company's insurance coverage or that the
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<PAGE>
Company will be able to continue to obtain insurance coverage at rates it
considers reasonable. See "-- Risk Management; Litigation."
Under certain contracts, the Company guarantees project completion by a
scheduled date or by achievement of certain acceptance and perfomance testing or
milestone levels. At December 31, 1997, the Company had underway projects
aggregating approximately $46.9 million in contract amount, which are subject to
some form of completion or performance guarantee. If the Company fails to meet
any required completion or performance requirements and is unable to remedy the
failure within the applicable cure period, the Company could incur financial
penalties in the form of liquidated damages or could be required to design or
repeat the service or repair or replace the system. See "Risk
Factors -- Completion Guarantees."
CLIENTS
During 1997, the Company provided engineering, design, construction
management and procurement services to more than 702 industrial, commercial and
institutional clients, involving more than 1,780 projects in the private sector
and 90 projects in the public sector. The following table reflects the
approximate percentage of combined revenues derived from the Company's major
client groups for each of the last three years:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN MILLIONS)
Industrial........................... $ 87.5 $ 101.8 $ 136.0
Commercial........................... 8.0 28.1 26.2
Institutional........................ 3.3 2.0 4.1
Other(1)............................. 1.6 2.5 2.8
--------- --------- ---------
Total........................... $ 100.4 $ 134.4 $ 169.1
========= ========= =========
- ------------
(1) Includes retail and residential.
The Company's engineering services group has many clients representing a
broad range of industries and institutions, most of whom are repeat clients, and
historically has not had a continuing dependence on any single client or any
limited group of clients. However, one or a few clients have in the past and may
in the future contribute a substantial portion of the Company's revenues in any
one year or over a period of several consecutive years due to the size of major
engineering projects. The Company's business is not necessarily dependent upon
sustaining the level of revenues contributed by particular clients in any given
year or period of consecutive years. Historically, the Company has not generated
significant revenues from governmental clients, which accounted for only
approximately $4.4 million, $4.4 million and $3.6 million of the Company's
combined revenues during 1995, 1996 and 1997, respectively. In the Company's
experience, once it begins work on a particular project, it is unlikely the
client will terminate the Company's involvement before completion of the
project, unless the project itself is cancelled or postponed. Historically, the
Company has undertaken new projects for prior clients and has provided ongoing
services to clients following completion of their projects. Nonetheless, the
Company must continually obtain new engineering projects, whether from existing
or new clients, in order to generate revenues in future years as existing
projects are completed.
In recent years, the continuing trend among the Company's engineering
services clients and their industry counterparts toward outsourcing,
single-sourcing and downsizing has fostered the development of arrangements with
clients which are less oriented toward specified projects and more focused on
ongoing, longer-term relationships. These arrangements, often referred to as
partnering relationships or alliances, and, in some cases, sole source
contracts, vary in their scope, duration and degree of commitment. Some provide
the Company with a minimum number of work man-hours over specified periods; some
assure the Company of at least a designated percentage of the client's
requirements for engineering services at one or more locations; and some
establish the Company as the client's sole source of engineering services at a
38
<PAGE>
specific location or locations. Other agreements express only a client's
non-binding preference or intent with respect to the Company and its services,
or establish a general contractual framework for what the parties expect will be
an ongoing relationship. Despite their variety, the collective effect of these
partnering relationships or alliances is to exert a stabilizing influence on the
Company's engineering services revenues. At present, the Company has some form
of partnering or alliance arrangement with several major refineries and chemical
companies. At December 31, 1997, approximately an aggregate $31.2 million of
future work under the Company's partnering or alliance contracts was considered
to be sufficiently firm for inclusion in the Company's backlog at that date. See
"-- Backlog".
The Company's engineered systems clients include both end users, such as
drilling companies, oil and gas producers, pipelines, compressor stations,
chemical companies and processing plants, that own or operate the facilities for
which the systems are designed, and equipment manufacturers, construction
contractors and other engineering firms that incorporate the Company's control
systems into facilities and products of their own design, construction and
manufacture. In the past, the Company has undertaken only a small number of
modular processing plant projects each year, seeking out and choosing only those
which offer the greatest profit margin opportunities. As in the Company's
engineering services segment, in any given year, a small number of clients may
account for a large percentage of the engineered systems revenues for that year,
depending on the number of major projects undertaken by the Company. Though the
engineered systems segment frequently receives work from repeat clients, its
client list may vary greatly from year to year.
No single client accounted for 10% or more of the Company's 1997 pro forma
combined revenues.
BACKLOG
The following table sets forth the Company's combined backlog at December
31, 1996 and 1997, for each of its two major segments and by geographic regions:
DECEMBER 31,
--------------------
1996 1997
--------- ---------
(IN MILLIONS)
Engineering Services................. $ 42.7 $ 85.0
Engineered Systems................... 20.6 15.5
--------- ---------
Total........................... $ 63.3 $ 100.5
========= =========
Domestic............................. $ 44.0 $ 78.5
International........................ 19.3 22.0
--------- ---------
Total........................... $ 63.3 $ 100.5
========= =========
The Company's combined backlog at December 31, 1997, most of which is
expected to be completed within the next 12 months, includes only contracts for
which the Company has received authorization to proceed with the work. Although
this backlog represents only work which is under contract, it is not necessarily
indicative of the Company's future revenues or earnings related to the
performance of the work included in backlog. The Company's contracts are subject
to standard industry cancellation provisions, including cancellation on short
notice or upon completion of designated stages. Authorizations to proceed are
for periods generally shorter than the duration of the work the Company expects
to perform for a particular client, and significant scope-of-work adjustments
are common. For certain risks associated with the Company's backlog, see "Risk
Factors -- Nature of Backlog."
FACILITIES
For its professional, technical and administrative staff, the Company
leases 16 offices in the U.S. and foreign locations totaling approximately
358,000 square feet, and owns two office buildings in Baton Rouge, Louisiana
totaling approximately 40,500 square feet. The leases have remaining terms
ranging from one to four years and are at what the Company considers to be
commercially reasonable rental rates. The Company's principal office locations
are in Houston, Beaumont and Nederland, Texas; Baton Rouge and
39
<PAGE>
Lake Charles, Louisiana; Warren and Atlantic City, New Jersey; Miami and Tampa,
Florida; Louisville, Kentucky; Al-Khobar, Riyadh and Yanbu, Saudi Arabia; and
Abu Dhabi, United Arab Emirates. The Company's Warren, New Jersey offices,
comprising approximately 90,300 square feet, are leased from entities controlled
by certain of the former stockholders of PS&S under several leases expiring in
2008.
Engineering and assembly of the Company's control and instrumentation
systems is performed at its approximately 21,000 square foot leased facility in
Beaumont, Texas, and at its approximately 30,000 square foot owned facility in
Houston. The Beaumont property is leased from a partnership owned one-third by
each of Petrocon, Michael L. Burrow and another Petrocon shareholder, which
lease expires in 2000.
The Company builds its modular gas processing plants in Houston, Texas at a
five-acre site, which includes approximately 33,000 square feet of owned office
and shop space and an adjacent 2,300 square foot leased paint and sandblasting
building, which is leased from a former GEI stockholder.
The Company believes its office and other facilities are well-maintained
and adequate for the Company's existing and planned operations at each operating
location.
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,614 regular,
full-time employees, including 1,120 engineers, scientists, chemists, designers
and draftsmen, 145 construction managers, inspectors and technicians, 128
production support staff, and 221 administrative and clerical personnel. At that
date, approximately 1,605 Company employees were based in the United States, of
which approximately 400 were placed on assignment in client facilities, and
approximately 9 employees were based in foreign countries. In addition, at
December 31, 1997, PAL employed 272 foreign-based employees. The table below
shows the number of regular, full-time employees in each of the Company's
engineering segments at the dates indicated.
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Engineering Services................. 1,473 1,322 1,393
Engineered Systems................... 150 195 221
--------- --------- ---------
Total........................... 1,623 1,517 1,614
========= ========= =========
The Company is not a party to any collective bargaining agreements, has not
experienced any strikes or work stoppages and believes its relationship with its
employees is good.
GOVERNMENT REGULATION
The Company and its clients are subject to various evolving foreign,
federal, state and local laws and regulations, including those relating to the
environment, health and safety. To date, the Company has mostly benefited from
these laws and regulations and their impact on its clients, and the cost of the
Company's own compliance has not been material, but the fact that such laws and
regulations are changed frequently makes uncertain both the Company's expected
continuing benefits and costs associated with such laws and regulations. The
modification of existing laws or regulations or the adoption of new laws or
regulations affecting the Company's clients or its own operations or industry
could adversely affect the Company.
The Company and members of its professional staff are subject to a variety
of state, local and foreign licensing, registration and other regulatory
requirements governing the practice of engineering. Company professionals are
licensed or registered in approximately 46 states and foreign jurisdictions. The
Company endeavors to be in compliance with all applicable licensing and
registration requirements, and does not believe that any failure to be in such
compliance at any given time will have a material adverse effect on its
operations or revenues. Nor does the Company believe that such licensing or
registration requirements will offer any material impediment to the Company's
proposed geographic expansion due to the prevalence of reciprocity arrangements,
the relative ease of the licensing process in most jurisdictions, and the number
and varied disciplines and qualifications of its professional staff.
40
<PAGE>
RISK MANAGEMENT; LITIGATION
In performing services for its clients, the Company could potentially be
liable for breach of contract, personal injury, property damage or negligence,
including professional errors and omissions. The Company often agrees to
indemnify its clients for losses and expenses incurred by them as a result of
the Company's negligence and, in certain instances, the concurrent negligence of
the clients. A portion of the Company's activities relate to environmental
services which involve significant risks to the Company with respect to
environmental damage, personal injury, fines and costs imposed by regulatory
agencies. Although liabilities arising from environmental regulations are more
directly applicable to the Company's clients, under certain circumstances those
regulations could impose liability on the Company, including on a joint and
several liability basis. The Company's quality control and assurance program
includes a control function to establish standards and procedures for
performance and documentation of performance project tasks, and an assurance
function to audit the control function and to monitor compliance with procedures
and quality standards. The Company maintains liability insurance for bodily
injury and third-party property damage, professional errors and omissions, and
workers compensation coverage which it considers sufficient to insure against
these risks, subject to self-insured amounts.
The Company is, from time to time, a party to litigation arising in the
ordinary course of its business, most of which involves contract claims,
professional errors and omissions claims and claims for personal injury or
property damage incurred in connection with its operations. The Company is not
currently involved in any litigation that the Company believes will have a
material adverse effect on its financial condition or results of operations.
No assurance can be given that the Company's insurance will be sufficient
under all circumstances to protect the Company against significant claims for
damages. The occurrence of a significant event not fully insured against could
materially and adversely affect the Company's financial condition and results of
operations. Moreover, no assurance can be given that the Company will be able to
maintain adequate insurance in the future at commercially reasonable rates or on
acceptable terms.
41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
individuals who will be OEI's directors and executive officers when the Offering
closes (ages are as of , 1998):
<TABLE>
<CAPTION>
DIRECTOR
NAME PAGE POSITION CLASS
- ------------------------------------- ---- ------------------------------------------------ ---------
<S> <C> <C>
Michael L. Burrow, P.E.(1)(4)........ 50 Chairman of the Board, Chief Executive Officer Class
Gary J. Coury(1)(4).................. 54 President, Chief Operating Officer, Director Class
Rick Berry........................... 44 Executive Vice President, Chief Financial Class
Officer
Dana W. Swindler..................... 39 Executive Vice President -- Mergers and
Acquisitions
Robert W. Raiford.................... 52 Controller
Nolan Lehmann(1)(2)(3)(4)............ 53 Director Class
Gary L. Forbes(1)(2)(3)(4)........... 54 Director Class
W. Bernard Pieper*(2)(3)............. 65 Director Class
Bob G. Gower*(2)(3).................. 60 Director Class
C. Roland Haden*(2)(3)............... 57 Director Class
</TABLE>
- ------------
* Appointment will become effective on closing of the Offering.
(1) Member of the Board's Executive Committee.
(2) Member of the Board's Audit Committee.
(3) Member of the Board's Compensation Committee.
(4) Member of the Board's Nominating Committee.
MICHAEL L. BURROW has been the Chairman, Chief Executive Officer and a
director of OEI since its formation in October 1997. Mr. Burrow founded Petrocon
and has served as its Chairman and Chief Executive Officer since its inception
in 1988. Mr. Burrow is a registered mechanical engineer and has approximately 27
years of experience in the engineering industry.
GARY J. COURY has been the President, Chief Operating Officer and a
director of OEI since its formation in October 1997. Mr. Coury has served as the
President and Chief Operating Officer of Petrocon since September 1995. Before
then, he served for eight years in various positions with Petrocon and its
predecessors, subsidiaries and affiliates, including as the President of PAL and
the President of international operations and a Vice President/General Manager,
of Petrocon's Houston operations from 1989 to 1993. Mr. Coury has over 30 years
of experience in the engineering industry.
RICK BERRY was appointed Executive Vice President and Chief Financial
Officer of OEI in March 1998. From 1989 to March 1998, Mr. Berry served as
Executive Vice President, Chief Financial Officer, Secretary and Treasurer of
TEI, Inc., a publicly traded environmental services company. From 1979 to 1989,
he served as Senior Vice President Finance of Mischer Enterprises, Inc., and
prior to that time, was employed by Peat Marwick, Mitchell & Co. Mr. Berry is a
certified public accountant.
DANA W. SWINDLER has been the Executive Vice President -- Mergers and
Acquisitions of OEI since October 1997. From June 1996 to the present, Mr.
Swindler served in that same capacity for Petrocon. Mr. Swindler served as the
Chief Financial Officer and a director of Maxim Technologies, Inc., a Dallas,
Texas based engineering and environmental company from April 1995 to May 1996,
and as the Executive Vice President of Maxim Engineers, Inc., a predecessor of
Maxim Technologies, Inc., commencing in April 1992.
ROBERT W. RAIFORD has been the Controller of OEI since its formation in
October 1997. He has served as the Executive Vice-President, Administrative
Services and Chief Financial Officer of Petrocon, since 1988.
42
<PAGE>
NOLAN LEHMANN has been a director of OEI since its formation in October
1997. Since 1983, Mr. Lehmann has served as the President and a director of
Equus Capital Management Corporation, a registered investment advisor. He also
serves as the President and a director of Equus II, a registered investment
company. Mr. Lehmann serves as a director of Allied Waste Industries, Inc., a
solid waste management company, American Residential Services, Inc., a
residential services company, Brazos Sportswear, Inc., a casual sportswear
company, Drypers Corporation, a manufacturer of disposable diapers, and Garden
Ridge Corporation, a specialty retailer, all of which are public companies. He
was appointed to the Board of Directors under OEI's funding agreement with Equus
II. See "Certain Transactions."
GARY L. FORBES has been a director of OEI since October 1997. Since 1991,
Mr. Forbes has served as a Vice President of Equus Capital Management
Corporation, a registered investment advisor, and as a Vice President of Equus
II. He serves as a director of Consolidated Graphics, Inc., a consolidator of
commercial printing companies, Drypers Corporation, a manufacturer of disposable
diapers, NCI Building Systems, Inc., a manufacturer of prefabricated metal
buildings, and Advanced Technical Products, Inc., a manufacturer of high
performance composite parts for the aerospace and defense industries, all of
which are publicly owned companies. Mr. Forbes was also appointed to the Board
of Directors under OEI's funding agreement with Equus II. See "Certain
Transactions."
W. BERNARD PIEPER will be appointed a director of OEI upon the closing of
the Offering. Mr. Pieper retired from Halliburton Company in January 1996, after
a 38-year career with Halliburton Company and its Brown & Root, Inc. subsidiary.
He was named President of Brown & Root, Inc. in 1989, and served in that
capacity until 1992, when he became Vice Chairman of Halliburton Company. In
1994, he added the title of Chief Operating Officer and became responsible for
Halliburton's three operating units: Brown and Root, Inc., Halliburton Energy
Services and Highlands Insurance Company. Mr. Pieper is a fellow of the American
Society of Civil Engineers and serves on the Board of Governors, the George R.
Brown School of Engineering Advisory Board, and the Jones Graduate School of
Administration Council of Overseers at Rice University, and is the current
Chairman of the Engineering Advisory Board at Rice. Mr. Pieper serves as a
director of Union Texas Petroleum Holdings, Inc., a public independent oil and
gas company, and Highlands Insurance Group, Inc., a public insurance company.
BOB G. GOWER will be appointed a director of OEI upon the closing of the
Offering. Mr. Gower is Chairman and Chief Executive Officer of Specified Fuels &
Chemicals, L.L.C., a custom processor of specialty chemicals and manufacturer of
reference fuels. From 1985 to 1997, he served first as President and then as
Chairman of Lyondell Petrochemical Company. Mr. Gower serves as a director of
Kirby Corporation, a public marine transportation company.
C. ROLAND HADEN will be appointed a director of OEI upon the closing of the
Offering. Since 1993, Dr. Haden has served as Vice Chancellor and Dean of
Engineering of Texas A&M University. He serves as the Chair for the Texas
Society of Professional Engineers PEE Committee and the Engineering Dean Council
of Texas, and as director of the Engineering Dean Council ASEE, and has
affiliations with several other professional and engineering organizations. Dr.
Haden also serves as a director of Inter-Tel, Inc., a public communication
company. He has served in various academic capacities for over 30 years,
including Dean and Professor of Engineering and Applied Services at Arizona
State University and Vice Chancellor for Academic Affairs at Louisiana State
University. Dr. Haden received his Ph.D. from University of Texas, Austin and
his MS from California Institute of Technology.
CLASSES OF DIRECTORS; DIRECTOR COMPENSATION
The Board of Directors is divided into three classes. Following a
transitional period, the directors of each class will serve for three years,
with one class being elected each year at the annual stockholders' meeting.
During the transitional period, the terms of the Class I directors will expire
at the 1999 meeting, the terms of the Class II directors will expire at the 2000
meeting and the terms of the Class III directors will expire at the 2001
meeting. Classification of the Board could lengthen the time necessary to change
the composition of a majority of the members comprising the Board. In general,
at least two annual meetings of
43
<PAGE>
stockholders will be necessary for stockholders to effect a change in a majority
of the members of the Board.
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Following the closing of the Offering,
each director who is not an employee of the Company initially will receive a fee
of $2,500 for each board meeting attended and $1,500 for each board committee
meeting attended and will periodically be granted options under the Incentive
Plan for the purchase of Common Stock. See "-- Incentive Plan." When the
Offering closes, each of OEI's five outside directors will be granted options to
purchase 10,000 shares of Common Stock at an exercise price per share equal to
the initial public offering price. The Company will reimburse directors for
out-of-pocket expenses incurred in attending Board of Directors or Board
committee meetings in their capacity as directors.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS
On closing of the Offering, the Company will have employment agreements
with Messrs. Burrow, Coury, Berry, Swindler and Raiford, which provide for
annual base salaries of $300,000, $250,000, $175,000, $200,000 and $150,000,
respectively. As of the closing of the Pending Acquisitions, certain Acquired
Companies will enter into employment agreements with a total of 13 of their key
officers, including Jerry G. Gulsby, the President of GEI, William Paulus, Jr.,
Anthony J. Sartor and Philip A. Falcone, the principal stockholders and
executive officers of PS&S, Kenneth W. Castlebury, T.L. Lynn, Kenneth W. Oliver
and John W. White, the principal stockholders and executive officers of W-I, and
James W. Kerr and Jamie Ghazi, stockholders and executive officers of C&I. The
following summary of the employment agreements of these executives and key
officers does not purport to be complete and is qualified by reference to such
employment agreements, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Each of these
agreements has a three-year term subject to the right of the Company to
terminate the employee's employment at any time after one year. If the
employee's employment is terminated by the Company within the first three years
without cause (as defined), the employee will be entitled to the payment of any
annual base salary and continuation of health insurance benefits for one year
following termination. Each employment agreement contains a covenant limiting
competition with the Company following the termination of employment for a
period of (i) four years from the effective date of the employment agreement if
employment is terminated for cause (as defined) or voluntarily by the executive
or (ii) six months following the termination if employment is terminated without
cause or due to disability, subject to the right of the Company, in the latter
circumstances, to extend the period of restricted competition for up to an
additional one year by continuing the executive's annual base salary and
insurance benefits for the additional year.
The Company will also pay one-time cash bonuses in the amount of $60,000 to
each of Messrs. Coury and Swindler for their efforts and assistance in
connection with, and conditioned on the closing of, the Pending Acquisitions and
the Offering.
INCENTIVE PLAN
The description set forth below summarizes the principal terms and
conditions of the Incentive Plan, does not purport to be complete and is
qualified in its entirety by reference to the Incentive Plan, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
GENERAL. The objectives of the Incentive Plan, which was approved by the
Board of Directors and stockholders, are to attract and retain selected key
employees, consultants and outside directors, encourage their commitment,
motivate their performance, facilitate their obtaining ownership interests in
the Company (aligning their personal interests to those of the Company's
stockholders) and enable them to share in the long-term growth and success of
the Company.
SHARES SUBJECT TO INCENTIVE PLAN. Under the Incentive Plan, the Company
may issue Incentive Awards (as defined below) covering at any one time an
aggregate of the greater of (i) 2,000,000 shares of Common Stock and (ii) 10% of
the number of shares of Common Stock issued and outstanding on the last day of
the then preceding calendar quarter. No more than 2,000,000 shares of Common
Stock will be
44
<PAGE>
available for ISOs (as defined below). As of the closing of the Pending
Acquisitions, options covering shares of Common Stock will be
outstanding or allocated for grant and shares of Common Stock then will
be available for subsequent Incentive Awards. The number of securities available
under the Incentive Plan and outstanding Incentive Awards are subject to
adjustments to prevent enlargement or dilution of rights resulting from stock
dividends, stock splits, recapitalization or similar transactions or resulting
from a change in applicable laws or other circumstances.
ADMINISTRATION. The Incentive Plan will be administered by the
compensation committee of the Board of Directors (the "Committee"). Following
the Offering, the Committee will consist solely of directors ("Outside
Directors") each of whom is (i) an "outside director" under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) a
"non-employee director" under Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Committee may delegate to the chief
executive officer or other senior officers of the Company its duties under the
Incentive Plan, except with respect to any authority to grant Incentive Awards
or take other action with respect to persons who are subject to Section 16 of
the Exchange Act or Section 162(m) of the Code. In the case of an Incentive
Award to an Outside Director, the Board of Directors shall act as the Committee.
Subject to the express provisions of the Incentive Plan, the Committee is
authorized to, among other things, select grantees under the Incentive Plan and
determine the size, duration and type, as well as the other terms and conditions
(which need not be identical), of each Incentive Award. The Committee also
construes and interprets the Incentive Plan and any related agreements. All
determinations and decisions of the Committee are final, conclusive and binding
on all parties. The Company will indemnify members of the Committee against any
damage, loss, liability, cost or expenses arising in connection with any claim,
action, suit or proceeding by reason of any action taken or failure to act under
the Incentive Plan, except for any such act or omission constituting willful
misconduct or gross negligence.
ELIGIBILITY. Key employees, including officers (whether or not they are
directors), and consultants of the Company and non-employee directors are
eligible to participate in the Incentive Plan. A key employee generally is any
employee of the Company who, in the opinion of the Committee, is in a position
to contribute materially to the growth and development and to the financial
success of the Company.
TYPES OF INCENTIVE AWARDS. Under the Incentive Plan, the Committee may
grant (i) incentive stock options ("ISOs"), as defined in Section 422 of the
Code, (ii) "nonstatutory" stock options ("NSOs"), (iii) stock appreciation
rights ("SARs"), (iv) shares of restricted stock, (v) performance units and
performance shares, (vi) other stock-based awards, and (vii) supplemental
payments dedicated to the payment of income taxes (collectively, "Incentive
Awards"). ISOs and NSOs are sometimes referred to collectively herein as
"Options." The terms of each Incentive Award will be reflected in an agreement
(the "Incentive Agreement") between the Company and the participant.
OPTIONS. Generally, Options must be exercised within 10 years of the grant
date. ISOs may be granted only to employees, and the exercise price of each ISO
may not be less than 100% of the fair market value of a share of Common Stock on
the date of grant. The Committee will have the discretion to determine the
exercise price of each NSO granted under the Incentive Plan. To the extent the
aggregate fair market value of shares of Common Stock with respect to which ISOs
are exercisable for the first time by any employee during any calendar year
exceeds $100,000, those Options must be treated as NSOs.
The exercise price of each Option is payable in cash or, in the discretion
of the Committee, by the delivery of shares of Common Stock owned by the
Optionee, or the withholding of shares that would otherwise be acquired on the
exercise of the Option, or by any combination of the foregoing.
An employee will not recognize any income for federal income tax purposes
at the time an ISO is granted, or on the qualified exercise of an ISO, but
instead will recognize capital gain or loss (as applicable) upon the subsequent
sale of shares acquired in a qualified exercise. The exercise of an ISO is
qualified if a participant does not dispose of the shares acquired by the
participant's exercise within two years after the ISO grant date and one year
after such exercise. The Company is not entitled to a tax deduction as a result
of the grant or qualified exercise of an ISO.
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<PAGE>
An optionee will not recognize any income for federal income tax purposes,
nor will the Company be entitled to a deduction, at the time an NSO is granted.
However, when an NSO is exercised, the optionee will recognize ordinary income
in an amount equal to the difference between the fair market value of the shares
received and the exercise price of the NSO, and the Company will generally
recognize a tax deduction in the same amount at the same time.
The foregoing federal income tax information is a summary only, does not
purport to be a complete statement of the relevant provisions of the Code and
does not address the effect of any state, local or foreign taxes.
SARS. Upon exercise of an SAR, the holder will receive cash, shares of
Common Stock or a combination thereof, as specified in the related Incentive
Agreement, the aggregate value of which equals the amount by which the fair
market value per share of the Common Stock on the date of exercise exceeds the
exercise price of the SAR, multiplied by the number of shares underlying the
exercised portion of the SAR. An SAR may be granted in tandem with or
independently of an NSO. SARs will be subject to such terms and conditions and
will be exercisable at such times as determined by the Committee, provided, that
the exercise price per share must equal at least 100% of the fair market value
of a share of a Common Stock on the date of grant. The value of an SAR may be
paid in cash, shares of Common Stock or both in combination, as determined by
the Committee.
RESTRICTED STOCK. Restricted stock may be subject to substantial risk of
forfeiture, a restriction on transferability or rights of repurchase or first
refusal of the Company, as determined by the Committee. Unless otherwise
determined by the Committee, during the period of restriction, the grantee will
have all other rights of a stockholder, including the right to vote and receive
dividends on the shares.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and
performance shares may be granted only to employees and consultants. For each
performance period (to be determined by the Committee), the Committee will
establish specific financial or non-financial performance objectives, the number
of performance units or performance shares and their contingent values, which
values may vary depending on the degree to which such objectives are met.
OTHER STOCK-BASED AWARDS. Other stock-based awards are awards denominated
or payable in, valued in whole or in part by reference to or otherwise related
to shares of Common Stock. Subject to the terms of the Incentive Plan, the
Committee may determine any terms and conditions of other stock-based awards,
provided that, in general, the amount of consideration to be received by the
Company shall be either (i) no consideration other than services actually
rendered or to be rendered (in the case of the issuance of shares) or (ii) in
the case of an award in the nature of a purchase right, consideration (other
than services rendered) at least equal to 50% of the fair market value of the
shares covered by such grant on the date of grant. Payment or settlement of
other stock-based awards will be in shares of Common Stock or in other
consideration related to such shares.
SUPPLEMENTAL PAYMENTS FOR TAXES. The Committee may grant, in connection
with an Incentive Award (except for ISOs), a supplemental payment in an amount
not to exceed the amount necessary to pay the federal and state income taxes
payable by the grantee with respect to the Incentive Award and the receipt of
the supplemental payment.
OTHER TAX CONSIDERATIONS. Upon accelerated exercisability of Options and
accelerated lapsing of restrictions upon restricted stock or other Incentive
Awards in connection with a Change in Control (as defined in the Incentive
Plan), certain amounts associated with such Incentive Awards could, depending
upon the individual circumstances of the participant, constitute "excess
parachute payments" under Section 280G of the Code, thereby subjecting the
participant to a 20% excise tax on those payments and denying the Company a
corresponding deduction. The limit on the deductibility of compensation under
Section 162(m) of the Code is also reduced by the amount of any excess parachute
payments. Whether amounts constitute excess parachute payments depends upon,
among other things, the value of the Incentive Awards accelerated and the past
compensation of the participant.
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Taxable compensation earned by executive officers who are subject to
Section 162(m) of the Code in respect of Incentive Awards is subject to certain
limitations set forth in the Incentive Plan generally intended to satisfy the
requirements for "qualified performance-based compensation," but no assurance
can be given that OEI will be able to satisfy these requirements in all cases,
and the Company may, in its sole discretion, determine in one or more cases that
it is in its best interest not to satisfy these requirements even if it is able
to do so.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL. Except as otherwise
provided in the applicable Incentive Agreement, if a participant's employment or
other service with the Company (or its subsidiaries) is terminated (i) other
than due to his death, Disability, Retirement or for Cause (each capitalized
term as defined in the Incentive Plan), his then exercisable Options will remain
exercisable for 60 days after such termination, (ii) by reason of Disability or
death, his then exercisable Options will remain exercisable for one year
following such termination, (iii) due to his retirement, his then exercisable
Options will remain exercisable for six months (except for ISOs, which will
remain exercisable for three months), or (iv) for Cause, all his Options will
expire at the commencement of business on the date of such termination.
Upon a Change in Control of OEI, any restrictions on restricted stock and
other stock-based awards will be deemed satisfied, all outstanding Options and
SARs may become immediately exercisable and all the performance shares and units
and any other stock-based awards may become fully vested and deemed earned in
full, at the discretion of the Committee. These provisions could in some
circumstances have the effect of an "anti-takeover" defense because, as a
result of these provisions, a Change in Control of OEI could be more difficult
or costly.
INCENTIVE AWARDS NONTRANSFERABLE. No Incentive Award may be assigned, sold
or otherwise transferred by a participant, other than by will or by the laws of
descent and distribution, or be subject to any encumbrance, pledge, lien,
assignment or charge. An Incentive Award may be exercised during the
participant's lifetime only by the participant or the participant's legal
guardian.
AMENDMENT AND TERMINATION. The Board of Directors may amend or terminate
the Incentive Plan at any time, except that the Incentive Plan may not be
modified or amended, without stockholder approval, if such amendment would (i)
increase the number of shares of Common Stock which may be issued thereunder,
except in connection with a recapitalization of the Common Stock, (ii) amend the
eligibility requirements for employees to purchase Common Stock under the
Incentive Plan, (iii) increase the maximum limits on Incentive Awards that may
be issued to executive officers who are subject to Section 162(m) of the Code,
(iv) extend the term of the Incentive Plan or (v) decrease the authority granted
to the Committee under the Incentive Plan in contravention of Rule 16b-3 under
the Exchange Act. No termination or amendment of the Incentive Plan shall
adversely affect in any material way any outstanding Incentive Award previously
granted to a participant without his consent.
On the closing of the Offering, the Company expects Options to purchase a
total of shares of Common Stock will be outstanding or allocated for
grant. Of these Options, 768,384 Options represent Replacement Options
(including 2,722, 238,038, 146,734 and 153,288 options held by Messrs. Burrow,
Coury, Raiford and Swindler, respectively). These replacement options have a
weighted exercise per share of $7.68. On or prior to closing of the Offering,
additional Options to purchase shares of Common Stock will be granted or
allocated for grant to the following persons to purchase the respective number
of shares indicated: (i) Mr. Burrow ( shares); (ii) Mr. Coury, (
shares); (iii) Mr. Berry ( shares); (iv) Mr. Swindler ( shares); (v)
Mr. Raiford ( shares); (vi) Messrs. Lehmann, Forbes, Pieper, Gower and Haden
(10,000 shares each); and (vii) other employees as a group ( shares). All
these additional options will have an initial exercise price per share equal to
the initial public offering price and will become exercisable as to 25% of such
shares six months after the date the Offering closes and as to 25% of such
shares on each anniversary of that date.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan for United States employees (the
"Employee Purchase Plan") was adopted by the Board of Directors in April 1998.
A total of 300,000 shares of Common Stock
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has been reserved for issuance under the Employee Purchase Plan. The Employee
Purchase Plan, which is intended to qualify under Section 423 of the Code, has
quarterly offering periods each year beginning on the first trading day on or
after January 1, April 1, July 1 and October 1, respectively, except for the
first such offering period which commences on the first trading day on or after
the effective date of the Offering and ends on the last trading day on or before
, 1998. The Employee Purchase Plan is administered by the Board of
Directors or by a committee appointed by the Board. A United States employee is
eligible to participate if the employee is (i) customarily employed by the
Company or any participating subsidiary for at least 20 hours per week and more
than five months in any calendar year and (ii) employed by the Company or any
participating subsidiary on the effective date of the Employee Purchase Plan, or
if not employed on such effective date, has completed at least six consecutive
months of employment with the Company or any participating subsidiary. The
Employee Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions of up to 15% of an employee's compensation (including
commissions and overtime, but excluding other bonuses and incentive
compensation), up to a maximum of $25,000 for all offering periods ending within
the same calendar year. The price of stock purchased under the Employee Purchase
Plan is 90% of the lower of the fair market value of the Common Stock at the
beginning or at the end of each offering period. Employees may end their
participation at any time during an offering period, and they will be repaid
their payroll deductions to date. Participation ends automatically upon
termination of employment with the Company or any participating subsidiary.
Rights granted under the Employee Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the Employee Purchase Plan. The Employee Purchase Plan
provides that, in the event of a merger of OEI with or into another corporation
or a sale of substantially all of OEI's assets, the Board of Directors shall
shorten the offering period then in progress (so that employees' rights to
purchase stock under the Plan are exercised prior to the merger or sale of
assets). The Employee Purchase Plan will terminate in April 2008. The Board of
Directors has the authority to amend or terminate the Employee Purchase Plan,
except that no such action may adversely affect any outstanding rights to
purchase stock under the Employee Purchase Plan.
BONUS AWARDS; OTHER PLANS
The 1998 bonuses for officers and key employees of the Company, if any,
will be based upon the performance standards to be established by the
Compensation Committee. The Company expects the Compensation Committee to
establish such performance standards for the remainder of 1998 following the
closing of the Offering.
The Company has adopted or intends to adopt deferred compensation,
supplemental disability, supplemental life and retirement or other benefit or
welfare plans in which executive officers of the Company will be eligible to
participate.
The Compensation Committee will be established on the closing of the
Offering. In the past, matters with respect to the compensation of executive
officers of OEI were determined by its Board of Directors, including those
members who serve as executive officers.
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CERTAIN TRANSACTIONS
ORGANIZATION OF OEI
OEI was formed in October 1997 by Petrocon's management to conduct the
Offering, simultaneously consummate the Pending Acquisitions and continue
Petrocon's successful acquisition program. OEI was initially capitalized with
$1,000 provided by Messrs. Burrow, Coury, Berry and Swindler and Equus II, in
exchange for shares of Common Stock. Mr. Lehmann, a director of OEI, is
a director and the President of Equus II, and Mr. Forbes, also an OEI director,
is a Vice President of Equus II.
Since October 1997, Equus II has advanced funds to OEI under a $2.5 million
short-term promissory note (the "Equus Note") for use in connection with OEI's
efforts to conduct the Offering and consummate the Pending Acquisitions. The
Equus Note bears interest at a designated prime rate plus 1/2%. At December 31,
1997, approximately $0.1 million was outstanding under the Equus Note. OEI
expects to borrow an additional $2.4 million under the Equus Note before the
Offering closes. The Company intends to repay the Equus Note in full from
proceeds of the Offering.
Concurrently with the closing of the Offering, OEI will consummate the
Pending Acquisitions. The consideration to be paid by the Company in the Pending
Acquisitions consists of (i) approximately $27.8 million in cash, (ii) 5,053,027
shares of Common Stock and (iii) approximately $3.4 million and 654,099 shares
to be placed in escrow with respect to one of the Pending Acquisitions. In
addition, the Company will assume certain of the indebtedness of Petrocon and
the Acquired Companies (approximately $28.1 million as of December 31, 1997).
Subject to certain adjustments described below, the following table sets
forth for Petrocon and each Acquired Company the cash and shares of Common Stock
to be paid and issued to its stockholders in the Pending Acquisitions.
CASH SHARES OF
COMPANY CONSIDERATION COMMON STOCK
- ---------------------------------------- ------------- ------------
Petrocon................................ $ 12,715,786 2,118,888
PS&S.................................... 4,521,905 879,258
GEI..................................... 2,786,170 541,757
W-I..................................... 4,901,814 953,129
C&I..................................... 2,879,981 559,995
------------- ------------
Total.............................. $ 27,805,656 5,053,027
============= ============
The Company will also assume and repay an aggregate of $28.1 million of
indebtedness of Petrocon and certain of the Acquired Companies ($21.8 million of
which will be repaid from proceeds of the Offering and $6.3 million of which
will be repaid from cash on hand), as follows: Petrocon -- $16.4 million;
PS&S -- $1.9 million; GEI -- $3.6 million; W-I -- $6.1 million; and C&I -- $0.1
million. In addition, the Company will place approximately $3.4 million and
654,099 shares of Common Stock in escrow in connection with the GEI acquisition,
which will be paid to the former GEI stockholders, or returned to the Company,
depending on the future financial performance of GEI. See "The Company --
Summary of Terms of the Pending Acquisitions."
Prior to the closing of the Pending Acquisitions, certain Acquired
Companies may make additional distributions to their stockholders of certain
assets and related liabilities with an aggregate net book value of approximately
$9.0 million.
Pursuant to the acquisition agreements, certain stockholders of each of
Petrocon and the Acquired Companies have agreed not to compete with the Company
for a period of three years commencing on the date of closing of the Pending
Acquisitions.
In connection with the Pending Acquisitions, OEI will grant certain
registration rights to former stockholders of Petrocon and the Acquired
Companies. OEI has also granted certain registration rights to Equus II. See
"Shares Eligible for Future Sale."
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<PAGE>
PENDING ACQUISITIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS
Persons who are or will become directors, executive officers, or beneficial
owners of 5% or more of the Common Stock will receive the following
consideration in the Pending Acquisitions for their equity interests in Petrocon
and the Acquired Companies.
CASH SHARES OF
NAME CONSIDERATION COMMON STOCK(1)
- ------------------------------------- ------------- ---------------
Michael L. Burrow(2)................. $ 2,409,238 451,188
Gary J. Coury........................ 35,397 6,629
Robert W. Raiford.................... 301,811 56,521
Jerry G. Gulsby(3)................... 2,786,170 541,757
------------- ---------------
Total........................... $ 5,532,616 1,056,095
============= ===============
- ------------
(1) Excludes options to purchase 540,782 shares of Common Stock which are to be
granted on closing of the Offering in replacement of Petrocon options as
follows: Michael L. Burrow -- 2,722 shares at an exercise price per share of
$6.52; Gary J. Coury -- 238,038 shares at exercise prices per share of $6.52
(133,327 shares) and $9.55 (104,711 shares); Dana W. Swindler -- 153,288
shares of an exercise price per share of $6.52; and Robert W.
Raiford -- 146,734 shares at exercise prices per share of $9.55 (104,711
shares) and $6.52 (42,023 shares).
(2) Represents cash and shares payable to the M.L. Burrow Family Partnership,
Ltd., in which Mr. Burrow has a 95% partnership interest.
(3) Includes approximately $0.8 million and 157,110 shares issuable to certain
trusts for the benefit of Mr. Gulsby's descendents. Excludes (i)
approximately $3.4 million and 654,099 shares of Common Stock which will be
placed in escrow in connection with the GEI acquisition, and which will be
subject to a maximum three-year earnout arrangement and (ii) approximately
$3.1 million of advances from GEI to Mr. Gulsby to be assumed by OEI upon
consummation of the GEI acquisition, which, for accounting purposes, will be
eliminated on the consolidation of GEI with OEI.
REAL ESTATE AND OTHER TRANSACTIONS
The Company leases space in Beaumont, Texas from a partnership owned
one-third by each of Petrocon, Mr. Burrow and another Petrocon shareholder. The
lease expires in 2000 and has a present annual rental rate of approximately
$115,000.
The Company believes the rentals paid under the lease described above
represent fair market rates.
COMPANY POLICY
In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal and will, in any case,
be approved in advance by a majority of the Board of Directors, including a
majority of disinterested members of the Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table shows, immediately after giving effect to the closing
of the Pending Acquisitions and the Offering, the beneficial ownership of the
Common Stock of (i) each person who then will beneficially own more than five
percent of the outstanding shares of Common Stock, (ii) each person who then
will be a director of OEI, (iii) each person who then will be an executive
officer of OEI and (iv) all persons who then will be directors and executive
officers of OEI as a group. The table assumes none of these persons intends to
acquire shares directly from the Underwriters in connection with the Offering.
SHARES BENEFICIALLY
OWNED
AFTER OFFERING(2)
-----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT
- ------------------------------------- ----------- -------
Equus II Incorporated................ %
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Jerry G. Gulsby(3)................... 1,195,856
1250 Indiana Drive
Humble, Texas 77347
Michael L. Burrow(4).................
Gary J. Coury(5).....................
Rick Berry........................... *
Dana W. Swindler(6)..................
Robert W. Raiford(7)................. 92,832 *
Nolan Lehmann(8).....................
Gary L. Forbes(8)....................
W. Bernard Pieper.................... -- *
Bob G. Gower......................... -- *
C. Roland Haden...................... -- *
All directors and officers as a group
(10 persons) (4)-(8)............... %
- ------------
* Less than 1%.
(1) All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
(2) Shares shown do not include shares of Common Stock that could be acquired on
exercise of currently outstanding options which do not vest within 60 days
hereof.
(3) Includes 654,099 shares which will be placed in escrow on closing of the
Offering, subject to a maximum three-year earnout arrangement. Mr. Gulsby
has voting but not investment powers during the period these shares are held
in escrow. Also, includes 157,110 shares held by certain trusts for the
benefit of Mr. Gulsby's descendents.
(4) Includes 451,188 shares held by the M.L. Burrow Family Partnership, Ltd., in
which Mr. Burrow has a 95% partnership interest and includes 2,722 shares of
Common Stock issuable on exercise of stock options.
(5) Includes 67,653 shares of Common Stock issuable on exercise of stock
options.
(6) Includes 30,658 shares of Common Stock issuable on exercise of stock
options.
(7) Includes 36,311 shares of Common Stock issuable on exercise of stock
options.
(8) All these shares are beneficially owned by Equus II. Messrs. Lehmann and
Forbes are both directors of OEI. Mr. Lehmann is the President and a
director of Equus II, Mr. Forbes is a Vice President of Equus II, and each
of them may be deemed to be beneficial owners of the Equus II shares. Both
Mr. Lehmann and Mr. Forbes disclaim beneficial ownership of any of those
shares.
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SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Pending Acquisitions and the Offering, shares
of Common Stock will be outstanding. The shares sold in the Offering (other than
to affiliates of the Company) will be freely tradable by the public. The
remaining outstanding shares of Common Stock (collectively, the "Restricted
Shares") have not been registered under the Securities Act and may be resold
publicly only following their effective registration under the Securities Act or
under an available exemption from the registration requirements of the
Securities Act, such as Rule 144. In general, under Rule 144 as now in effect,
if a minimum of one year elapses from the later of the date of acquisition of
the Restricted Shares from OEI or from an affiliate of OEI, a person (or persons
whose shares of Common Stock are aggregated), including persons who may be
deemed "affiliates" of OEI, would be entitled to sell in any three-month
period a number of Restricted Shares which does not exceed the greater of (i) 1%
of the then outstanding shares of Common Stock and (ii) the average weekly
trading volume of the Common Stock during the period of the four preceding
calendar weeks. Sales under Rule 144 are also subject to certain provisions as
to the manner of sale, notice requirements and the availability of current
public information about the Company. In addition, under Rule 144, if a period
of at least two years elapses from the later of the date Restricted Shares were
acquired from OEI or the date they were acquired from an affiliate of OEI, a
stockholder who is not an affiliate of OEI at the time of sale and has not been
an OEI affiliate for at least three months before the sale would be entitled to
sell shares of Common Stock in the public market immediately, without compliance
with the foregoing Rule 144 requirements. Rule 144 does not require the same
person to hold the Restricted Shares for the applicable periods under certain
circumstances. This Rule 144 summary is not intended to be a complete
description of the Rule. The SEC has proposed amendments to Rule 144 that would,
among other things, eliminate the manner of sale requirements and revise the
notice provisions of the Rule. The SEC has also solicited comments on other
possible changes to Rule 144, including possible revisions to its one- and two-
year holding periods and its volume limitations.
The Company has agreed not to directly or indirectly sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to purchase or
otherwise transfer or dispose of any shares of Common Stock or any security
convertible or exchangeable for Common Stock for a period of two years (the
"Lockup Period") following the date of this Prospectus, without the prior
written consent of Smith Barney Inc., except that the Company may issue Common
Stock in connection with acquisitions, pursuant to awards under the Incentive
Plan or pursuant to the exercise of warrants outstanding as of the closing of
the Offering (consisting only of the Replacement Warrants). Further, all of
OEI's officers, directors and current stockholders (including Equus II), and all
persons who acquire shares in connection with the Pending Acquisitions, have
agreed generally not to offer, sell or otherwise dispose of any of their shares
for two years following the date of this Prospectus, without the prior written
consent of Smith Barney Inc.
OEI will enter into a registration rights agreement (the "RRA") with the
former stockholders of Petrocon and the Acquired Companies, which will provide
certain registration rights with respect to the Common Stock issued to such
stockholders in the Pending Acquisitions. The RRA will provide for a single
demand registration right, exercisable by the holders of at least 51.0% of the
shares of Common Stock initially subject to the RRA, to require the Company to
file a registration statement under the Securities Act to register the sale of
not less than 1,000,000 shares by the requesting stockholders and any other
holders of Common Stock parties to the RRA who desire to sell pursuant to such
registration statement. The demand request may not be made until ,
. The demand registration rights conferred by the RRA will terminate on
. Subject to certain conditions and limitations, the RRA will
also give its parties the right to participate in registrations by the Company
of OEI equity securities in underwritten offerings commencing on
. In a separate registration rights agreement with Equus II,
OEI has granted Equus II the right to demand two registrations of shares of
Common Stock, and the right to include for its own account, or for the account
of others, subject to certain exceptions, shares of Common Stock in certain
registrations in which the Company registers shares for its account.
The RRA requires the Company to pay the costs associated with an offering
subject to the RRA, other than underwriting discounts and commissions and
transfer taxes attributable to the shares sold on behalf of
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the selling stockholders. The RRA provides that the number of shares of Common
Stock that must be registered on behalf of selling stockholders is subject to
limitation if the managing underwriter determines that market conditions require
such a limitation. Pursuant to the RRA, OEI will indemnify the selling
stockholders, and the selling stockholders will indemnify OEI, against certain
liabilities in respect of any registration statement or offering covered by the
RRA.
The Company intends to register shares of Common Stock under
the Securities Act during 1998 for its use in connection with future
acquisitions. These shares generally will be freely tradable after their
issuance by persons not affiliated with the Company; however, sales of these
shares during the Lockup Period would require the prior written consent of Smith
Barney Inc.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Incentive Plan and Employee Purchase
Plan. Shares of Common Stock issued pursuant to the Incentive Plan and Employee
Purchase Plan after the effective date of that registration statement generally
will be available for sale in the open market by holders who are not affiliates
of OEI and, subject to the volume and other limitations of Rule 144, by holders
who are affiliates of OEI.
DESCRIPTION OF CAPITAL STOCK
OEI's authorized capital stock consists of 40,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"). At April 7, 1998, shares of Common Stock
and no shares of Preferred Stock were issued and outstanding. On closing of the
Pending Acquisitions and the Offering, shares of Common Stock
( if the underwriters' over-allotment option is exercised in
full) will be issued, outstanding and nonassessable, and shares
of Common Stock will then be reserved for issuance under all then outstanding
options, warrants and other rights (consisting only of Incentive Plan options
and the Replacement Warrants issued in connection with the Petrocon
acquisition). The following summary is qualified in its entirety by reference to
the Charter, which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters. Each share has one vote.
The Common Stock affords no cumulative voting rights, and the holders of a
majority of the shares voting for the election of directors can elect all
directors if they so choose. The Common Stock carries no preemptive rights and
is not convertible, redeemable, assessable or entitled to the benefits of any
sinking fund. The holders of Common Stock are entitled to dividends in such
amounts and at such times as may be declared by the Board of Directors out of
funds legally available for that purpose, subject to the dividend preference of
any stock ranking senior to the Common Stock, including the Preferred Stock. See
"Dividend Policy" for information regarding the Company's initial dividend
policy.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Charter and limitations prescribed by law, the Board of Directors is
expressly authorized to adopt resolutions to issue the shares, fix the number of
shares and change the number of shares constituting any series, and provide for
the powers, designations, preferences and relative, participating, optional or
other rights, and the qualifications, limitations or restrictions thereof,
including without limitation, voting powers, dividend rights (including whether
dividends are cumulative), dividend rates, terms of redemption (including
sinking fund provisions), redemption prices, conversion rights and liquidation
preferences of the shares constituting any class or series of the Preferred
Stock, in each case without any further action or vote by the holders of Common
Stock. Although OEI has no present intention to issue shares of Preferred Stock,
the issuance of shares of Preferred Stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal.
For
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<PAGE>
example, the issuance of a series of Preferred Stock might impede a business
combination by including class voting rights that would enable the holders to
block the transaction; or such an issuance might facilitate a business
combination by including voting rights that would supply a required percentage
vote of the stockholders. In addition, under certain circumstances, the issuance
of Preferred Stock could adversely affect the voting power of the holders of the
Common Stock. The Board of Directors could act in a manner that would discourage
an acquisition attempt or other transaction that some or a majority of the
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over its then market price.
The Board of Directors does not presently intend to seek stockholder approval
before any issuance of currently authorized stock, unless otherwise required by
law or the rules of any exchange on which OEI's securities are traded.
STATUTORY BUSINESS COMBINATION PROVISION
OEI is a Delaware corporation and is subject to Section 203 of the DGCL. In
general, Section 203 prevents an "interested stockholder" (defined generally
as a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (as defined) with a Delaware corporation
for three years following the date the person became an interested stockholder
unless: (i) before the person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
person becoming an interested stockholder, that person owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not permit employees to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (iii) following the transaction in
which such person became an interested stockholder, the business combination was
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, its restrictions also do not apply to certain
business combinations proposed by an interested stockholder following the
announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of the majority of the corporation's directors, if
the extraordinary transaction is approved or not opposed by a majority of the
directors who were directors before any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.
OTHER MATTERS
Delaware law authorizes a Delaware corporation to limit or eliminate the
personal liability of its directors to the corporation and its stockholders for
monetary damages for breach of a director's fiduciary duty of care. The duty of
care requires that directors, when acting on behalf of the corporation, must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to a Delaware corporation and its stockholders in
monetary damages, for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables a Delaware corporation to limit
available relief to equitable remedies such as injunction or rescission. The
Charter limits the liability of directors of OEI to OEI or its stockholders to
the fullest extent permitted by Delaware law. Specifically, no member of the
Board of Directors will be personally liable for monetary damages for breach of
a director's fiduciary duty as a director, except for liability (i) for any
breach of the member's duty of loyalty to OEI or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the DGCL or (iv)
for any transaction from which the member derived an improper personal benefit.
This Charter provision may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter stockholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefited OEI
54
<PAGE>
and its stockholders. The Charter and bylaws provide indemnification to OEI's
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of OEI's
directors and executive officers providing for indemnification with respect to
certain matters.
The Charter provides that (i) stockholders may act only at an annual or
special meeting of stockholders and not by written consent and (ii) special
meetings of the stockholders can be called only by the chairman of the board,
the chief executive officer, the president or a majority of the Board of
Directors. The Charter also provides that the Board of Directors shall consist
of three classes of directors serving for staggered terms. It is currently
contemplated that approximately one-third of the Board of Directors will be
elected each year. The classified board provision could prevent a party who
acquires control of a majority of the outstanding voting stock of OEI from
obtaining control of the Board of Directors until the second annual
stockholders' meeting following the date the acquirer obtains the controlling
interest. See "Management -- Directors and Executive Officers." The Charter
provides that the number of directors shall be as determined by the Board of
Directors from time to time, but shall not be less than three. It also provides
that directors may be removed only for cause, and then only by the affirmative
vote of the holders of at least two-thirds of all outstanding voting stock. This
provision, in conjunction with the Charter provisions authorizing the Board of
Directors to fill vacant directorships, will prevent stockholders from removing
incumbent directors without cause and then filling the resulting vacancies with
their own nominees.
STOCKHOLDER PROPOSALS
OEI's bylaws contain provisions requiring that advance notice be delivered
to OEI of any business to be brought by a stockholder before an annual meeting
of stockholders and establishing certain procedures to be followed by
stockholders in nominating persons for election to the Board of Directors.
Generally, the advance notice provisions provide that written notice must be
given to the secretary of OEI by a stockholder (i) in the event of business to
be brought by a stockholder before an annual meeting and (ii) in the event of
nominations of persons for election to the Board of Directors by any
stockholder, in each case not less than 60 nor more than 180 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders
(with certain exceptions if the date of the annual meeting is different by more
than specified periods from the anniversary date). The stockholder's notice must
set forth specific information regarding the stockholder and his business or
director nominee, as described in OEI's bylaws. The foregoing summary is
qualified in its entirety by reference to OEI's bylaws, which are filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
55
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement, each of the Underwriters named below has severally agreed to purchase
from the Company, and the Company has agreed to sell to such Underwriter, the
number of shares of Common Stock set forth opposite the name of such
Underwriter.
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------------- ------------
Smith Barney Inc........................
CIBC Oppenheimer Corp...................
Sanders Morris Mundy Inc................
------------
Total.........................
============
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., CIBC Oppenheimer Corp. and
Sanders Morris Mundy Inc. are acting as representatives (the
"Representatives"), propose to offer part of the shares of Common Stock
directly to the public at the offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price which represents
a concession not in excess of $ per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the initial offering
of the shares to the public, the public offering price and such concessions may
be changed by the Representatives. The Representatives of the Underwriters have
advised the Company that the Underwriters do not intend to confirm any shares to
any accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional
shares of Common Stock at the price to the public set forth on the cover page of
this Prospectus, minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares listed in such table.
OEI's officers or directors when the Offering closes, its current
stockholders (including Equus II) and all persons who acquire shares of Common
Stock and receive Replacement Options and Replacement Warrants in the Pending
Acquisitions who, immediately following the Offering, collectively will
beneficially own an aggregate of at least shares of Common Stock
(including shares issuable upon the exercise of outstanding options and warrants
exercisable within 60 days of the closing of the Offering), have agreed that for
a period of two years after the date of this Prospectus they will not, without
the prior written consent of Smith Barney Inc., directly or indirectly sell,
offer to sell, solicit an offer to buy, contract to sell, grant any option to
purchase or otherwise transfer or dispose of any shares of Common Stock, options
or warrants to acquire shares of Common Stock, or any securities exchangeable or
exercisable for or convertible into shares of Common Stock. OEI has also agreed
not to directly or indirectly sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase or otherwise
56
<PAGE>
transfer or dispose, or announce the offering of, or file any registration
statement under the Securities Act in respect of, any shares of Common Stock,
options or warrants to acquire shares of the Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock, for
a period of two years after the date of this Prospectus without the prior
written consent of Smith Barney Inc., except (i) shares of Common Stock issued
in connection with the Pending Acquisitions, (ii) shares of Common Stock issued
on the exercise of Options awarded under the Incentive Plan, the Employee
Purchase Plan or the Replacement Warrants, (iii) additional Options awarded
under the Incentive Plan and (iv) shares of Common Stock issued in connection
with future acquisitions (but not greater than an aggregate of shares
during the first year of the two-year lock-up period), so long as, (a) in the
case of issuances described in the preceding clauses (ii) and (iii), the
recipient agrees to remain subject to the lock-up until the end of the two-year
period (or, if the recipient is an employee of the Company but is neither an
officer or director of OEI nor the holder of 5% or more of the outstanding
shares of Common Stock, until the lapse of the first 180 days of the two-year
period) and (b) in the case of issuances described in the preceding clause (iv),
the recipient agrees to remain subject to a negotiated lock-up period.
Prior to the Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the Offering has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining such price are the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the pro
forma combined revenues and earnings of the Company, the historical revenues and
earnings of Petrocon and the Acquired Companies, the prospects for the growth of
the Company's revenues and earnings, the current state of the economy in the
United States and the current level of economic activity in the industry in
which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities in the securities markets,
including current market valuations of publicly traded companies that are
comparable to the Company.
The Company has agreed to indemnify the Underwriters and certain related
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof.
The Representatives have advised the Company that, pursuant to Regulation M
under the Exchange Act, certain persons participating in the Offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the Common Stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for
or the purchase of the Common Stock on behalf of the Underwriters for the
purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
Offering if the Common Stock originally sold by such Underwriter or syndicate
member is purchased by the Representatives in a syndicate covering transaction,
and has therefore not been effectively placed by such Underwriter or syndicate
member. The Representatives have advised the Company that such transactions may
be effected on The New York Stock Exchange or otherwise and, if commenced, may
be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the sale of the Common Stock
offered hereby are being passed upon for OEI by Porter & Hedges, L.L.P.,
Houston, Texas, and for the Underwriters by Morgan, Lewis & Bockius LLP, New
York, New York.
57
<PAGE>
EXPERTS
The audited financial statements of Petrocon and each of the Acquired
Founding Companies (other than PS&S) included in this Prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. The audited financial statements of PS&S
included in this Prospectus and elsewhere in the registration statement have
been audited by Schonbraun, Safris, McCann, Bekritsky & Co., L.L.C., independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
ADDITIONAL INFORMATION
OEI has not previously been subject to the reporting requirements of the
Exchange Act. OEI has filed a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with the SEC with respect
to the Offering. This Prospectus, filed as a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
or the exhibits thereto, in accordance with the rules and regulations of the
SEC, and reference is hereby made to such omitted information. The statements
made in this Prospectus concerning documents filed as exhibits to the
Registration Statement accurately describe the material provisions of such
documents and are qualified in their entirety by reference to such exhibits for
complete statements of their provisions. The Registration Statement and the
exhibits thereto may be inspected, without charge, at the public reference
facilities of the SEC at its principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and its regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of all
or any portion of the Registration Statement can be obtained at prescribed rates
from the Public Reference Section of the SEC at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
SEC maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. The address of that site is http://www.sec.gov.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Unaudited Pro Forma Combined Financial
Statements
Basis of Presentation.............. F-2
Unaudited Pro forma Combined
Balance Sheet..................... F-3
Unaudited Pro Forma Combined
Statements of Operations.......... F-4
Notes to Unaudited Pro Forma
Combined Financial Statements..... F-5
Historical Financial Statements
OEI International, Inc.
Report of Independent Public
Accountants................... F-9
Balance Sheet................. F-10
Statement of Loss............. F-11
Statement of Shareholders'
Equity........................ F-12
Statement of Cash Flows....... F-13
Notes to Financial
Statements.................... F-14
Petrocon Engineering, Inc. and
Subsidiaries
Report of Independent Public
Accountants................... F-17
Consolidated Balance Sheets... F-18
Consolidated Statements of
Income........................ F-20
Consolidated Statements of
Shareholders' Equity.......... F-21
Consolidated Statements of
Cash Flows.................... F-22
Notes to Consolidated
Financial Statements.......... F-24
Paulus, Sokolowski and Sartor, Inc.
Independent Auditor's
Report........................ F-36
Balance Sheets................ F-37
Statements of Income.......... F-38
Statements of Shareholders'
Equity........................ F-39
Statements of Cash Flows...... F-40
Notes to Consolidated
Financial Statements.......... F-41
Gulsby Engineering, Inc. and
Subsidiary
Report of Independent Public
Accountants................... F-49
Balance Sheets................ F-50
Statements of Income.......... F-51
Statements of Shareholders'
Equity........................ F-52
Statements of Cash Flows...... F-53
Notes to Financial
Statements.................... F-54
W-Industries, Inc.
Report of Independent Public
Accountants................... F-59
Balance Sheets................ F-60
Statements of Income.......... F-61
Statements of Shareholders'
Equity........................ F-62
Statements of Cash Flows...... F-63
Notes to Financial
Statements.................... F-64
Chemical & Industrial Engineering,
Inc.
Report of Independent Public
Accountants................... F-68
Balance Sheets................ F-69
Statements of Income.......... F-70
Statements of Shareholders'
Equity........................ F-71
Statements of Cash Flows...... F-72
Notes to Financial
Statements.................... F-73
F-1 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC. AND PETROCON AND THE ACQUIRED COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to (i) the acquisitions by OEI International, Inc. (OEI), of the outstanding
capital stock of Petrocon Engineering, Inc. and Subsidiaries (Petrocon), Paulus,
Sokolowski and Sartor Inc. (PS&S), Gulsby Engineering, Inc. and Subsidiary
(GEI), W-Industries, Inc. (W-I) and Chemical & Industrial Engineering, Inc.
(C&I) (together, the Pending Acquisitions), and related transactions and (ii)
the Offering. The Pending Acquisitions will occur simultaneously with the
closing of OEI's initial public offering (the Offering) and will be accounted
for using the purchase method of accounting. Petrocon has been identified as the
accounting acquiror for financial statement presentation purposes as its
stockholders will represent the largest voting interest within OEI.
The unaudited pro forma combined balance sheet gives effect to the Pending
Acquisitions and related transactions, and the Offering, as if they had occurred
on December 31, 1997. The unaudited pro forma combined statements of operations
give effect to these transactions as if they had occurred on January 1, 1997.
OEI has preliminarily analyzed the savings expected to be realized from
reductions in salaries, bonuses and certain benefits to the owners and other
known cost eliminations. To the extent the owners of Petrocon and the Acquired
Companies have contractually agreed to prospective reductions in salary,
bonuses, benefits and lease payments, these reductions and other known cost
eliminations have been reflected in the unaudited pro forma combined statements
of operations. With respect to other potential cost savings, OEI has not and
cannot quantify these savings until completion of the Pending Acquisitions. It
is anticipated that these savings will be offset by costs related to OEI's new
corporate management and by the costs associated with being a public company.
However, because these costs cannot be accurately quantified at this time, they
have not been included in the pro forma financial information of OEI.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate
and may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what OEI's financial position or
results of operations would actually have been if such transactions in fact had
occurred on those dates and are not necessarily representative of OEI's
financial position or results of operations for any future period. Since
Petrocon and the Acquired Companies were not under common control or management,
historical combined results may not be comparable to, or indicative of, future
performance. The unaudited pro forma combined financial statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus. See also "Risk Factors" included
elsewhere herein.
F-2 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PETROCON PS&S GEI W-I C&I OEI ADJUSTMENTS COMBINED
--------- --------- ------ ------ --------- ----- ------------ ----------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents................. $ 2,254 $ 35 $ 603 $1,979 $ 1,731 $ 1 $ -- $ 6,603
Trade receivables.................... 15,398 5,476 279 3,394 1,494 -- -- 26,041
Other receivables.................... -- 61 28 -- -- -- -- 89
Advances to stockholder.............. -- -- 3,121 -- -- -- (3,121) --
Current portion of note receivable... 16 -- -- -- -- -- -- 16
Inventory............................ -- -- -- 95 -- -- -- 95
WIP.................................. -- 1,652 -- -- -- -- -- 1,652
Costs and estimated profits in excess
of billings on uncompleted
contracts.......................... 1,881 1,166 4,210 1,477 -- -- (3,774) 4,960
Prepaid expenses and other........... 976 326 154 9 115 112 -- 1,692
Deferred tax asset................... 543 -- -- -- 176 -- -- 719
--------- --------- ------ ------ --------- ----- ------------ ----------
Total current assets............. 21,068 8,716 8,395 6,954 3,516 113 (6,895) 41,867
Property and equipment, net.......... 6,584 611 539 1,052 1,221 -- 371 10,378
Investment in Petrocon Arabia, LTD... 3,818 -- -- -- -- -- -- 3,818
Note receivable, net of current
portion............................ 50 -- -- -- -- -- -- 50
Deferred tax asset................... -- -- 950 -- -- -- -- 950
Goodwill............................. 9,342 -- -- -- -- -- 59,127 68,469
Other assets......................... 1,192 2,136 4 -- -- -- (1,771) 1,561
--------- --------- ------ ------ --------- ----- ------------ ----------
Total assets..................... $42,054 $ 11,463 $9,888 $8,006 $ 4,737 $ 113 $ 50,832 $127,093
========= ========= ====== ====== ========= ===== ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 2,115 $ 1,465 $ 502 $ 886 $ 141 $-- $ -- $ 5,109
Accrued compensation and benefits.... 7,901 1,119 13 361 1,168 -- -- 10,562
Accrued liabilities.................. -- -- 73 27 76 112 -- 288
Short-term debt...................... 11,789 950 3,587 5,439 120 -- 28,104 49,989
Current maturities of long-term
debt............................... 1,976 82 -- 68 -- -- -- 2,126
Billings in excess of costs and
estimated profits on uncompleted
contracts.......................... 499 -- 423 -- 365 -- -- 1,287
Income taxes payable................. 526 -- 1,764 -- 253 -- -- 2,543
Deferred tax liability............... -- 700 -- -- -- -- 1,984 2,684
Other liabilities.................... 222 192 -- -- -- -- -- 414
--------- --------- ------ ------ --------- ----- ------------ ----------
Total current liabilities........ 25,028 4,508 6,362 6,781 2,123 112 30,088 75,002
Long-term debt, net of current
portion............................ 2,680 547 -- 573 -- -- -- 3,800
Deferred tax liabiity................ 427 -- -- -- 146 -- -- 573
--------- --------- ------ ------ --------- ----- ------------ ----------
Total liabilities................ 28,135 5,055 6,362 7,354 2,269 112 30,088 79,375
Stockholders' equity................. 13,919 6,408 3,526 652 2,468 1 20,744 47,718
--------- --------- ------ ------ --------- ----- ------------ ----------
Total liabilities and
stockholders' equity........... $42,054 $ 11,463 $9,888 $8,006 $ 4,737 $ 113 $ 50,832 $127,093
========= ========= ====== ====== ========= ===== ============ ==========
</TABLE>
POST MERGER AS
ADJUSTMENTS ADJUSTED
------------ --------
ASSETS
Cash and equivalents................. $ (2,929) $ 3,674
Trade receivables.................... -- 26,041
Other receivables.................... -- 89
Advances to stockholder.............. -- --
Current portion of note receivable... -- 16
Inventory............................ -- 95
WIP.................................. -- 1,652
Costs and estimated profits in excess
of billings on uncompleted
contracts.......................... -- 4,960
Prepaid expenses and other........... (112) 1,580
Deferred tax asset................... -- 719
------------ --------
Total current assets............. (3,041) 38,826
Property and equipment, net.......... -- 10,378
Investment in Petrocon Arabia, LTD... -- 3,818
Note receivable, net of current
portion............................ -- 50
Deferred tax asset................... -- 950
Goodwill............................. -- 68,469
Other assets......................... -- 1,561
------------ --------
Total assets..................... $ (3,041) $124,052
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ -- $ 5,109
Accrued compensation and benefits.... -- 10,562
Accrued liabilities.................. (112) 176
Short-term debt...................... (49,989) --
Current maturities of long-term
debt............................... (2,126) --
Billings in excess of costs and
estimated profits on uncompleted
contracts.......................... -- 1,287
Income taxes payable................. -- 2,543
Deferred tax liability............... -- 2,684
Other liabilities.................... -- 414
------------ --------
Total current liabilities........ (52,227) 22,775
Long-term debt, net of current
portion............................ (3,800) --
Deferred tax liabiity................ -- 573
------------ --------
Total liabilities................ (56,027) 23,348
Stockholders' equity................. 52,986 100,704
------------ --------
Total liabilities and
stockholders' equity........... $ (3,041) $124,052
============ ========
See accompanying notes to unaudited pro forma combined financial statements.
F-3 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PETROCON PS&S GEI W-I C&I OEI ADJUSTMENTS
-------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $92,616 $ 21,675 $ 18,264 $ 20,604 $ 15,906 $ -- $ --
DIRECT COSTS......................... 71,693 9,731 11,768 13,700 10,969 -- --
-------- --------- --------- --------- --------- --------- ------------
Gross profit..................... 20,923 11,944 6,496 6,904 4,937 -- --
GENERAL AND
ADMINISTRATIVE EXPENSES............ 15,213 10,741 927 3,003 3,997 6,416 (9,288)
GOODWILL AMORTIZATION................ 254 -- -- -- -- -- 1,478
-------- --------- --------- --------- --------- --------- ------------
Income from operations............... 5,456 1,203 5,569 3,901 940 (6,416) 7,810
OTHER INCOME (EXPENSE):
Interest income (expense), net... (1,569 ) (208) (233) (247) 36 -- 2,212
Equity in earnings of
affiliates..................... 1,012 -- -- -- -- -- --
Abandonment/Loss on impairment of
assets......................... (364 ) -- -- -- -- -- --
Other............................ (206 ) (75) 57 154 (5) -- --
-------- --------- --------- --------- --------- --------- ------------
Income (loss) from operations before
income tax......................... 4,329 920 5,393 3,808 971 (6,416) 10,022
Provision for income tax............. 1,574 185 1,559 -- 424 -- 4,461
-------- --------- --------- --------- --------- --------- ------------
NET INCOME........................... $ 2,755 $ 735 $ 3,834 $ 3,808 $ 547 $ (6,416) $ 5,561
======== ========= ========= ========= ========= ========= ============
NET INCOME PER SHARE.................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE...............
</TABLE>
PRO FORMA
COMBINED
----------
REVENUES............................. $ 169,065
DIRECT COSTS......................... 117,861
----------
Gross profit..................... 51,204
GENERAL AND
ADMINISTRATIVE EXPENSES............ 31,009
GOODWILL AMORTIZATION................ 1,732
----------
Income from operations............... 18,463
OTHER INCOME (EXPENSE):
Interest income (expense), net... (9)
Equity in earnings of
affiliates..................... 1,012
Abandonment/Loss on impairment of
assets......................... (364)
Other............................ (75)
----------
Income (loss) from operations before
income tax......................... 19,027
Provision for income tax............. 8,203
----------
NET INCOME........................... $ 10,824
==========
NET INCOME PER SHARE.................
BASIC ............................... $
==========
FULLY DILUTED ....................... $
==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE...............
BASIC ...............................
==========
FULLY DILUTED .......................
==========
See accompanying notes to unaudited pro forma combined financial statements.
F-4 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC. AND PETROCON AND THE ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
The Company is a diversified engineering company providing engineering
services and engineered systems to a broad range of industrial, commercial and
institutional clients throughout the United States and internationally. The
Company's multidisciplined expertise enables it to offer its clients total
design and engineering solutions extending from project inception through
completion, start-up and operation, within multiple industries and across
diverse geographic markets. OEI has conducted no operations to date and will
acquire Petrocon and the Acquired Companies concurrently with and as a condition
of the closing of this Offering.
The historical financial statements reflect the financial position and
results of operations of Petrocon and the Acquired Companies' and were derived
from Petrocon and the Acquired Companies' respective financial statements where
indicated. The periods included in these financial statements for Petrocon and
the Acquired Companies are as of and for the year ended December 31, 1997. The
audited historical financial statements included elsewhere in this Prospectus
have been included in accordance with Securities and Exchange Commission (SEC)
Regulation S-X. I. Rule 3-05.
2. ACQUISITION OF PETROCON AND THE ACQUIRED COMPANIES:
Concurrently with and as a condition to the closing of the Offering, OEI
will acquire all of the outstanding capital stock of the Petrocon and Acquired
Companies. The acquisitions will be accounted for using the purchase method of
accounting with Petrocon being reflected as the accounting acquiror as its
stockholders will represent the largest voting interest within OEI.
The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of Common Stock to the common stockholders of Petrocon and
Acquired Companies. For purposes of computing the estimated purchase price for
accounting purposes, the value of the shares was determined using an estimated
fair value of $ per share, which is less than the initial public offering
price due primarily to restrictions on the sale and transferability of the
shares issued. The total estimated purchase price of $84.4 million for the
acquisitions is based upon preliminary estimates and is subject to certain
purchase price adjustments at and following closing.
SHARES OF
CASH COMMON STOCK
--------- ------------
(IN THOUSANDS)
Petrocon............................. $ 12,716 2,119
PS&S................................. 4,522 879
GEI.................................. 2,786 542
W-I.................................. 4,902 953
C&I.................................. 2,880 560
--------- ------------
Total...................... $ 27,806 5,053
========= ============
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the liability for the cash portion of the consideration to be
paid to the stockholders of Petrocon and the Acquired Companies in
connection with the Pending Acquisitions.
(b) Records the distribution of contract retainages, advances to
stockholder and other personal assets to stockholders.
(c) Records the issuance of 2,934,139 shares of Common Stock valued at
$ per share in connection with the purchase of the acquired
companies by OEI, excluding Petrocon (the accounting acquiror) for a
total estimated purchase price of $47.9 million resulting in goodwill
of $43.4 million after allocating the purchase price to the aggregate
assets acquired and liabilities assumed, as shown below. In addition,
goodwill of $13.7 million has been recorded attributable to the shares
of Common Stock issued to Equus II
F-5 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
Incorporated, OEI's initial financing source and goodwill of $1.9
million has been recorded attributable to additional deferred tax
liabilities associated with the Pending Acquisitons. See Note 2.
ASSETS
Cash and equivalents................. $ 4,348
Accounts receivable.................. 10,732
Inventories.......................... 95
WIP.................................. 1,652
Costs and estimated profits in excess
of billings on uncompleted
contracts.......................... 3,079
Prepaid expenses and other........... 604
Deferred tax asset................... 176
---------
Total current asssets........... 20,686
Property and equipment, net.......... 3,423
Deferred tax asset................... 950
Other assets......................... 442
---------
Total assets.................... $ 25,501
=========
LIABILITIES
Accounts payable and accrued
liabilities........................ $ 3,170
Accrued compensation and benefits.... 2,661
Short-term debt...................... 10,096
Current maturities of long-term
debt............................... 150
Billings in excess of costs and
estimated profits on uncompleted
contracts.......................... 788
Income taxes payable................. 2,017
Deferred income taxes................ 700
Other liabilities.................... 192
---------
Total current liabilities....... 19,774
---------
Long-term obligation, net of current
maturities......................... 1,120
Deferred income taxes................ 146
Total liabilities............... $ 21,040
=========
(d) Records the contribution of assets to OEI.
(e) Records the cash proceeds of $60.2 million from the issuance of shares of
OEI Common Stock net of estimated offering costs of $7.2 million (based on
an initial public offering price of $ per share and includes the
payment of deferred offering costs of $0.1 million incurred through
December 31, 1997). Offering costs primarily consist of underwriting
discounts and commissions, accounting fees, legal fees and printing
expenses.
(f) Records the cash portion of the consideration to be paid to the
stockholders of Petrocon and the Acquired Companies in connection with the
Pending Acquisitions.
(g) Records the repayment of certain liabilities and debt obligations with the
net proceeds from the Offering and from cash on hand, including $5.4
million of notes payable to stockholders or related parties of Petrocon and
the Acquired Companies, all of which was current at December 31, 1997, and
$3.5 million attributable to an accrued legal judgment.
F-6 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
The following table summarizes unaudited pro forma balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
---------- --------- ---------- --------- ------------
ASSETS
<S> <C> <C>
Cash and equivalents................. $ -- $ -- $ -- $ -- $ --
Advances to stockholder.............. -- (3,121) -- -- (3,121)
Costs and estimated profits in excess
of billings on uncompleted
contracts.......................... -- (3,774) -- -- (3,774)
---------- --------- ---------- --------- ------------
Total current asssets........... -- (6,895) -- -- (6,895)
Property and equipment, net.......... -- -- -- 371 371
Goodwill............................. -- -- 59,127 -- 59,127
Other assets......................... -- (1,698) -- (73) (1,771)
---------- --------- ---------- --------- ------------
Total assets......................... $ -- $ (8,593) $ 59,127 $ 298 $ 50,832
========== ========= ========== ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...................... 27,806 -- -- 298 28,104
Deferred tax liability............... -- -- 1,984 -- 1,984
---------- --------- ---------- --------- ------------
Total current liabilities....... 27,806 -- 1,984 298 30,088
---------- --------- ---------- --------- ------------
Total liabilities............... 27,806 -- 1,984 298 30,088
Stockholders' equity................. (27,806) (8,593) 57,143 -- 20,744
---------- --------- ---------- --------- ------------
Total liabilities and stockholders'
equity............................. $ -- $ (8,593) $ 59,127 $ 298 $ 50,832
========== ========= ========== ========= ============
POST MERGER
(E) (F) (G) ADJUSTMENTS
--------- ---------- ---------- ------------
ASSETS
Cash and equivalents................. $ 52,986 $ (27,806) $ (28,109) $ (2,929)
Deferred costs....................... (112) -- -- (112)
Total current
assets............. 52,874 (27,806) (28,109) (3,041)
--------- ---------- ---------- ------------
Total assets......................... $ 52,874 $ (27,806) $ (28,109) $ (3,041)
========= ========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...................... $ -- $ (27,806) $ (22,183) $(49,989)
Current maturities of long-term
debt............................... -- -- (2,126) (2,126)
Accrued liabilities.................. (112) -- -- (112)
--------- ---------- ---------- ------------
Total current
liabilities........ (112) (27,806) (24,309) (52,227)
Long-term debt, net of current
portion............................ -- -- (3,800) (3,800)
--------- ---------- ---------- ------------
Total liabilities..... (112) (27,806) (28,109) (56,027)
Stockholders' equity................. 52,986 -- -- 52,986
--------- ---------- ---------- ------------
Total liabilities and stockholders'
equity............................. $ 52,874 $ (27,806) $ (28,109) $ (3,041)
========= ========== ========== ============
</TABLE>
F-7 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(a) Reduces compensation expense to the contractual levels the owners and
key employees of the Petrocon and the Acquired Companies have agreed
to receive subsequent to the Pending Acquisitions. Additionally,
reflects the reversal of the $6.4 million non-recurring non-cash
compensation charge by OEI related to the issuance of shares of Common
Stock to management. The historical financial statements of OEI
include a compensation charge representing the differences between the
amounts paid for the shares issued to OEI's management and their
estimated value on the date of the sale as if the Pending Acquisitions
had occurred.
(b) Records goodwill amortization expense using a 40-year estimated life.
(c) Reduces interest expense for repayment of certain debt obligations
which will be repaid from the net proceeds of the Offering and
existing cash.
(d) Records a reduction of rent expense of $236 net of depreciation of $74
for property to be acquired in connection with the Pending
Aquisitions.
(e) Reflects the incremental provision for federal and state income taxes
relating to the other statements of operations adjustments and for
income taxes on S Corporation income.
(f) The number of shares estimated to be outstanding on completion of the
Offering includes the following (reflects the , 1998 stock
split) (in thousands):
Issued to management.................
Issued to financial sponsor..........
Issued in the Pending Acquisitions
(including escrowed shares)........ 5,707
Issued in the Offering...............
-----------
Shares used in computing basic
pro forma income per share.........
Net effect of OEI stock options and
warrants using the Treasury Stock
method.............................
-----------
Shares used in computing fully
diluted pro forma income
per share.................
===========
Such share number does not include an aggregate of shares
subject to options granted under OEI's Incentive Plan which have an
exercise price equal to the initial Offering price per share. See
"Management -- Incentive Plan."
The following table summarized unaudited pro forma combined statements of
operations adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... $ (9,126) $ -- $ -- $ (162) $ -- $ (9,288)
GOODWILL AMORTIZATION................ -- 1,478 -- -- -- 1,478
--------- --------- --------- --------- --------- ------------
INCOME (LOSS) FROM OPERATIONS........ 9,126 (1,478) -- 162 -- 7,810
OTHER INCOME (EXPENSE):
Interest expense................. -- -- 2,212 -- -- 2,212
--------- --------- --------- --------- --------- ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... 9,126 (1,478) 2,212 162 -- 10,022
PROVISION FOR INCOME TAXES........... -- -- -- -- 4,461 4,461
--------- --------- --------- --------- --------- ------------
NET INCOME (LOSS).................... $ 9,126 $ (1,478) $ 2,212 $ 162 $ (4,461) $ 5,561
========= ========= ========= ========= ========= ============
</TABLE>
F-8 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OEI International, Inc.:
We have audited the accompanying balance sheet of OEI International, Inc.
(a Delaware corporation), as of December 31, 1997, and the related statement of
loss, stockholders' equity and cash flows from inception (October 9, 1997)
through December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of OEI International, Inc., as
of December 31, 1997, and the results of its operations and its cash flows from
inception (October 9, 1997) through December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 27, 1998
F-9 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
BALANCE SHEET -- DECEMBER 31, 1997
ASSETS
CASH................................. $ 893
DEFERRED OFFERING COSTS.............. 112,427
--------------
Total assets.......... $ 113,320
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
AMOUNTS DUE TO STOCKHOLDER........... $ 112,427
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par,
1,000,000 authorized, none
issued and outstanding......... --
Common stock, $.001 par,
40,000,000 shares authorized,
1,786,948 shares outstanding... 2
Additional paid-in capital...... 6,416,439
Retained deficit................ (6,415,548)
--------------
Total stockholders'
equity............... 893
--------------
Total liabilities and
stockholders'
equity............... $ 113,320
==============
Reflects a
1,828.368-for-one stock
split effective April 6,
1998.
The accompanying notes are an integral part of these financial statements.
F-10 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
STATEMENT OF LOSS
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1997)
THROUGH DECEMBER 31, 1997
REVENUES............................. $ --
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 6,415,548
--------------
NET LOSS............................. $ (6,415,548)
==============
The accompanying notes are an integral part of these financial statements.
F-11 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1997)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION (October 9,
1997).............................. 1,791,804 $ 2 $6,416,439 $ -- $ 6,416,441
Net loss........................ -- -- -- (6,415,548) (6,415,548)
--------- ------ ---------- ----------- ------------
BALANCE, December 31, 1997........... 1,791,804 $ 2 $6,416,439 $(6,415,548) $ 893
========= ====== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1997)
THROUGH DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (6,415,548)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities --
Compensation expense related to
issuance of management
shares......................... 6,415,461
Changes in assets and
liabilities --
Increase in deferred
costs..................... (112,427)
Increase in amounts due to
stockholder............... 112,427
--------------
Net cash used in
operating activities (87)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of
common stock................... 980
--------------
Net cash provided by
financing
activities........... 980
--------------
NET INCREASE IN CASH................. 893
CASH, beginning of period............ --
--------------
CASH, end of period.................. $ 893
==============
The accompanying notes are an integral part of these financial statements.
F-13 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY
OEI International, Inc. (OEI or the Company), a Delaware corporation, was
founded on October 9, 1997. The Company is a diversified engineering company
providing engineering services and engineered systems to a broad range of
industrial, commercial and institutional clients throughout the United States
and internationally. OEI intends to acquire five engineering companies (the
Acquisitions), complete an initial public offering (the Offering) of its common
stock and, subsequent to the Offering, continue to acquire, through merger or
purchase, similar companies to expand its national and international operations.
OEI's primary assets at December 31, 1997, are cash and deferred offering
costs. OEI has not conducted any operations, and all activities to date have
related to the Acquisitions and the Offering. Cash of $980 was generated from
the initial capitalization of the Company (see Note 2). There is no assurance
that the Acquisitions discussed below will be completed and that OEI will be
able to generate future operating revenues. Funding for the deferred offering
costs has been provided by Equus II Incorporated (Equus II). OEI is dependent
upon the Offering to fund the amounts due to Equus II, the Acquisitions and
future operations.
INCOME TAX
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon the differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
STOCK OPTIONS
Effective September 4, 1997, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation." This pronouncement allows two methods of
calculating the fair market value of equity instruments issued to employees, in
accordance with Accounting Principles Board (APB) Opinion No. 25 or using an
option-pricing model. The fair market value of equity instruments issued to
employees may be calculated using an option-pricing model such as the
Black-Scholes model that takes into account, as of the grant date, the exercise
price and expected life of the equity instrument, the current price of the
underlying stock, expected dividends on the stock and the risk-free interest
rate for the expected term of the equity instrument. The Company has elected to
calculate compensation expense in accordance with APB No. 25 which calculates
compensation expense as the difference between the employee's exercise price and
the current price of the underlying stock. There were no financial statement
effects from the adoption of this pronouncement.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. The Company does not hold or issue financial
instruments for trading purposes, nor does it hold interest rate, leveraged or
other types of derivative financial instruments. The carrying amounts of the
Company's financial instruments approximate their fair values.
USE OF ESTIMATES
The preparation of the Company's 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
disclosures of contingent assets and liabilities at the date of the financial
statements
F-14 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. STOCKHOLDERS' EQUITY:
On April 6, 1998, OEI effected a 1,828.368-for-one stock split for each
share of common stock of the Company ("Common Stock") then outstanding. In
addition, the Company increased the number of authorized shares of Common Stock
to 40,000,000 and authorized 1,000,000 shares of $.001 par value preferred
stock. The effects of the Common Stock split and the increase in the shares of
authorized Common Stock have been retroactively reflected on the balance sheet
and in the accompanying notes. In connection with the organization and initial
capitalization of OEI, the Company issued 1,218,973 shares of common stock at $1
per share to Equus II at an aggregate purchase price of $667.67.
In October 1997, the Company issued a total of 572,831 shares of common
stock to management at an aggregate purchase price of $980.00. As a result, the
Company recorded a non-recurring, non-cash compensation charge of $6.4 million
at December 31, 1997, representing the difference between the amount paid for
the shares and the estimated fair value of the shares, which value has been
discounted from the estimated initial public offering price due primarily to
restrictions on the sale and transferability of the shares issued. The shares
issued to Equus II and members of management were issued to engage such parties
in providing services related primarily to the Company's public offering
activities, including financial advisory and other consulting services. The fair
value of such shares was based on specific factors related to the Company and
the transactions including restrictions on transferability and sale of the
shares issued and the limited vote provisions of such shares.
3. INCENTIVE PLAN:
In April 1998, the Company's stockholders and Board of Directors approved
the Company's Incentive Plan which provides for the granting of incentive or
nonstatutory stock options, stock appreciation rights, restricted stock,
performance units and performance shares and other stock-based awards
(collectively, "Incentive Awards") to key employees, officers, non-employee
directors and consultants to the Company. Under the Incentive Plan, the Company
may issue Incentive Awards covering at any one time an aggregate of the greater
of (i) 2,000,000 shares of Common Stock and (ii) 10% of the number of shares of
Common Stock issued and outstanding on the last day of the then preceding
calendar quarter. No more than 2,000,000 shares of Common Stock will be
available for incentive stock options.
4. EMPLOYEE STOCK PURCHASE PLAN:
In April 1998, the Company's Board of Directors approved the Company's
Employee Stock Purchase Plan for the United States employees (the "Employee
Purchase Plan"). A total of 300,000 shares of Common Stock has been reserved
for issuance under the Employee Purchase Plan. The Employee Purchase Plan
permits eligible employees to purchase Common Stock through payroll deductions
of up to 15% of an employee's compensation (including commissions and overtime,
but excluding other bonuses and incentive compensation), up to a maximum of
$25,000 for all offering periods ending within the same calendar year. The price
of stock purchased under the Employee Purchase Plan is 90% of the lower of the
fair market value of the Common Stock at the beginning or at the end of each
offering period. Employees may end their participation at any time during an
offering period, and they will be repaid their payroll deductions to date.
Participation ends automatically upon termination of employment with the Company
or any participating subsidiary. The Employee Purchase Plan will terminate in
April, 2008.
F-15 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
OEI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. EVENTS SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
OEI has signed definitive agreements to acquire by acquisition or share
exchange five companies (the Founding Companies) to be effective
contemporaneously with the Offering. The companies to be acquired are Petrocon
Engineering, Inc. and subsidiary, Paulus, Sokolowski, and Sartor, Inc., Gulsby
Engineering, Inc. and subsidiary, W-Industries, Inc., and Chemical & Industrial
Engineering, Inc. The aggregate consideration that will be paid by OEI to
acquire the Founding Companies is approximately $27.8 million in cash and
5,053,027 shares of common stock.
In April 1998, OEI filed a registration statement on Form S-1 for the sale
of its common stock.
F-16 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Petrocon Engineering, Inc.:
We have audited the accompanying consolidated balance sheets of Petrocon
Engineering, Inc. (a Texas corporation), and subsidiaries as of December 31,
1996 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 6, 1998
F-17 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------
1996 1997
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 320,811 $ 2,253,527
Trade receivables, net.......... 10,697,851 15,397,931
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... 463,786 1,881,417
Current portion of note
receivable.................... 33,746 16,884
Prepaid expenses and other...... 651,116 976,100
Deferred income taxes........... 667,439 543,373
-------------- --------------
Total current assets....... 12,834,749 21,069,232
PROPERTY AND EQUIPMENT, net.......... 6,385,573 6,583,796
INVESTMENT IN PETROCON ARABIA,
LTD................................ 3,555,964 3,817,576
NOTE RECEIVABLE, net of current
portion............................ 112,525 50,040
GOODWILL, net........................ 2,290,849 9,342,460
OTHER ASSETS......................... 1,197,107 1,190,840
-------------- --------------
Total assets............... $ 26,376,767 $ 42,053,944
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-18 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------
1996 1997
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................. $ 5,085,908 $ 11,641,357
Current maturities of long-term
debt.......................... 2,772,604 1,976,174
Notes payable................... 249,544 147,284
Accounts payable................ 868,315 2,114,356
Accrued compensation and
benefits...................... 4,046,574 7,901,256
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... -- 499,395
Income taxes payable............ 478,104 526,002
Other liabilities............... 815,735 221,819
-------------- --------------
Total current
liabilities............. 14,316,784 25,027,643
LONG-TERM LIABILITIES:
Long-term debt, net of current
maturities.................... 3,756,492 2,680,046
Deferred income taxes........... 424,316 427,311
-------------- --------------
Total liabilities.......... 18,497,592 28,135,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK........... 1,126,549 --
STOCKHOLDERS' EQUITY:
Common stock, $.3333 par value;
60,000,000 shares authorized;
3,945,186 and 4,586,328 shares
issued........................ 1,315,062 1,528,760
Additional paid-in capital...... 3,196,068 7,473,014
Retained earnings............... 2,275,271 4,917,170
Treasury stock, 7,607 common
shares, at cost............... (33,775) --
-------------- --------------
Total stockholders'
equity.................. 6,752,626 13,918,944
-------------- --------------
Total liabilities and
stockholders' equity.... $ 26,376,767 $ 42,053,944
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-19 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES............................. $ 52,385,813 $ 61,850,638 $ 92,616,378
DIRECT COSTS......................... 42,143,967 49,251,240 71,692,881
-------------- -------------- --------------
Gross profit.................... 10,241,846 12,599,398 20,923,497
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 8,358,923 9,577,274 15,467,052
-------------- -------------- --------------
Income from operations.......... 1,882,923 3,022,124 5,456,445
OTHER INCOME (EXPENSE):
Interest expense, net........... (456,114) (591,848) (1,569,475)
Equity in earnings of Petrocon
Arabia, Ltd................... 507,204 47,139 1,011,611
Impairment of property.......... -- -- (363,696)
Other........................... (125,005) 38,436 (206,028)
-------------- -------------- --------------
Income from continuing
operations
before income tax....... 1,809,008 2,515,851 4,328,857
PROVISION FOR INCOME TAX............. 598,738 1,050,853 1,574,045
-------------- -------------- --------------
Income from continuing
operations.............. 1,210,270 1,464,998 2,754,812
-------------- -------------- --------------
DISCONTINUED OPERATIONS:
Loss from discontinued
operations of construction
subsidiaries through October
19, 1995 (net of $417,117
income tax benefit)........... (809,699) -- --
Estimated loss on disposal of
construction subsidiaries,
including a provision of
$341,012 for operating losses
from October 19, 1995, to
February 8, 1996 (net of
$180,774 income tax
benefit)...................... (350,913) -- --
-------------- -------------- --------------
Loss from discontinued
operations.............. (1,160,612) -- --
-------------- -------------- --------------
NET INCOME........................... $ 49,658 $ 1,464,998 $ 2,754,812
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-20 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
---------------------- PAID-IN RETAINED -------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
--------- ----------- ----------- ----------- --------- --------- ------------
BALANCE, January 1, 1995............. 3,857,147 $ 1,285,716 $ 1,381,965 $ 1,603,027 -- $ -- $ 4,270,708
Purchase of treasury stock....... -- -- -- -- (7,607) (33,775) (33,775)
Accretion on redeemable preferred
stock.......................... -- -- -- (421,200) -- -- (421,200)
Net income....................... -- -- -- 49,658 -- -- 49,658
--------- ----------- ----------- ----------- --------- --------- ------------
BALANCE, December 31, 1995........... 3,857,147 1,285,716 1,381,965 1,231,485 (7,607) (33,775) 3,865,391
Common stock issued.............. 88,039 29,346 581,547 -- -- -- 610,893
Accretion on redeemable preferred
stock.......................... -- -- -- (421,212) -- -- (421,212)
Redemption of preferred stock.... -- -- -- -- -- -- --
Warrants issued in connection
with
acquisition.................... -- -- 1,232,556 -- -- -- 1,232,556
Net income....................... -- -- -- 1,464,998 -- -- 1,464,998
--------- ----------- ----------- ----------- --------- --------- ------------
BALANCE, December 31, 1996........... 3,945,186 1,315,062 3,196,068 2,275,271 (7,607) (33,775) 6,752,626
Common stock issued.............. 542,443 180,812 4,043,607 -- -- -- 4,224,419
Treasury stock issued............ -- -- -- -- 7,607 33,775 33,775
Redemption of preferred stock.... 98,699 32,886 233,339 -- -- -- 266,225
Accretion on redeemable preferred
stock.......................... -- -- -- (112,913) -- -- (112,913)
Net income....................... -- -- -- 2,754,812 -- -- 2,754,812
--------- ----------- ----------- ----------- --------- --------- ------------
BALANCE, December 31, 1997........... 4,586,328 $ 1,528,760 $ 7,473,014 $ 4,917,170 -- $ -- $ 13,918,944
========= =========== =========== =========== ========= ========= ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-21 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 49,658 $ 1,464,998 $ 2,754,812
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and amortization... 903,271 868,037 1,760,549
Equity in undistributed earnings
of Petrocon Arabia, Ltd........ (207,204) 952,861 (261,611)
Issuance of stock to
management..................... -- 102,293 24,420
Deferred income taxes........... (689,421) 141,286 22,461
Other, net...................... 220,472 46,411 262,238
Changes in current assets and
liabilities, net of effects of
acquisitions --
(Increase) decrease in --
Trade receivables............. 806,140 1,855,630 (3,266,554)
Costs and estimated earnings
in excess of billings on
uncompleted contracts....... (1,963,187) 1,499,401 (1,417,631)
Prepaid expenses and other.... (120,708) 203,032 323,079
Increase (decrease) in --
Accounts payable.............. 404,999 (939,071) 802,052
Accrued compensation and
benefits.................... 438,499 (394,969) 2,838,312
Billings in excess of costs
and estimated earnings on
uncompleted contracts....... 1,390,412 (1,390,412) 499,395
Accrual for loss on disposal
of discontinued
operations.................. 114,307 (196,588) --
Other liabilities............. (192,120) (369,714) (593,916)
Income taxes receivable
(payable)................... (868,707) 771,243 (449,102)
-------------- -------------- --------------
Net cash provided by operating
activities..................... 286,411 4,614,438 3,298,504
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment......................... (781,629) (723,056) (1,186,607)
Cash used for acquisitions, net of
cash acquired..................... -- (1,187,974) (3,134,223)
Other, net......................... (6,582) 18,108 100,867
-------------- -------------- --------------
Net cash used in investing
activities..................... (788,211) (1,892,922) (4,219,963)
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-22 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock......... $ (33,775) $ -- $ --
Redemption of preferred stock...... -- (3,225,860) (939,463)
Debt financing costs............... -- (145,509) --
Proceeds from borrowings under line
of credit....................... 33,977,000 56,614,032 106,438,476
Payments on line of credit......... (34,762,000) (55,178,123) (99,883,027)
Proceeds from issuance of notes
payable......................... 2,916,623 1,935,645 1,806,296
Principal payments on notes
payable......................... (1,516,301) (2,768,340) (4,568,107)
--------------- --------------- ---------------
Net cash provided by (used in)
financing activities....... 581,547 (2,768,155) 2,854,175
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 79,747 (46,639) 1,932,716
CASH AND CASH EQUIVALENTS, beginning
of year............................ 287,703 367,450 320,811
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 367,450 $ 320,811 $ 2,253,527
=============== =============== ===============
NONCASH ACTIVITIES:
Insurance acquired with notes
payable......................... $ 143,743 $ 285,175 $ 370,054
Accretion on redeemable preferred
stock........................... 421,200 421,212 112,913
Fair value of warrants issued as
consideration for acquisition... -- 1,232,556 --
Shares issued as consideration for
acquisition..................... -- -- 4,200,000
Additional consideration payable
for acquisitions................ -- 89,409 916,781
Fair value of shares and options
issued for redemption of
preferred stock................. -- -- 1,572,910
Combination of balances related to
discontinued operations --
Net book value of equipment
disposed........................ 433,758 -- --
Loans on equipment disposed........ 385,364 -- --
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for --
Interest........................ 512,353 540,089 1,314,140
Income taxes.................... 1,558,973 714,461 2,007,791
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY
Petrocon Engineering, Inc. (a Texas corporation), is an international
engineering, systems and construction management contractor, servicing
industrial customers with primary focus in the process industries -- oil,
chemical, petrochemical and forest products.
A brief description of the active companies included in the consolidated
group follows:
a. PETROCON ENGINEERING, INC. (PEI) -- Provides general engineering
services for industrial customers with specialties in the areas of
distributive control systems, forest products, power distribution,
process design and process safety management.
b. PETROCON ENGINEERING OF LOUISIANA, INC. (PEI-LA) -- Extends PEI's
service area into southwest Louisiana.
c. PETROCON SYSTEMS, INC. (PSI) -- Provides design, fabrication,
installation, start-up, checkout and maintenance of analyzers and PLC
systems.
d. PETROCON TECHNOLOGIES, INC. (PTI) -- Currently provides development,
sales and marketing focused on PTI's licensed hybrid low NOX process.
e. PETROCON CONSTRUCTION RESOURCES, INC. (PCR) -- Provides technical,
inspection and operator personnel within client facilities.
f. TRIANGLE ENGINEERS AND CONSTRUCTORS, INC. (TE&C) -- Provides
engineering services and construction management services.
g. RPM ENGINEERING, INC. (RPM) -- Provides engineering services in
southeast Louisiana.
h. ALLIANCE ENGINEERING, INC. (AEI) -- Provides upstream engineering
design and project services.
The Company and its stockholders intend to enter into a definitive
agreement with OEI International, Inc. (OEI), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
OEI common stock concurrently with the consummation of the initial public
offering (the Offering) of the common stock of OEI.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Petrocon Engineering, Inc., and its wholly owned subsidiaries (collectively, the
Company). All significant intercompany transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
The Company provides a majority of its services through cost-plus
contracts. Revenues are recognized to the extent of billable rates times hours
delivered plus other reimbursable expenses incurred. Accounts receivable include
amounts currently billable per cost-plus contracts that are not billed until the
following period. Fixed-price contracts represent approximately 5%, 8% and 14%
of revenues in 1995, 1996 and 1997, respectively. Revenue on fixed-price
contracts is recognized using the percentage-of-completion method of accounting.
Methods used to measure percentage of completion consist of labor hours or costs
incurred compared to total estimated labor hours or costs or other appropriate
bases of measurement. Revisions in revenue and cost projections are recorded in
the period in which the facts requiring the revision become known. When
estimates of projected revenues and costs indicate a loss, the total estimated
loss is accrued. Contract performance incentives are included in income when
earned. Potential additional revenues on projects from claims and unapproved
change orders are not recognized until amounts may be reliably estimated and
realization is virtually certain. The asset "Costs and estimated profits in
excess of
F-24 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
billings on uncompleted contracts" represents revenues recognized in excess of
amounts billed. The liability "Billings in excess of costs and estimated
profits on uncompleted contracts" represents amounts billed in excess of
revenues recognized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include certificates of deposit with maturities
of three months or less.
INVESTMENTS
The Company has a one-third ownership interest in PEI Investments, a Texas
joint venture. The Company uses the equity method of accounting for this
investment. In addition, the Company accounts for its 50% interest in Petrocon
Arabia Limited (PAL) by the equity method. PAL, an engineering company located
in Saudi Arabia, provides general engineering services for oil field, pipeline,
gas plants and offshore facilities as well as refinery and petrochemical plants.
Results of operations for PAL are translated at the average exchange rate for
the year.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of income.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Accordingly, in the event that facts and
circumstances indicate that property and equipment may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flow associated with the asset is
compared to the asset's carrying amount to determine if a write-down to fair
value is necessary.
During 1997, the Company wrote off approximately $241,000 of leasehold
improvements made to a leased facility which the Company vacated prior to the
expiration of the lease term. Additionally, the Company has, during 1997,
written down to fair value certain property which the Company elected to hold
for sale. The amount of the property write-down was approximately $122,000, and
the net realizable value of the property, based on an independent appraisal, was
$275,000 at December 31, 1997. These write-downs have been included in the
accompanying consolidated statement of income for the year ended December 31,
1997.
INCOME TAX
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this
method, deferred income taxes are recorded based upon the differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the underlying
assets or liabilities are recovered or settled.
STOCK OPTIONS
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," and, as permitted, has elected to calculate compensation expense
in accordance with Accounting Principles Bulletin
F-25 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Opinion No. 25 which calculates compensation expense as the difference between
the employee's exercise price and the current price of the underlying stock. See
Note 10 for the financial statement effects from the adoption of this
pronouncement.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. The Company does not hold or issue financial
instruments for trading purposes, nor does it hold interest rate, leveraged or
other types of derivative financial instruments. The carrying amounts of the
Company's financial instruments approximate their fair values.
INTANGIBLE ASSETS AND AMORTIZATION
Goodwill represents the excess of cost over the fair value of net tangible
assets of businesses acquired. Goodwill is being amortized on a straight-line
basis over an expected useful life of 40 years. Other intangible assets,
included in other assets, are amortized over the period expected to be benefited
(five to seven years). Amortization expense for goodwill and other intangible
assets was $1,020, $53,651 and $336,375 for 1995, 1996 and 1997, respectively.
Accumulated amortization of goodwill at December 31, 1996 and 1997, was $55,606
and $391,981, respectively. See Note 12 for amortization of cost over equity in
net assets included in the equity in earnings of PAL.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles, particularly in the use of the
percentage-of-completion method of accounting, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. MAJOR CUSTOMERS AND CREDIT RISK:
A significant portion of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and adverse
governmental activities. Most of the Company's foreign sales are to large
international companies or are secured by letters of credit or similar
arrangements. The Company does not believe itself to be dependent to any
material degree on any single customer.
F-26 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (dollars in thousands):
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1996 1997
------------- --------- ---------
Land................................. $ 535 $ 500
Buildings............................ 39 2,627 2,250
Transportation equipment............. 5 283 289
Machinery and equipment.............. 5-10 885 1,674
Computer equipment and software...... 3-5 3,607 5,278
Leasehold improvements............... 5-10 661 591
Furniture and fixtures............... 10 1,261 922
--------- ---------
9,859 11,504
Less -- Accumulated depreciation..... (3,473) (4,921)
--------- ---------
Property and equipment, net..... $ 6,386 $ 6,583
========= =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
The components of trade receivables are as follows:
DECEMBER 31,
------------------------------
1996 1997
-------------- --------------
Amounts billable at December 31,
billed January of the following
year............................... $ 2,566,000 $ 3,592,762
Amounts billed at December 31........ 7,982,368 11,722,706
Retainage............................ 262,376 264,027
Allowance for uncollectible
accounts........................... (112,893) (181,564)
-------------- --------------
$ 10,697,851 $ 15,397,931
============== ==============
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Balance at beginning of year......... $ 124 $ 137 $ 113
Balance acquired at purchase of
subsidiary......................... -- 66 --
Additions to costs and expenses...... 126 87 120
Deductions for uncollectible
receivables written off and
recoveries......................... (113) (177) (51)
--------- --------- ---------
$ 137 $ 113 $ 182
========= ========= =========
F-27 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The status of fixed-price contracts in progress is as follows (in
thousands):
DECEMBER 31,
--------------------
1996 1997
--------- ---------
Costs incurred on contracts in
progress........................... $ 2,608 $ 7,198
Estimated earnings, net of losses.... 801 1,933
--------- ---------
3,409 9,131
Less -- Billings to date............. (2,945) (7,749)
--------- ---------
$ 464 $ 1,382
========= =========
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 464 $ 1,881
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... -- (499)
--------- ---------
$ 464 $ 1,382
========= =========
5. LINE OF CREDIT AND DEBT:
The Company has a line of credit with a credit limit of $13,000,000, of
which $5,085,908 and $11,641,357 was outstanding at December 31, 1996 and 1997,
respectively. The line of credit is secured by an interest in all of the
Company's accounts receivable and expires on August 8, 1999. Advances on the
credit line accrue interest at a rate equal to one-half of 1% plus the prime
rate (9.0% at December 31, 1997), and the commitment fee on the unused line of
credit is 0.25%. Interest is payable monthly. The line of credit contains
covenants pertaining to the maintenance of certain ratios, including fixed
charge coverage, specified levels of certain other items, including tangible net
worth and EBITDA, and various other covenants as specified in the loan
agreement, as amended. In March 1998, the credit limit on the line of credit was
increased to $14,000,000.
In August 1996, the Company refinanced its long-term debt. The refinancing
paid off all long-term debt and established two term loans and a new line of
credit. Debt financing costs of approximately $145,000 were incurred in
conjunction with the refinancing. These costs are being amortized over three
years, the life of the debt agreement.
Debt consists of the following:
DECEMBER 31,
------------------------------
1996 1997
-------------- --------------
Heller Financial, Inc. --
Term Loan A, interest at prime
plus 0.75% (9.25% at December
31, 1997) due in monthly
installments, maturing through
1999.......................... $ 2,151,933 $ 2,610,000
Term Loan B, interest at prime
plus 1.25% (9.75% at December
31, 1997) due in quarterly
installments, maturing through
1999.......................... 3,083,333 1,793,357
Merrill Lynch Business Financial
Services, Inc...................... 834,570 --
RPM Investments, Inc., interest at
10% due in three installments,
maturing through 1998.............. 400,000 200,000
Other................................ 59,260 52,863
-------------- --------------
6,529,096 4,656,220
Less -- Current maturities...... (2,772,604) (1,976,174)
-------------- --------------
$ 3,756,492 $ 2,680,046
============== ==============
F-28 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Substantially all debt is collateralized by security interests in accounts
receivable, property and equipment.
Maturities of long-term debt are as follows:
Year ending December 31 --
1998............................ $ 1,976,174
1999............................ 2,680,046
------------
$ 4,656,220
============
6. LEASES:
The Company leases office space under noncancelable operating lease
agreements. Minimum payments on the multiyear leases over the remaining terms of
the leases are as follows:
Year ending December 31 --
1998............................ $ 1,280,992
1999............................ 967,812
2000............................ 505,815
2001............................ 225,757
2002............................ 5,700
------------
$ 2,986,076
============
Rent expense for operating leases was $870,735, $1,036,776 and $1,373,555
for the years ended December 31, 1995, 1996 and 1997, respectively.
7. INCOME TAXES:
Federal and state income taxes are as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ------------ ------------
Federal --
Current......................... $ 483,884 $ 743,168 $ 1,476,332
Deferred........................ (623,183) 123,677 (134,352)
State --
Current......................... 206,384 166,399 266,477
Deferred........................ (66,238) 17,609 (34,412)
---------- ------------ ------------
$ 847 $ 1,050,853 $ 1,574,045
========== ============ ============
The provision for income tax does not include foreign income taxes of
$458,914, $155,330 and $781,006 for the years ended December 31, 1995, 1996 and
1997, respectively. These foreign income taxes are attributable to the Company's
interest in PAL (see Note 12). The earnings of PAL have been reflected net of
income taxes in equity in earnings of PAL in the accompanying statements of
income.
F-29 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34% to income from
continuing operations before income taxes as follows:
DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
Provision at the statutory rate...... $ 615,062 $ 855,389 $ 1,471,811
Increase (decrease) resulting from --
Goodwill amortization and
other......................... (44,012) 71,670 338,210
Increase (decrease) in valuation
allowance..................... 101,049 (28,794) (10,689)
Net cost (benefit) of foreign
tax credit from unconsolidated
foreign subsidiary............ (143,336) 25,156 (366,749)
State income tax, net of benefit
for federal deduction......... 69,975 127,432 141,462
------------ ------------ ------------
$ 598,738 $ 1,050,853 $ 1,574,045
============ ============ ============
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following:
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
Net current deferred income tax
assets (liabilities) --
Accrued expenses................ $ 651,953 $ 737,504
Allowance for doubtful accounts
receivable.................... 15,486 69,686
Deferred income................. -- (263,817)
------------ ------------
$ 667,439 $ 543,373
============ ============
Net noncurrent deferred income tax
assets (liabilities) --
Depreciation and amortization... $ (432,275) $ (440,061)
Federal and state net operating
loss carryforward............. 221,378 215,480
Valuation allowance............. (213,419) (202,730)
------------ ------------
$ (424,316) $ (427,311)
============ ============
At December 31, 1997, the Company had state of California, state of Texas
and federal net operating loss carryforwards of $317,050, $3,108,557 and
$133,685, respectively, which will expire between 1998 and 2012. Most of the
federal and all of the state net operating loss carryforwards are expected to
expire unused. The valuation allowance is due to expected expiration of net
operating loss carryforwards. During 1997, the deferred tax asset and valuation
allowance were reduced by $10,689 due to the expiration of net operating losses
that were not expected to be utilized.
8. STOCKHOLDERS' EQUITY:
The Company has a common stock redemption agreement whereby, upon a
stockholder's employment termination, divorce or desire to sell, the Company has
right of first refusal to purchase the stock held by such stockholder. Upon the
death or disability of a stockholder, the Company is obligated to purchase the
stock held by such stockholder subject to certain limits as set forth by the
Company's amended and restated stockholders' agreement. The purchase price per
share is at fair market value, as determined by the Company's board of
directors, in its good faith, and as reasonably acceptable to the stockholder.
F-30 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1996, the Company issued 65,000 shares of common stock valued at $4.44
per share in connection with the acquisition of TE&C (see Note 15) and awarded a
stock bonus to management of 23,039 shares valued at $4.44 per share.
In 1997, the Company issued 536,943 shares of common stock valued at $7.82
per share in connection with the acquisition of AEI (see Note 15).
9. REDEEMABLE PREFERRED STOCK:
The Company has authorized 3,000,000 shares of $.3333 par value preferred
stock, which may be divided into one or more series as determined by the board
of directors. The board is authorized to fix and determine the relative rights
and preferences of each series as to dividend rate, redemption, liquidation
preferences, sinking fund provision, convertibility and voting rights. As
described below, the board has established one series of redeemable preferred
stock consisting of 675,168 shares.
The Company's Series A convertible preferred stock (Series A) was issued
for the purpose of acquiring PAL Series A is convertible into common shares at a
specified conversion ratio based upon a conversion price of $3.33 per share, and
the stock has a liquidation preference based upon a stated value of $4.44 per
share plus the greater of a valuation increment of 12% per annum compounded from
August 31, 1992, or the increment that would have occurred had the shares been
converted to common shares. The Series A shares have full voting rights
determined by the specified conversion ratio. Stockholders may demand redemption
of up to one-sixth of their shares on September 30, 1996, and an additional
one-sixth every six months thereafter until March 31, 1999. Such redemption
rights are cumulative for any amounts not previously redeemed. The redemption
price is equal to the stated value of $4.44 per share plus a redemption premium
computed as a 12% annualized compound rate of return on the stated value from
August 31, 1992, through the redemption date.
During such time as any shares of Series A are outstanding, the Company may
not declare or pay any dividend on or otherwise acquire or retire for value any
shares of common stock, except as required under the stock redemption agreement
described above. As of December 31, 1997, the Company has charged accretion
toward the redemption value in the aggregate amount of $1,774,785 to retained
earnings and increased the redeemable preferred stock by the same amount.
In August 1996, the Company redeemed 463,592 shares of its Series A at
$4.44 per share plus 12% per annum as provided in the stock agreement. In August
1997, the remaining 154,531 of the Series A shares were redeemed by the Company
in exchange for (a) cash of $939,463, (b) the issuance of 106,306 shares of
common stock and (c) the issuance of options to purchase 135,998 shares of
common stock of the Company for a price of $4.44 per share. At December 31,
1997, there are no shares of Series A outstanding.
10. EMPLOYEE BENEFIT PLANS:
Employees of the Company may participate in a 401(k) savings plan, whereby
the employees may elect to make contributions pursuant to a salary reduction
agreement upon meeting age and length-of-service requirements. The plan also
provides for discretionary contributions by the Company, as determined by the
board of directors. Under the plan, contributions to the 401(k) plan will be
made in the name of each participating employee in direct proportion to the
employee's 401(k) contribution. Contributions of $266,000 and $220,000 are
included in accrued expenses for the years ended December 31, 1996 and 1997,
respectively. No contributions were made related to the year ended December 31,
1995.
The Company and its employees contribute to a health plan that is
self-insured by the Company up to $60,000 per claim and approximately $2,300,000
in the aggregate.
F-31 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a nonqualified stock option plan that provides for the
issuance of options up to 1,200,000 shares of the Company's common stock. The
exercise price per share at the date of grant is equal to the fair market value
of the Company's common stock; therefore, no compensation expense is recognized.
Vesting of the options is generally as follows: one-third after one year,
two-thirds after two years and all after three years. Other vesting schedules
can be followed. Some of the options granted during 1996 and 1997 vest 10% at
grant date, 10% at January 1 of the year following grant and 10% annually
thereafter until fully vested. Another option granted during 1997 vests 16.67%
at January 1, 1998, and is fully vested in six years. Options are canceled upon
termination of employment and lapse 10 years after grant. A summary of stock
option activity is as follows:
EXERCISE
PRICE PER
SHARES SHARE
--------- ---------
Outstanding, January 1, 1995......... 94,750 $4.44
Granted.............................. 4,890 4.44
Canceled............................. (800) 4.44
---------
Outstanding, December 31, 1995....... 98,840 4.44
Granted.............................. 474,865 4.44
Granted.............................. 397,700 6.50
Canceled............................. (4,150) 4.44
---------
Outstanding, December 31, 1996
(397,700 options at $6.50 and
569,555 options at $4.44).......... 967,255
Granted.............................. 1,000 4.44
Granted.............................. 34,000 6.50
Canceled............................. (8,475) 4.44
---------
Outstanding, December 31, 1997
(431,700 options at $6.50 and
562,080 options at $4.44).......... 993,780
=========
Exercisable, December 31, 1997
(60,770 options at $6.50 and
212,843 options at $4.44).......... 273,613
=========
Available for grant, December 31,
1997............................... 70,222
=========
Weighted average remaining life of
options outstanding at December 31,
1997............................... 6.24
=========
The summary above does not include 135,998 options issued in consideration
for redemption of Series A preferred shares (see Note 9).
Stock-based compensation costs, as calculated under SFAS No. 123, would
have reduced pretax income by approximately $357,533 and $47,301 in 1996 and
1997, respectively, if the fair values of the options granted in those years had
been recognized as compensation expense on a straight-line basis over the
vesting period of the grant. For the purposes of SFAS No. 123, the fair market
value of the options granted during 1996 and 1997 used a risk-free interest rate
of 6.8% and 5.8%, respectively, an expected life of 10 years and expected
dividends of 0%. The pro forma effect on net income for 1996 and 1997 may not be
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
11. RELATED-PARTY TRANSACTIONS:
The Company leases office space from PEI Investments, a Texas joint
venture, of which the Company and an officer each own a one-third interest.
Rental paid under these leases was $105,632 for 1995, 1996
F-32 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1997. The lease expires in 2000 and has a present annual rental rate of
approximately $115,000. The Company is contingently liable as a guarantor for a
PEI Investments bank loan. The principal balance was $288,838 and $229,916 at
December 31, 1996 and 1997, respectively.
During 1995, 1996 and 1997, the Company provided services to PAL which
totaled $176,521, $56,216 and $33,083, respectively, in revenue. A receivable of
$1,381 and $3,158 for these services was outstanding at December 31, 1996 and
1997, respectively.
The Company had a note payable to RPM Investments, Inc., a partnership
owned by members of Company management, in the amount of $400,000 and $200,000
at December 31, 1996 and 1997, respectively.
12. PETROCON ARABIA LIMITED:
The Company accounts for its 50% investment in PAL under the equity method
of accounting. Financial statement information of PAL as of and for the years
ended December 31, 1995, 1996 and 1997, is as follows:
1995 1996 1997
------------ ------------ -------------
Revenues............................. $ 9,186,507 $ 8,142,431 $ 16,546,274
Net income........................... 1,235,902 305,566 2,234,502
Total assets......................... 8,448,268 5,914,215 8,309,725
Stockholders' equity................. 6,036,424 4,837,220 5,570,397
The difference between the carrying amount of the investment and the
underlying equity in net assets at acquisition date consisted of a noncompete
agreement in the amount of $1,000,000 and goodwill of $669,023, which are being
amortized over 15 years and 40 years, respectively.
The Company's equity in PAL and its earnings from PAL as of December 31,
1995, 1996 and 1997, and for the years then ended are as follows:
1995 1996 1997
------------ ------------ ------------
Company's equity in PAL.............. $ 3,265,827 $ 2,418,610 $ 2,785,861
Unamortized excess of cost over
equity in underlying net assets
acquired........................... 1,242,998 1,137,354 1,031,715
------------ ------------ ------------
Company's investment in
PAL..................... $ 4,508,825 $ 3,555,964 $ 3,817,576
============ ============ ============
Company's equity in net income of
PAL................................ $ 617,951 $ 152,783 $ 1,117,251
Amortization of the excess of cost
over equity in underlying net
assets acquired.................... (110,747) (105,644) (105,640)
------------ ------------ ------------
Company's equity in
earnings of PAL......... $ 507,204 $ 47,139 $ 1,011,611
============ ============ ============
The Company has guaranteed borrowings of PAL up to the amount of
$1,133,333.
F-33 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. DISCONTINUED OPERATIONS:
On October 19, 1995, the board of directors approved a resolution to
discontinue all operations of Petrocon Plant Services, Inc. (PPS), PCR and
Petrocon Instrument and Electrical, Inc. (PIE), except for the PCR and PPS
inspection operations. The related financial results are reported as
discontinued operations. On February 8, 1996, the Company sold the discontinued
operations of PIE for $303,083. Combined financial statement information of the
discontinued operations through October 19, 1995, is as follows:
Revenues............................. $ 13,669,901
Operating costs...................... (14,858,327)
Interest expense..................... (38,390)
Income tax benefit................... 417,117
--------------
Net loss........................ $ (809,699)
==============
For the period from October 19, 1995, through December 31, 1995, the
discontinued operations had a net loss of $286,705.
14. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses in excess of insurance recoveries.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with its executive officers, the
terms of which expire at various times through October 2001. Such agreements
provide for minimum salary levels, adjusted annually for co
st-of-living changes,
as well as for incentive bonuses that are payable if specified management goals
are attained. The aggregate commitment for future salaries at December 31, 1997,
excluding bonuses, was approximately $4,400,000.
15. ACQUISITIONS:
Effective July 1, 1996, the Company acquired all outstanding shares of TE&C
in exchange for 65,000 shares of Company stock valued at $4.44 per share.
Additional consideration given for TE&C included assumption of outstanding
liabilities by the Company. The combination was accounted for using the purchase
method. The total purchase price of approximately $1,206,000 resulted in
$689,000 of goodwill which is being amortized over 40 years using the
straight-line method. The Company also signed an employment agreement with
TE&C's sole stockholder that includes the right to additional shares of the
Company's common stock based on continued employment with the Company. For the
years ended December 31, 1996 and 1997, $18,315 and $24,420, respectively, of
compensation expense was recognized by the Company in relation to 11,000
additional shares to be issued under this agreement. TE&C's sole stockholder
also received commissions based on the gross billings of TE&C through December
31, 1997, and these amounts were accounted for as compensation expense in the
period earned.
Effective October 17, 1996, the Company acquired all outstanding shares of
RPM for approximately $1,859,000 in cash and stock warrants for 525,386 shares
of the Company's stock at $6.50 per share. The
F-34 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PETROCON ENGINEERING, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
combination was accounted for using the purchase method and resulted in
approximately $1,843,556 of goodwill that is being amortized over 40 years using
the straight-line method. The warrants have an exercise price of $6.50 and an
exercise period from October 17, 1996, through October 17, 2003. RPM's
stockholders will receive additional compensation based on the earnings of RPM
through December 31, 2001. The additional compensation will be accounted for as
additional goodwill to be amortized over the remaining goodwill amortization
period when the required earnings levels are achieved. The Company also signed
three- and five-year employment agreements with two of RPM's stockholders. As of
December 31, 1997, approximately $955,781 of additional consideration had been
earned and accounted for as additional goodwill.
Effective February 1, 1997, a wholly owned subsidiary of the Company merged
with AEI in exchange for cash of $4,500,000 and 536,943 shares of Company stock
valued at $7.82 per share. The combination was accounted for using the purchase
method, and the total purchase price of $8,700,000 resulted in approximately
$6,266,000 of goodwill, which is being amortized over 40 years using the
straight-line method. The Company also signed four-year employment agreements
with certain of the former officers of AEI. Pro forma information assuming that
this acquisition had taken place as of January 1, 1997, has not been presented
due to the insignificance of the results of operations of AEI for the one month
ended January 31, 1997.
The results of operations of companies acquired are included in the
accompanying consolidated statements of income from their respective acquisition
dates.
16. EXPORT SALES:
Export sales were approximately $13,100,000, $15,500,000 and $24,100,000
for the years ended December 31, 1995, 1996 and 1997, respectively. Such sales
were in South America, Europe, Africa and the Middle East and the Far East.
17. SUBSEQUENT EVENTS:
In April 1998, the Company and its stockholders entered into a definitive
agreement with OEI providing for the acquisition of the Company by OEI.
Concurrently with the acquisition, the Company will enter into agreements
with PEI Investments to lease land and buildings used in the Company's
operations for a negotiated amount and term.
F-35 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Paulus, Sokolowski and Sartor, Inc.
Warren, New Jersey
We have audited the accompanying balance sheets of Paulus, Sokolowski and
Sartor, Inc. as of December 31, 1997 and 1996 and the related statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 Paulus, Sokolowski and
Sartor, Inc. as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
_______________________________________
SCHONBRAUN SAFRIS MCCANN BEKRITSKY &
CO., L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
Roseland, New Jersey
February 20, 1998
F-36 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
BALANCE SHEETS
1997 1996
-------------- --------------
ASSETS (Note 4)
Current Assets
Cash............................ $ 96,247 $ 102,531
Accounts receivable, net of
allowance for doubtful
accounts of $71,088 in 1997
and $385,564 in 1996 (Note
3)............................ 5,476,147 5,111,172
Work-in-process................. 1,651,556 1,656,559
Costs and estimated earnings in
excess of billings on
uncompleted contracts (Note
3)............................ 1,166,297 712,538
Prepaid expenses................ 159,266 111,527
Current portion of deferred
expense (Note 6).............. 166,667 --
-------------- --------------
Total current assets....... 8,716,180 7,694,327
-------------- --------------
Property and Equipment, net (Notes 2
and 5)............................. 611,235 733,729
-------------- --------------
Other Assets
Cash surrender value of life
insurance..................... 1,698,299 1,446,781
Deferred expense, net of current
portion (Note 6).............. 333,333 221,154
Other receivables............... 103,961 99,228
-------------- --------------
2,135,593 1,767,163
-------------- --------------
$ 11,463,008 $ 10,195,219
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable--bank (Note 4)..... $ 950,000 $ 960,000
Accounts payable................ 1,464,593 921,545
Current portion of long-term
debt (Note 5)................. 82,076 116,181
Accrued payroll and payroll
taxes payable................. 999,365 1,036,176
Other liabilities............... 192,297 60,570
Deferred income taxes (Note
7)............................ 700,900 516,253
Accrued profit-sharing.......... 119,463 118,382
Due to affiliate (Note 10)...... -- 88,000
Billings in excess of costs and
estimated earnings
on uncompleted contracts (Note
3)............................ -- 110,846
-------------- --------------
Total current
liabilities............. 4,508,694 3,927,953
Other Liabilities
Long-term debt, net of current
portion (Note 5).............. 546,522 599,688
-------------- --------------
5,055,216 4,527,641
-------------- --------------
Commitments and Contingencies (Notes
6 and 11)
Shareholders' Equity (Note 5)
Common stock, no par value:
Authorized -- 50,000 shares... 436,691 455,491
Notes receivable -- capital
stock (Note 8)................ (379,926) (403,329)
Retained earnings............... 6,351,027 5,615,416
-------------- --------------
6,407,792 5,667,578
-------------- --------------
$ 11,463,008 $ 10,195,219
============== ==============
The accompanying notes are an integral part of these financial statements.
F-37 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues (Note 10)................... $ 21,675,092 $ 20,514,995 $ 18,706,643
Direct costs......................... 9,730,641 9,395,908 8,974,302
-------------- -------------- --------------
Gross profit......................... 11,944,451 11,119,087 9,732,341
General and administrative expenses
(Note 10).......................... 10,741,059 10,437,536 9,244,652
-------------- -------------- --------------
Income from operations............... 1,203,392 681,551 487,689
Other income (expenses)
Interest expense (Note 10)...... (224,549) (172,630) (212,294)
Interest income (Note 8)........ 16,190 22,741 21,986
Other........................... (74,775) 358 8,445
-------------- -------------- --------------
Income from continuing operations
before income taxes................ 920,258 532,020 305,826
Benefit (provision) for income tax
(Note 7)........................... (184,647) (36,800) 36,144
-------------- -------------- --------------
Income before Extraordinary Item..... 735,611 495,220 341,970
Extraordinary item
Gain on forgiveness of debt (net
of applicable income tax of
$101,205) (Note 6)............ -- -- 1,023,295
-------------- -------------- --------------
Net income........................... $ 735,611 $ 495,220 $ 1,365,265
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
F-38 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
NOTES
COMMON STOCK RECEIVABLE-- TOTAL
--------------------- CAPITAL RETAINED SHAREHOLDERS'
SHARES AMOUNT STOCK EARNINGS EQUITY
------- ---------- --------------- ---------- -------------
Balance, January 1, 1995............. 31,176 $1,023,969 $(420,839) $3,849,931 $ 4,453,061
Payments on notes receivable......... -- -- 10,921 -- 10,921
Net income........................... -- -- -- 1,365,265 1,365,265
Retirement of common stock........... (4,833) (568,478) -- -- (568,478)
------- ---------- --------------- ---------- -------------
Balance, December 31, 1995........... 26,343 455,491 (409,918) 5,215,196 5,260,769
Dividends............................ -- -- -- (95,000) (95,000)
Payments on notes receivable......... -- -- 6,589 -- 6,589
Net income........................... -- -- -- 495,220 495,220
------- ---------- --------------- ---------- -------------
Balance, December 31, 1996........... 26,343 455,491 (403,329) 5,615,416 5,667,578
Cancellation of notes................ (100) (18,800) 18,800 -- --
Payments on notes receivable......... -- -- 4,603 -- 4,603
Net income........................... -- -- -- 735,611 735,611
------- ---------- --------------- ---------- -------------
Balance, December 31, 1997........... 26,243 $ 436,691 $(379,926) $6,351,027 $ 6,407,792
======= ========== =============== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
1997 1996 1995
------------ ---------- --------------
Cash Flows From Operating Activities:
Net income...................... $ 735,611 $ 495,220 $ 1,365,265
------------ ---------- --------------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization............ 162,463 146,518 116,368
Provision for losses on
accounts receivable..... (314,476) 34,953 (115,743)
Deferred income taxes...... 184,647 36,800 65,061
Gain on forgiveness of
debt.................... -- -- (1,124,500)
(Loss) on sale of fixed
assets.................. 74,775 -- (8,445)
Accounts receivable........ (50,499) (44,515) 389,505
Work-in-process............ 5,003 712,795 (164,897)
Costs and estimated
earnings in excess of
billings on uncompleted
jobs.................... (453,759) (712,538) --
Billings in excess of costs
and estimated earnings
on uncompleted
contracts............... (110,846) 110,846 --
Other receivables.......... (4,733) (39,460) (20,492)
Prepaid expenses........... (47,739) (63,098) (24,442)
Deferred expense........... (278,846) (125,000) (96,154)
Cash surrender value of
life insurance.......... (251,518) (38,533) (166,636)
Accounts payable........... 297,981 44,343 334,819
Accrued profit-sharing..... 1,081 (481,618) 200,000
Accrued payroll, payroll
taxes payable and other
liabilities............. 339,983 73,347 (116,088)
------------ ---------- --------------
Total adjustments..... (446,483) (345,160) (731,644)
------------ ---------- --------------
Net cash provided by
operating
activities......... 289,128 150,060 633,621
------------ ---------- --------------
Cash Flows Used In Investing
Activities:
Disposition of property and
equipment..................... 34,679 -- 23,685
Purchase of property and
equipment..................... (149,423) (147,519) (439,355)
------------ ---------- --------------
Net cash used in
investing
activities......... (114,744) (147,519) (415,670)
------------ ---------- --------------
Cash Flows Used In Financing
Activities:
Note payable -- bank............ (10,000) 360,000 (150,000)
Dividends....................... -- (95,000) --
Repayment of long-term debt..... (175,271) (307,299) (188,018)
Proceeds from notes
receivable -- capital stock... 4,603 6,589 10,921
Proceeds from long-term debt.... -- -- 197,659
Retirement of common stock...... -- -- (85,272)
------------ ---------- --------------
Net cash used in
financing
activities......... (180,668) (35,710) (214,710)
------------ ---------- --------------
Net increase (decrease) in cash...... (6,284) (33,169) 3,241
Cash, beginning...................... 102,531 135,700 132,459
------------ ---------- --------------
Cash, ending......................... $ 96,247 $ 102,531 $ 135,700
============ ========== ==============
The accompanying notes are an integral part of these financial statements.
F-40 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
1997 1996 1995
---------- ---------- ----------
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the years ended
for:
Interest................... $ 224,549 $ 165,590 $ 202,715
========== ========== ==========
NON-CASH TRANSACTIONS:
In March 1995, the Company repurchased all of the shares of stock owned by
a retiring shareholder for $568,478 ($85,272 paid in cash and $483,206 paid by a
note payable (Note 5)).
Accounts payable relating to past-due rent in the amount of $1,124,500 was
forgiven in 1995 (Note 6).
The accompanying notes are an integral part of these financial statements.
F-41 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. COMPANY PROFILE
The Company, which is located in Warren, New Jersey, was established in
1962 to provide comprehensive consulting engineering services, including
studies, reports, and design and field inspections, in the areas of structural
engineering, civil engineering, mechanical and electrical engineering (including
HVAC systems), geology, geophysics, foundation design, site selection,
environmental studies, earth and rock structures, soil and foundation, air
quality control, water quality control, noise control, and solid waste disposal.
The Company conducts its business predominantly in New Jersey and New York.
The Company and its shareholders intend to enter into a definitive
agreement with OEI International, Inc. ("OEI") pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of OEI common stock concurrently with the consummation of the initial
public offering (the "Offering") of the common stock of OEI.
b. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are calculated using the straight-line and accelerated methods over the
estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the
life of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Accordingly, in
the event that facts and circumstances indicate that property and equipment may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset is compared to the asset's carrying amount to determine if a
write-down to market value is necessary. Adoption of this standard did not have
a material effect on the financial position or results of operations of the
Company.
c. REVENUE RECOGNITION
The Company provides a majority of its services through cost-plus-markup
contracts. Revenues are recognized to the extent of billable rates times hours
delivered plus materials expense incurred. Fixed priced contracts represent
approximately 24.8 percent of the Company's revenues in 1997 and approximately
19.7 percent of revenues in 1996. Revenue on fixed priced contracts is accrued
through the recognition of projected revenues and costs on a percentage-of-
completion basis. Methods used to measure percentage of completion consist of
labor hours or costs incurred compared to total estimated labor hours or costs
or other appropriate bases of measurement. Revisions in revenue and cost
projections are recorded in the period in which the facts which require the
revision become known. When estimates of projected revenues and costs indicate a
loss, the total estimated loss is accrued. Contract performance incentives are
included in income when earned. Potential additional revenues on projects from
claims and unapproved change orders are not recognized until amounts may be
reliably estimated and realization is virtually certain.
The balance billed but not paid by customers pursuant to retainage
provisions in contracts will be due upon completion of the contracts and
acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, the retention balance will be billed and collected in
the upcoming fiscal year.
F-42 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
d. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. The Company does not hold or issue financial
instruments for trading purposes nor does it hold interest rate, leveraged or
other types of derivative financial instruments. The carrying amounts of the
Company's financial instruments approximate their fair values.
e. INCOME TAXES
The Company elected by unanimous consent of its shareholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay Federal corporate income taxes on its
taxable income. Instead, the shareholders are liable for individual Federal
income taxes on their respective shares of the Company's taxable income. The
Company will terminate its S Corporation status concurrent with the effective
date of the offering.
Deferred income taxes reflect temporary differences between financial
reporting and state income tax reporting of revenues and expenses. The principal
differences arise from the reporting of income and expenses under the accrual
method of accounting for financial statement purposes versus the modified
accrual method for income tax purposes. These deferred taxes are classified in
the balance sheet as current.
f. CONCENTRATION OF CREDIT RISK
Financial instruments that are potentially subject to concentrations of
credit risk are cash and accounts receivable. The Federal Deposit Insurance
Corporation insures each of the Company's bank accounts up to a maximum of
$100,000 in each bank. Uninsured bank balances amounted to $57,168 at December
31, 1997.
At December 31, 1997, one customer accounted for approximately 24% of
accounts receivable. As of the date of this report, approximately $434,000 had
been collected.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
h. RECLASSIFICATION
Certain amounts in the financial statement have been reclassified to
conform to the current year's presentation.
2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31:
1997 1996
-------------- --------------
Furniture and fixtures............... $ 352,617 $ 339,441
Field and laboratory equipment....... 351,996 323,948
Vehicles............................. 390,059 635,192
Leasehold improvements............... 813,858 785,845
-------------- --------------
1,908,530 2,084,426
Less, accumulated depreciation....... (1,297,295) (1,350,697)
-------------- --------------
$ 611,235 $ 733,729
============== ==============
F-43 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense charged to operations was $162,463 and $146,518, in
1997 and 1996, respectively.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Activity in the Company's allowance for doubtful accounts consists of the
following:
DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
Balance at beginning of year......... $ 385,564 $ 350,613 $ 466,356
Additions to costs and expenses...... 148,849 188,404 348,868
Deductions for uncollectible
receivables written-off and
recoveries......................... (463,325) (153,453) (464,611)
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31,
------------------------------
1997 1996
-------------- --------------
Accounts payable, trade.............. $ 1,464,593 $ 921,545
Accrued compensation and benefits.... 1,118,828 1,154,558
Other accrued expenses............... 153,846 21,690
Installation contracts-in-progress are as follows (in thousands):
DECEMBER 31,
------------------------------
1997 1996
-------------- --------------
Costs incurred on
contracts-in-progress.............. $ 8,381,894 $ 4,635,908
Estimated earnings, net of losses.... 2,879,336 1,613,120
-------------- --------------
11,261,230 6,249,028
Less, billings to date............... 10,094,933 5,647,336
-------------- --------------
$ 1,166,297 $ 601,692
============== ==============
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................... $ 1,166,297 $ 712,538
Billings in excess of costs and
estimated earnings on uncompleted
contracts.......................... -- 110,846
-------------- --------------
$ 1,166,297 $ 601,692
============== ==============
4. LINE OF CREDIT
At December 31, 1997 the Company has available a revolving line of credit
of up to $3,000,000 with Summit Bank. The line of credit expires July 31, 1998
and is payable in monthly installments of interest only on the outstanding
balance, at the bank's prime rate. On December 31, 1997 the interest rate was
8.5%. As of the date of this report, borrowings totaled $2,370,000. This
obligation is secured by all of the assets of the Company and is personally
guaranteed by certain shareholders.
F-44 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
1997 1996
---------- ----------
Otokar Von Bradsky, a former
shareholder, note payable in
quarterly installments of interest
only at 7.93% per annum through
January 1, 1999. Thereafter quarterly
self-liquidating payments of $29,501
inclusive of interest at 7.93% per
annum until maturity on January 1,
2004. This note was issued in
connection with the repurchase of
4,833 shares of Company stock for
$568,478............................. $ 483,206 $ 483,206
Installment notes payable
collateralized by certain Company
vehicles having a net book value of
$124,267 at December 31, 1997. As of
December 31, 1997 the notes are
payable in monthly installments
through April, 2000 ranging from $617
to $4,284 inclusive of interest at
rates ranging from 5.9% to 8.75%..... 145,392 213,437
Robert Bloch, note payable in
quarterly installments of $6,457,
plus interest at 9% per annum,
through October 1997................. -- 19,226
---------- ----------
628,598 715,869
Less, current portion................ 82,076 116,181
---------- ----------
$ 546,522 $ 599,688
========== ==========
Principal payments for the next five years are scheduled as follows:
1998................................. $ 82,076
1999................................. 108,575
2000................................. 103,207
2001................................. 94,181
2002................................. 101,874
6. COMMITMENTS AND CONTINGENCIES
a. LITIGATION
During 1995 a suit was filed against the Company and other defendants. With
respect to the Company, the suit alleges design deficiencies. The Company's
responsibility for issues raised in the suit is minimal and this matter is
covered by the Company's professional liability insurance policy. The possible
loss, if any, is not determinable at this time. However, management expects that
this suit will not have a material effect on the Company's financial status.
In addition, the Company is involved in legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
b. INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, worker's compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
c. LEASES
The Company is the lessee under three long-term building leases and various
equipment leases with related entities. The controlling interests of the lessors
are the same as the controlling interests of the Company.
F-45 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On December 31, 1995, the Company entered into new building leases with its
related lessors which reflect current market conditions and expire in 2011 and
2017. In addition to base rents the leases require the Company to pay all
operating costs plus real estate tax increases over base year amounts pertaining
to the buildings. In connection with the previously existing leases, the lessors
forgave rents due in the amount of $1,124,500 in 1995. Furthermore, the lessors
reduced the 1995 total base rent from $2,065,616 to $1,371,532. The Company
predominantly leases the buildings for their offices and subleases certain space
to third parties.
The equipment leases expire in various years through 2001 and require
monthly rent based upon the current prime rate plus six percentage points as
adjusted by Summit Bank.
The following is a summary of rental expense of all operating leases:
1997 1996 1995
------------ ------------ ------------
Rentals to related parties........... $ 1,858,046 $ 1,821,030 $ 1,679,524
Other rentals........................ 99,416 92,380 50,774
------------ ------------ ------------
1,957,462 1,913,410 1,730,298
Less: Sublease rentals............... (448,712) (462,705) (431,179)
------------ ------------ ------------
Total rent expense.... $ 1,508,750 $ 1,450,705 $ 1,299,119
============ ============ ============
The following is a schedule of noncancellable minimum rental payments under
all operating leases in excess of one year as of December 31, 1997:
RENTAL
RENTAL EXPENSE INCOME NET AMOUNT
-------------- ------------ --------------
1998.............................. $ 1,847,278 $ 392,259 $ 1,455,019
1999.............................. 1,808,046 420,701 1,387,345
2000.............................. 1,708,596 425,126 1,283,470
2001.............................. 1,682,191 415,741 1,266,450
2002.............................. 1,660,724 35,101 1,625,623
Thereafter........................ 21,413,383 2,925 21,410,458
-------------- ------------ --------------
$ 30,120,218 $ 1,691,853 $ 28,428,365
============== ============ ==============
In addition to the above, the Company has a month-to-month sublease for
approximately $8,400 per month.
d. EMPLOYMENT ARRANGEMENT
The Company is committed to pay a former employee $125,000 per year for
four years effective March 31, 1995 for a total of $500,000. The employee's
services were terminated on December 31, 1997. During 1997 and 1996, the Company
paid $125,000, with respect to this obligation which as been classified as a
deferred expense on the balance sheet.
e. GUARANTEES
The Company guarantees a $500,000 line of credit for PSF Leasing Company,
an entity related through common ownership. The outstanding balance at December
31, 1997 was $370,564.
7. INCOME TAXES
Income taxes consist of the following:
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- --------- -----------
Current provision.................... $ 7,200 $ -- $ 25,650
Utilization of net operating
loss carryforwards................. (7,200) -- (25,650)
Deferred provision................... 184,647 36,800 (36,144)
F-46 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the state statutory corporate rate of 9 percent to income before income
taxes as follows:
DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- ----------- -----------
Provision at the statutory rate........ $ 83,000 $ 47,900 $ 27,500
Increase resulting from --
Permanent differences, mainly
political
contributions........................ 3,500 7,900 8,200
Adjustments of prior year accruals... 98,147 (19,000) (71,844)
--------- ----------- -----------
(Benefit) provision for income tax .... $ 184,647 $ 36,800 $ (36,144)
========= =========== ===========
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following:
DECEMBER 31,
-----------------------
1997 1996
---------- -----------
Accounts receivable, net of allowance
for doubtful accounts.............. $ 492,900 $ 460,005
Contracts-in-Progress................ 253,600 177,151
Prepaid expenses and other
receivables........................ 66,500 (30,677)
Accounts payable and accrued
expenses........................... (57,600) (17,164)
Net operating loss carryforwards..... (54,500) (73,062)
---------- -----------
Net deferred tax liability........... $ 700,900 $ 516,253
========== ===========
The net deferred tax assets and liabilities are comprised of the following
DECEMBER 31,
----------------------
1997 1996
---------- ----------
Deferred tax assets -- Current....... $ 112,100 $ 120,903
Deferred tax
liabilities -- Current............. 813,000 637,156
---------- ----------
Net deferred income tax
liabilities........................ $ 700,900 $ 516,253
========== ==========
At December 31, 1997, the Company had net operating loss carryforwards
which expire as follows:
1998................................. $ 544,000
2001................................. 61,800
8. NOTES RECEIVABLE -- CAPITAL STOCK
The notes are due from four shareholders in connection with their purchase
of 2,066 shares of common stock effective January 1, 1994. The notes are
collateralized by the issued shares of stock and require annual interest
payments at 5% through December 15, 2002, at which time the entire outstanding
principal balance and any accrued interest is due. One shareholder has elected
to prepay his note through equal bi-monthly payments of principal and interest
until fully satisfied in January 1998. Accrued interest as of December 31, 1997
and 1996 amounted to $58,260 and $73,920, respectively.
9. EMPLOYEE BENEFIT PLANS
The Company sponsors a profit-sharing 401k plan covering substantially all
employees. The plan provides for discretionary contributions by the Company, as
determined by the Board of Directors. Total contributions by the Company under
this plan were approximately $119,463, $118,382 and $600,000 during
F-47 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
PAULUS, SOKOLOWSKI AND SARTOR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997, 1996 and 1995, respectively. Amounts due to this plan were approximately
$119,463, $118,382 and $600,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
10. RELATED PARTY TRANSACTIONS
The Company leases office space from Mountain Boulevard I, Mountain
Boulevard II, and Mountain Boulevard III. Rentals paid under these leases were
$1,626,449 and $1,592,100 for 1997 and 1996, respectively.
The Company leases equipment from PSF Leasing Company. Rentals paid under
these leases were $231,597 and $228,930 for 1997 and 1996, respectively.
During 1997, 1996 and 1995, the Company provided services to Paulus,
Sokolowski & Sartor Engineering, P.C., an affiliate. Included in contract
revenues for the years ending December 31, 1997, 1996 and 1995 was $4,710,308,
$3,977,109 and $1,072,415, respectively. At December 31, 1997, and 1996,
included in accounts receivable was $1,936,169 and $606,994, respectively, for
these services. In addition, $69,000 of management fee income was received
during the year ended December 31, 1997 from this entity, which is included in
revenues.
In December, 1991, a shareholder loaned the Company $200,000 which was
repaid in March 1996. Interest expense for 1995 at 7% per annum amounted to
$14,000.
In April, 1992, a related entity loaned the Company $88,000, which was
repaid in December 1997. Interest expense for years 1997 and 1996 was $25,374
and $7,040, respectively.
During 1997, 1996 and 1995 the wife of a shareholder provided advertising
and promotional services to the Company, in the amounts of $101,082, $58,722 and
$39,898, respectively.
11. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Company and its stockholders entered into a definitive
agreement with OEI providing for the acquisition of the Company by OEI.
Concurrently with the acquisition, the Company will enter into agreements
with the shareholders to lease land and buildings used in the Company's
operations for a negotiated amount and term.
F-48 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gulsby Engineering, Inc.:
We have audited the accompanying consolidated balance sheets of Gulsby
Engineering, Inc. (a Texas corporation), and its subsidiary, Gulsby
International Engineers, Limited, as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 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 consolidated 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 Gulsby
Engineering, Inc., and its subsidiary as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 20, 1998
F-49 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,357,173 $ 603,390
Receivables --
Trade receivables.......... 321,122 278,405
Other receivables.......... 15,761 27,821
Advances to stockholder.... 2,650,585 3,120,571
Costs and estimated profits in
excess of billings on uncompleted
contracts............................ 646,283 4,210,372
Prepaid expenses and other........... 43,367 154,292
------------ ------------
Total current assets....... 5,034,291 8,394,851
PROPERTY AND EQUIPMENT, net.......... 547,375 539,490
DEFERRED TAX ASSET................... 933,686 949,602
OTHER ASSETS......................... 10,221 3,736
------------ ------------
Total assets............... $ 6,525,573 $ 9,887,679
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
LIABILITIES:
Accounts payable................ $ 211,483 $ 501,683
Accrued compensation and
benefits....................... 125,092 13,309
Accrued liabilities............. 29,803 73,218
Accrued legal judgment.......... 3,200,741 3,520,815
Notes payable................... 29,831 66,300
Billings in excess of costs and
estimated profits on
uncompleted contracts.......... 2,733,859 422,588
Income taxes payable............ 502,505 1,763,826
------------ ------------
Total liabilities.......... 6,833,314 6,361,739
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par; 1,000,000
shares authorized, 10,000
shares outstanding............. 10,000 10,000
Retained earnings (deficit)..... (317,741) 3,515,940
------------ ------------
Total stockholders' equity
(deficit).............. (307,741) 3,525,940
------------ ------------
Total liabilities and
stockholders' equity
(deficit).............. $ 6,525,573 $ 9,887,679
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-50 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997
------------ -------------- --------------
<S> <C> <C> <C>
REVENUES............................. $ 3,165,447 $ 20,285,341 $ 18,264,303
DIRECT COSTS......................... 2,324,980 17,451,222 11,768,322
------------ -------------- --------------
Gross profit.................... 840,467 2,834,119 6,495,981
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 633,296 849,868 927,357
------------ -------------- --------------
Income from operations.......... 207,171 1,984,251 5,568,624
OTHER INCOME (EXPENSE):
Interest expense, net........... (299,245) (193,915) (233,066)
Other........................... 33,645 7,733 56,919
------------ -------------- --------------
Total...................... (265,600) (186,182) (176,147)
------------ -------------- --------------
Income (loss) before income
taxes................... (58,429) 1,798,069 5,392,477
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (21,003) 529,127 1,558,796
------------ -------------- --------------
NET INCOME (LOSS).................... $ (37,426) $ 1,268,942 $ 3,833,681
============ ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-51 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TOTAL
COMMON STOCK RETAINED STOCKHOLDERS'
----------------- EARNINGS EQUITY
SHARES AMOUNT (DEFICIT) (DEFICIT)
------ ------- -------------- -------------
BALANCE, December 31, 1994........... 10,000 $10,000 $ (1,549,257) $ (1,539,257)
Net loss........................ -- -- (37,426) (37,426)
------ ------- -------------- -------------
BALANCE, December 31, 1995........... 10,000 10,000 (1,586,683) (1,576,683)
Net income...................... -- -- 1,268,942 1,268,942
------ ------- -------------- -------------
BALANCE, December 31, 1996........... 10,000 10,000 (317,741) (307,741)
Net income...................... -- -- 3,833,681 3,833,681
------ ------- -------------- -------------
BALANCE, December 31, 1997........... 10,000 $10,000 $ 3,515,940 $ 3,525,940
====== ======= ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-52 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ (37,426) $ 1,268,942 $ 3,833,681
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities-
Depreciation and amortization... 97,740 97,959 95,612
Deferred tax asset.............. (64,758) (72,884) (15,916)
Changes in assets and
liabilities-
(Increase) decrease in-
Trade receivables.......... 31,880 (311,725) 42,717
Other receivables.......... (15,271) 13,065 (12,060)
Advances to stockholder.... (889,343) (1,227,303) (469,986)
Costs and estimated profits
in excess of billings on
uncompleted contracts... -- (646,283) (3,564,089)
Prepaid expenses and
other................... (95,581) 56,101 (110,925)
Other assets............... (6,003) (4,425) 5,750
Increase (decrease) in-
Accounts payable........... (503,885) 35,100 290,200
Accrued compensation and
benefits................ (32,029) 85,098 (111,783)
Accrued liabilities........ (4,559) (392) 43,415
Accrued legal judgment..... 264,525 290,975 320,074
Billings in excess of costs
and estimated profits on
uncompleted contracts... 5,057,079 (2,547,484) (2,311,271)
Income taxes payable....... 60,168 612,116 1,261,321
------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... 3,862,537 (2,351,140) (703,260)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment....................... (63,720) (28,138) (86,992)
------------ ------------ ------------
Net cash used in investing
activities.................... (63,720) (28,138) (86,992)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes
payable......................... 338,116 53,655 112,367
Principal payments on notes
payable......................... (277,627) (176,510) (75,898)
------------ ------------ ------------
Net cash provided by (used in)
financing activities.......... 60,489 (122,855) 36,469
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 3,859,306 (2,502,133) (753,783)
CASH AND CASH EQUIVALENTS, beginning
of year............................ -- 3,859,306 1,357,173
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 3,859,306 $ 1,357,173 $ 603,390
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for-
Interest........................ $ 72,465 $ 60,192 $ 2,434
Income taxes.................... 2,180 6,434 321,412
The accompanying notes are an integral part of these consolidated financial
statements.
F-53 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY
Gulsby Engineering, Inc. (the Company), a Texas corporation, and its
subsidiary, Gulsby International Engineers, Limited (a U.S. Virgin Islands
Foreign Sales Corporation), are engineering, systems and construction management
contractors, servicing industrial customers with primary focus in the process
industries--oil, chemical and petrochemical products. The Company has operated
primarily in the domestic markets of Texas, Louisiana, Oklahoma and New Mexico.
The Company focus in 1996 and 1997 has changed to the foreign market (98% and
94% of revenues for 1996 and 1997, respectively).
The Company and its stockholders intend to enter into a definitive
agreement with OEI International, Inc. (OEI), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
OEI common stock concurrent with the consummation of the initial public offering
(the Offering) of the common stock of OEI.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany transactions and balances have
been eliminated.
REVENUE RECOGNITION
The Company provides a majority of its services through fixed-price
contracts. Revenue on fixed-price contracts is recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. Revisions in revenue and cost
projections are recorded in the period in which the facts requiring the revision
become known. When estimates of projected revenues and costs indicate a loss,
the total estimated loss is accrued. Potential additional revenues on projects
from claims and unapproved change orders are not recognized until amounts may be
reliably estimated and realization is virtually certain. The asset "Costs and
estimated profits in excess of billings on uncompleted contracts" represents
revenues recognized in excess of amounts billed. The liability "Billings in
excess of costs and estimated profits on uncompleted contracts" represents
amounts billed in excess of revenues recognized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include certificates of deposit with maturities
of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of income.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Accordingly, in the event that facts and
circumstances indicate that property and equipment may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if
F-54 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a write-down to market value is necessary. Adoption of this standard did not
have a material effect on the financial position or results of operations of the
Company.
INCOME TAX
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109. Under this method, deferred income taxes are
recorded based upon the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the underlying assets or liabilities are
recovered or settled.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. The Company does not hold or issue financial
instruments for trading purposes, nor does it hold interest rate, leveraged or
other types of derivative financial instruments. The carrying amounts of the
Company's financial instruments approximate their fair values.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles, particularly in the use of the
percentage-of-completion method of accounting, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED USEFUL --------------------------
LIVES IN YEARS 1996 1997
------------------ ------------ ------------
<S> <C> <C>
Land................................. $ 214,775 $ 214,775
Equipment............................ 5-22 472,383 475,567
Buildings............................ 15-16.5 1,019,987 1,019,987
Leasehold improvements............... 15-16.5 464,650 523,980
Furniture and fixtures............... 5-10 552,452 576,930
------------ ------------
2,724,247 2,811,239
Less- Accumulated depreciation....... 2,176,872 2,271,749
------------ ------------
Property and equipment, net..... $ 547,375 $ 539,490
============ ============
</TABLE>
F-55 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTRACTS IN PROGRESS:
The status of contracts in progress is as follows:
DECEMBER 31,
------------------------------
1996 1997
-------------- --------------
Costs incurred on contracts in
progress........................... $ 26,536,894 $ 30,522,573
Estimated earnings, net of losses.... 5,999,206 10,487,443
-------------- --------------
32,536,100 41,010,016
Less -- Billings to date............. 34,623,676 37,222,232
-------------- --------------
$ (2,087,576) $ 3,787,784
============== ==============
Costs and estimated profits in excess
of billings on uncompleted
contracts.......................... $ 646,283 $ 4,210,372
Billings in excess of costs and
estimated profits on uncompleted
contracts.......................... (2,733,859) (422,588)
-------------- --------------
$ (2,087,576) $ 3,787,784
============== ==============
4. DEBT:
Current debt consists of the following:
DECEMBER 31,
--------------------
1996 1997
--------- ---------
Note payable to a bank, interest at
7.69%, maturing May 9, 1997........ $ 29,831 $ --
Note payable to a finance company,
interest at 7.16%, maturing May 9,
1998............................... -- 66,300
--------- ---------
$ 29,831 $ 66,300
========= =========
The Company paid interest of $5,192 and $2,160 related to debt for the
years ended December 31, 1996 and 1997, respectively.
5. INCOME TAXES:
Provisions (benefits) for federal and state income taxes are as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ------------
Federal--
Current......................... $ 38,429 $ 539,594 $ 1,703,672
Deferred........................ (56,876) (74,872) (144,876)
State--
Current......................... 5,326 62,415 (128,959)
Deferred........................ (7,882) 1,990 128,959
---------- ---------- ------------
$ (21,003) $ 529,127 $ 1,558,796
========== ========== ============
F-56 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34% to income (loss)
before income taxes as follows:
DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ------------ ------------
Provision (benefit) at the statutory
rate............................... $ (19,866) $ 611,343 $ 1,833,442
Increase (decrease) resulting from--
Permanent differences........... 550 2,092 19,244
State income tax, net of federal
benefit....................... (1,687) 42,508 --
Foreign Sales Corporation
benefit....................... -- (126,816) (293,890)
---------- ------------ ------------
$ (21,003) $ 529,127 $ 1,558,796
========== ============ ============
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing differed
tax assets and liabilities, result principally from the following:
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
Accrued legal contingency not
deducted for tax purposes.......... $ 1,232,285 $ 1,197,077
State taxes.......................... (43,846) --
Bases differences on property and
equipment and capital lease
accounting......................... 3,358 (4,830)
Other accrued expenses not deducted
for tax purposes................... (258,111) (242,645)
------------ ------------
Net deferred tax asset.......... $ 933,686 $ 949,602
============ ============
The net deferred tax assets and liabilities are comprised of the following:
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
Deferred tax assets--
Current......................... $ -- $ --
Long-term....................... 1,176,332 1,192,248
------------ ------------
Total...................... 1,176,332 1,192,248
------------ ------------
Deferred tax liabilities--
Current......................... -- --
Long-term....................... 242,646 242,646
------------ ------------
Total...................... 242,646 242,646
------------ ------------
Net deferred income tax
asset................... $ 933,686 $ 949,602
============ ============
6. RELATED-PARTY TRANSACTIONS:
The Company has made noninterest-bearing advances to its stockholder over a
period of several years. The amounts outstanding at December 31, 1996 and 1997,
were $2,650,585 and $3,120,571, respectively. The stockholder has represented
that he has the intent and the ability to repay such advances by December 31,
1998.During 1995, 1996 and 1997, the Company paid interest of $24,108, $55,000
and $274 for loans to the Company which are reflected as an offset to the
stockholder advances. The Company makes various other noninterest-bearing loans
to its employees payable on demand.
The Company uses a paint facility on the premises which is owned by its
stockholder. The amount of rent not charged to the Company for the use of this
facility is not significant.
F-57 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
GULSBY ENGINEERING, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SIGNIFICANT CUSTOMERS AND VENDORS:
Significant customers and vendors are those that account for greater than
10% of the Company's revenues and expenses, respectively. During the year ended
December 31, 1995, one customer accounted for 88% of the Company's revenues. No
receivables were outstanding for this customer at December 31, 1995. For the
year ended December 31, 1996, two customers accounted for 71% and 27% of the
Company's revenues. Receivables outstanding at December 31, 1996, for these
customers were less than 10%. For the year ended December 31, 1997, three
customers accounted for 65%, 16% and 10% of the Company's revenues. Receivables
outstanding from the largest customer were 64% of the Company's trade
receivables at December 31, 1997. No receivables were outstanding for the other
two significant customers.
During the years ended December 31, 1995 and 1996, one vendor accounted for
27% and 48%, respectively, of the Company's cost of services. During the year
ended December 31, 1997, no one vendor accounted for greater than 10% of the
Company's cost of services.
8. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company and its stockholder were party to a suit in 1989 as defendants
against a customer. The suit sought reimbursement from the Company of amounts
paid by the customer in settlement with another general contractor in a patent
infringement suit. In 1991, a summary judgment against the Company for
approximately $1.6 million plus interest was rendered. The judgment accrues
simple interest at 10% from September 29, 1989, through the date of judgment
(October 21, 1991) and thereafter at the rate of 10% per annum compounded
annually until paid. The accompanying statements of income include accruals of
interest at the stated rate. No payments on the judgment have been made at this
time.
The Company is involved in various other legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business, auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
OTHER COMMITMENTS
The Company contributed $40,152 into a trust during 1996 on behalf of its
employees for a potential profit sharing plan. A plan has not been adopted as of
December 31, 1997.
9. EXPORT SALES:
Export sales were approximately $2,800,000, $19,900,000 and $17,900,000,
for the years ended December 31, 1995, 1996 and 1997, respectively. Such sales
were in South America, Europe, Africa and the Middle East.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Company and its stockholder entered into a definitive
agreement with OEI, providing for the acquisition of the Company by OEI. The
definitive agreement provides that the advances to stockholder (Note 6) and
accrued legal judgement (Note 8) will be paid from the proceeds of the sale of
the stockholder's shares under the agreement.
Concurrently with the acquisition, the Company will enter into agreements
with the stockholder to lease facilities used in the Company's operations for a
negotiated amount and term.
F-58 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To W-Industries, Inc.:
We have audited the accompanying balance sheets of W-Industries, Inc. (a
Texas corporation), as of December 31, 1996 and 1997, and the related statements
of income, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 W-Industries, Inc., as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 20, 1998
F-59 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
W-INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 295,323 $ 1,978,972
Trade receivables............... 1,213,683 3,393,416
Note receivable................. 32,052 --
Costs and estimated profits in
excess of billings on
uncompleted contracts.......... 1,191,764 1,477,201
Inventory....................... 80,253 95,237
Prepaid expenses and other...... 3,789 9,145
------------ ------------
Total current
assets............ 2,816,864 6,953,971
PROPERTY AND EQUIPMENT, net.......... 1,045,395 1,051,582
------------ ------------
Total assets.......... $ 3,862,259 $ 8,005,553
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 437,930 $ 885,502
Accrued compensation and
benefits....................... 157,283 360,848
Accrued liabilities............. 55,032 26,850
Line of credit.................. 200,000 --
Current maturities of long-term
debt........................... 62,565 68,467
Payable to stockholder.......... 1,690,187 5,438,546
------------ ------------
Total current
liabilities....... 2,602,997 6,780,213
LONG-TERM LIABILITIES:
Long-term debt, net of current
maturities..................... 641,593 573,127
------------ ------------
Total liabilities..... 3,244,590 7,353,340
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value,
100,000 shares authorized;
12,000 shares outstanding..... 12,000 12,000
Additional paid-in capital...... 8,000 8,000
Retained earnings............... 597,669 632,213
------------ ------------
Total stockholders'
equity............ 617,669 652,213
------------ ------------
Total liabilities and
stockholders'
equity............ $ 3,862,259 $ 8,005,553
============ ============
The accompanying notes are an integral part of these financial statements.
F-60 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
W-INDUSTRIES, INC.
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
REVENUES...................... $ 13,743,205 $ 14,615,652 $ 20,603,651
DIRECT COSTS.................. 8,563,129 10,382,226 13,699,944
-------------- -------------- --------------
Gross profit............. 5,180,076 4,233,426 6,903,707
GENERAL AND ADMINISTRATIVE
EXPENSES.................... 1,981,656 2,513,157 3,003,226
-------------- -------------- --------------
Income from operations... 3,198,420 1,720,269 3,900,481
-------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest expense, net.... (204,546) (189,381) (246,757)
Other.................... 89,658 31,106 154,185
-------------- -------------- --------------
Total............... (114,888) (158,275) (92,572)
-------------- -------------- --------------
NET INCOME.................... $ 3,083,532 $ 1,561,994 $ 3,807,909
============== ============== ============
The accompanying notes are an integral part of these financial statements.
F-61 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
W-INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........... 12,000 $ 12,000 $8,000 $ 181,106 $ 201,106
Net income...................... -- -- -- 3,083,532 3,083,532
Dividends declared.............. -- -- -- (1,279,458) (1,279,458)
--------- --------- ---------- ----------- -------------
BALANCE, December 31, 1995........... 12,000 12,000 8,000 1,985,180 2,005,180
Net income...................... -- -- -- 1,561,994 1,561,994
Dividends declared.............. -- -- -- (2,949,505) (2,949,505)
--------- --------- ---------- ----------- -------------
BALANCE, December 31, 1996........... 12,000 12,000 8,000 597,669 617,669
Net income...................... -- -- -- 3,807,909 3,807,909
Dividends declared.............. -- -- -- (3,773,365) (3,773,365)
--------- --------- ---------- ----------- -------------
BALANCE, December 31, 1997........... 12,000 $ 12,000 $8,000 $ 632,213 $ 652,213
========= ========= ========== =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
W-INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
-------------- ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 3,083,532 $ 1,561,994 $ 3,807,909
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation............... 99,237 35,193 60,440
Gain on sale of
equipment............... -- -- (2,020)
Changes in assets and
liabilities --
(Increase) decrease in
assets --
Trade receivables.......... (304,929) 110,126 (2,179,733)
Note receivable............ (120,901) 88,849 32,052
Costs and estimated profits
in excess of billings on
uncompleted contracts... (2,646,054) 1,797,672 (285,437)
Inventory.................. 24,676 (43,104) (14,984)
Prepaid expenses and
other................... 4,334 (3,123) (5,356)
Increase (decrease) in
liabilities --
Accounts payable........... 437,863 (80,827) 447,572
Accrued compensation and
benefits................ (3,506) 74,608 203,565
Accrued liabilities........ 26,507 2,162 (28,182)
------------ ------------ ------------
Net cash provided by
operating
activities......... 600,759 3,543,550 2,035,826
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment..................... (1,099,207) (24,592) (67,607)
Proceeds from the sale of
equipment..................... -- -- 3,000
------------ ------------ ------------
Net cash used in
investing
activities......... (1,099,207) (24,592) (64,607)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) line
of credit 300,000 (100,000) (200,000)
Proceeds from issuance of note
payable....................... 800,000 -- --
Principal payments on note
payable....................... (33,642) (62,199) (62,564)
Payments on stockholder
payable....................... (815,229) (3,306,220) (25,006)
------------ ------------ ------------
Net cash provided by
(used in) financing
activities......... 251,129 (3,468,419) (287,570)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (247,319) 50,539 1,683,649
CASH AND CASH EQUIVALENTS, beginning
of year............................ 492,103 244,784 295,323
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 244,784 $ 295,323 $ 1,978,972
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for --
Interest................... $ 217,966 $ 217,799 $ 251,388
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-63 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
W-INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY
W-Industries, Inc. (the Company), a Texas corporation, is an engineering,
systems and construction management contractor, servicing industrial customers
with primary focus in the process industries -- oil, chemical and petrochemical.
W-Industries, Inc., primarily operates in Houston, Texas.
The Company and its stockholders intend to enter into a definitive
agreement with OEI International, Inc. (OEI), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
OEI common stock concurrent with the consummation of the initial public offering
(the Offering) of the common stock of OEI.
REVENUE RECOGNITION
The Company generally provides its services under cost-plus contracts.
Revenues are recognized to the extent of billable rates times hours delivered
plus materials expense incurred. The Company reflects the costs of materials and
equipment as revenues which are reimbursable to the Company when it is
responsible for the engineering specification, procurement and management of
such cost components on behalf of the customer. The asset "Costs and estimated
profits in excess of billings on uncompleted contracts" represents revenues
recognized in excess of amounts billed.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include certificates of deposit with maturities
of three months or less.
INVENTORY
Inventories consist of stainless steel tube fittings, valves and
accessories held for use in the course of business and are stated at the lower
of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using an accelerated method of depreciation.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of income.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Accordingly, in the event that facts and
circumstances indicate that property and equipment may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if a write-down to market
value is necessary. Adoption of this standard did not have a material effect on
the financial position or results of operations of the Company.
INCOME TAX
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their shares of
the Company's taxable earnings or losses in their personal tax returns. The
Company will terminate its S Corporation status concurrently with the effective
date of the Offering.
F-64 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
W-INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. The Company does not hold or issue financial
instruments for trading purposes, nor does it hold interest rate, leveraged or
other types of derivative financial instruments. The carrying amounts of the
Company's financial instruments approximate their fair values.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles, particularly in the use of contract
accounting, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
ESTIMATED USEFUL ------------------------
LIVES IN YEARS 1996 1997
---------------- ------------ ----------
Land............................... -- $ 370,464 $ 370,464
Building........................... 39 707,459 707,459
Transportation equipment........... 5 133,145 167,429
Machinery and equipment............ 3 16,994 16,994
Computer and telephone equipment... 3-5 10,547 17,565
Furniture and fixtures............. 3 25,710 35,010
------------ ------------
1,264,319 1,314,921
Less -- Accumulated depreciation... 218,924 263,339
------------ ------------
Property and equipment, net... $ 1,045,395 $ 1,051,582
============ ============
3. CONTRACTS IN PROGRESS:
The status of contracts in progress is as follows:
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
Costs incurred on contracts in
progress............................. $ 2,004,847 $ 2,100,648
Estimated earnings, net of losses.... 1,038,527 1,034,648
------------ ------------
3,043,374 3,135,296
Less -- Billings to date............. 1,851,610 1,658,095
------------ ------------
Costs and estimated profits in excess
of billings on uncompleted
contracts.......................... $ 1,191,764 $ 1,477,201
============ ============
4. DEBT:
LINE OF CREDIT
The Company has a line of credit of $750,000, of which $550,000 and
$750,000 was unused at December 31, 1996 and 1997, respectively. The line of
credit is secured by an interest in all the Company's accounts receivable,
inventory and equipment and expires on April 14, 1998. Advances on the line of
credit accrue interest at a rate equal to prime (8.5% at December 31, 1997).
Interest is payable monthly.
F-65 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
W-INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consisted of the following:
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
Note payable to a bank, interest at
the bank's base rate plus 0.5%
(interest is 10% at December 31,
1997), maturing February 24,
2000............................... $ 704,159 $ 641,594
Less -- Current maturities........... (62,565) (68,467)
------------ ------------
$ 641,594 $ 573,127
============ ============
The long-term debt is collateralized by buildings and real estate property.
Maturities of long-term debt are as follows:
Year ending December 31 --
1998............................ $ 68,467
1999............................ 75,740
2000............................ 497,387
----------
$ 641,594
==========
The Company paid interest of $80,043, $80,610 and $82,369 related to debt
for the years ended December 31, 1995, 1996 and 1997, respectively.
5. RELATED-PARTY TRANSACTIONS:
The Company has followed a policy of paying substantially all of its
earnings to its stockholders. As of December 31, 1995, 1996 and 1997,
$2,046,901, $1,690,187 and $5,438,546, respectively, have not been paid to the
stockholders. Approximately $1,700,000 of this payable at December 31, 1997,
represents taxes on the earnings which is paid by the Company on behalf of its
stockholders. This amount plus $140,000 to the stockholders were paid subsequent
to year-end. Interest is earned annually at a rate of 10% on the unpaid
principal from the date of funding. For the years ended December 31, 1995, 1996
and 1997, the Company paid interest of $137,923, $137,189 and $169,019,
respectively, related to these dividends payable.
6. SIGNIFICANT CUSTOMERS AND VENDORS:
Significant customers and vendors are those that account for greater than
10% of the Company's revenues and expenses, respectively. For the years ended
December 31, 1995, 1996 and 1997, one customer accounted for 17%, 20% and 12%,
respectively, of the Company's revenues. Receivables outstanding from this
customer represented 47%, 23% and 9% of the Company's trade receivables at
December 31, 1995, 1996 and 1997, respectively.
During the year ended December 31, 1995, one vendor accounted for 11% of
the Company's purchases. Also, during the years ended December 31, 1995, 1996
and 1997, one vendor accounted for 17%, 15% and 19%, respectively, of the
Company's purchases.
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.
F-66 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
W-INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business, auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
8. EXPORT SALES:
Export sales were approximately $2,700,000, $2,900,000 and $5,200,000 for
the years ended December 31, 1995, 1996 and 1997, respectively. Such sales were
in South America, Africa and the Middle East and the Far East.
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April the Company and its stockholders entered into a definitive
agreement with OEI providing for the acquisition of the Company by OEI.
Prior to the acquisition, the Company will make a cash distribution of
$5,438,546 prior to the acquisition which represents the Company's payable to
shareholder (See Note 5). Had these transactions been recorded at December 31,
1997, the effect on the accompanying balance sheet would be a decrease in assets
of $5,438,546, and a decrease in liabilities of $5,438,546. This amount will be
funded through the proceeds of the Offering.
F-67 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chemical & Industrial Engineering, Inc.:
We have audited the accompanying balance sheets of Chemical & Industrial
Engineering, Inc. (a Kentucky corporation), as of December 31, 1996 and 1997,
and the related statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 Chemical & Industrial
Engineering, Inc., as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1998
F-68 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
BALANCE SHEETS
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 16,297 $ 1,730,847
Trade receivables............... 3,268,064 1,493,635
Costs and estimated profits in
excess of billings on
uncompleted contracts.......... 75,186 --
Prepaid expenses and other...... 171,368 115,632
Deferred tax asset.............. 169,718 175,710
------------ ------------
Total current assets....... 3,700,633 3,515,824
PROPERTY AND EQUIPMENT, net.......... 1,297,269 1,220,778
------------ ------------
Total assets............... $ 4,997,902 $ 4,736,602
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 1,124,419 $ 140,969
Accrued compensation and
benefits....................... 798,129 1,168,250
Accrued liabilities............. 325,338 75,497
Notes payable................... 172,414 119,941
Billings in excess of costs and
estimated profits on
uncompleted contracts.......... 331,780 364,615
Income taxes payable............ 70,520 253,301
------------ ------------
Total current
liabilities............. 2,822,600 2,122,573
LONG-TERM LIABILITIES:
Deferred tax liability.......... 119,788 146,462
------------ ------------
Total liabilities.......... 2,942,388 2,269,035
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock-
No par, nonvoting, 100,000
shares authorized; 13,913 and
13,373 shares outstanding.... 202,828 176,283
No par, voting, 200,000 shares
authorized; 27,658 and 26,268
shares outstanding........... 419,418 386,384
Retained earnings............... 1,433,268 1,904,900
------------ ------------
Total stockholders'
equity.................. 2,055,514 2,467,567
------------ ------------
Total liabilities and
stockholders' equity.... $ 4,997,902 $ 4,736,602
============ ============
The accompanying notes are an integral part of these financial statements.
F-69 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES............................. $ 12,522,354 $ 17,176,773 $ 15,906,131
DIRECT COSTS......................... 9,165,439 13,300,422 10,968,890
-------------- -------------- --------------
Gross profit............... 3,356,915 3,876,351 4,937,241
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 3,151,834 3,546,955 3,996,613
-------------- -------------- --------------
Income from operations..... 205,081 329,396 940,628
OTHER INCOME (EXPENSE):
Interest income (expense),
net........................... 33,714 (25,826) 36,464
Other........................... (2,761) 3,993 (5,249)
-------------- -------------- --------------
Total...................... 30,953 (21,833) 31,215
-------------- -------------- --------------
Income before income
taxes................... 236,034 307,563 971,843
PROVISION FOR INCOME TAXES........... 121,254 139,640 423,877
-------------- -------------- --------------
NET INCOME........................... $ 114,780 $ 167,923 $ 547,966
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
F-70 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
----------------------------------------- TOTAL
NONVOTING VOTING NONVOTING VOTING RETAINED STOCKHOLDERS'
SHARES SHARES AMOUNT AMOUNT EARNINGS EQUITY
--------- ------ --------- -------- ---------- -------------
BALANCE, December 31, 1994.............. 23,181 28,210 $ 298,518 $280,233 $1,781,892 $ 2,360,643
Issuance of common stock........... 1,338 745 67,234 28,306 -- 95,540
Retirement of common stock......... (5,397) (2,745) (69,465) (11,024) (292,409) (372,898)
Transfers of common stock.......... (500) 500 (21,500) 21,500 -- --
Distribution to stockholders....... -- -- -- -- (113,883) (113,883)
Net income......................... -- -- -- -- 114,780 114,780
--------- ------ --------- -------- ---------- -------------
BALANCE, December 31, 1995.............. 18,622 26,710 274,787 319,015 1,490,380 2,084,182
Issuance of common stock........... 226 1,566 11,543 71,960 -- 83,503
Retirement of common stock......... (3,664) (1,889) (41,578) (13,481) (225,035) (280,094)
Transfers of common stock.......... (1,271) 1,271 (41,924) 41,924 -- --
Net income......................... -- -- -- -- 167,923 167,923
--------- ------ --------- -------- ---------- -------------
BALANCE, December 31, 1996.............. 13,913 27,658 202,828 419,418 1,433,268 2,055,514
Issuance of common stock........... 216 717 10,585 32,378 -- 42,963
Retirement of common stock......... (693) (2,170) (33,849) (68,693) (76,334) (178,876)
Transfers of common stock.......... (63) 63 (3,281) 3,281 -- --
Net income......................... -- -- -- -- 547,966 547,966
--------- ------ --------- -------- ---------- -------------
BALANCE, December 31, 1997.............. 13,373 26,268 $ 176,283 $386,384 $1,904,900 $ 2,467,567
========= ====== ========= ======== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
-------------- ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 114,780 $ 167,923 $ 547,966
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities --
Depreciation............... 272,691 306,049 354,424
Loss (gain) on
sale/disposal of
assets.................. 5,916 (308) 9,132
Deferred income taxes...... (8,640) 11,853 20,682
Changes in assets and
liabilities --
(Increase) decrease
in --
Trade receivables..... (1,359,907) (1,004,122) 1,774,429
Costs and estimated
profits in excess
of billings on
uncompleted
contracts.......... (147,080) 71,894 75,186
Prepaid expenses and
other.............. 2,649 (71,055) 55,736
Increase (decrease)
in --
Accounts payable...... 637,146 306,976 (983,450)
Accrued compensation
and benefits....... 568,267 (271,887) 370,121
Accrued liabilities... 237,564 87,449 (249,841)
Billings in excess of
costs and estimated
profits on
uncompleted
contracts.......... 517,812 (186,032) 32,835
Income taxes
payable............ (212,821) 240,392 182,781
------------ ------------ ------------
Net cash provided by (used
in) operating
activities.............. 628,377 (340,868) 2,190,001
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment..................... (521,294) (566,190) (287,065)
Proceeds from sale of
equipment..................... 2,222 1,939 --
------------ ------------ ------------
Net cash used in investing
activities.............. (519,072) (564,251) (287,065)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (principal
payments on) notes payable.... 243,426 (85,077) (52,473)
Proceeds from issuance of common
stock......................... 95,540 83,503 42,963
Payments for retirement of
common stock.................. (372,898) (280,094) (178,876)
Distributions to stockholders... (56,655) (57,228) --
------------ ------------ ------------
Net cash used in financing
activities.............. (90,587) (338,896) (188,386)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 18,718 (1,244,015) 1,714,550
CASH AND CASH EQUIVALENTS, beginning
of year............................ 1,241,594 1,260,312 16,297
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 1,260,312 $ 16,297 $ 1,730,847
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for --
Interest................... $ 8,029 $ 37,752 $ 27,109
Income taxes............... 343,839 -- 218,747
The accompanying notes are an integral part of these financial statements.
F-72 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY
Chemical & Industrial Engineering, Inc. (the Company), a Kentucky
corporation, is an engineering and systems procurement management contractor,
servicing industrial customers with primary focus in the process industries -
oil, chemical, petrochemical and food products. Chemical & Industrial
Engineering, Inc., primarily operates in Kentucky.
The Company and its stockholders intend to enter into a definitive
agreement with OEI International, Inc. (OEI), pursuant to which all outstanding
shares of the Company's common stock will be exchanged for cash and shares of
OEI common stock concurrent with the consummation of the initial public offering
(the Offering) of the common stock of OEI.
REVENUE RECOGNITION
The Company provides a majority of its services through cost-plus
contracts. Revenues are recognized to the extent of billable rates times hours
delivered plus materials expense incurred. The Company does not reflect the
costs of materials and equipment as revenues which are reimbursable to the
Company when it is responsible for the engineering specification, procurement
and management of such cost components on behalf of the customer. For the three
years ended December 31, 1995, 1996 and 1997, these amounts were $4,395,384,
$4,803,742 and $8,329,277, respectively. Fixed-price contracts represent
approximately 30% of the Company's revenues in 1996 and approximately 18% of
revenues in 1997. Revenue on fixed-price contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. Revisions in revenue and cost
projections are recorded in the period in which the facts requiring the revision
become known. When estimates of projected revenues and costs indicate a loss,
the total estimated loss is accrued. Potential additional revenues on projects
from claims and unapproved change orders are not recognized until amounts may be
reliably estimated and realization is virtually certain. The asset "Costs and
estimated profits in excess of billings on uncompleted contracts" represents
revenues recognized in excess of amounts billed. The liability "Billings in
excess of costs and estimated profits on uncompleted contracts" represents
amounts billed in excess of revenues recognized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term cash investments with
maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of income.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Accordingly, in the event that facts and
circumstances indicate that property and equipment may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset is
compared to the asset's carrying amount to determine if
F-73 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
a write-down to market value is necessary. Adoption of this standard did not
have a material effect on the financial position or results of operations of the
Company.
INCOME TAX
The Company follows the liability method of accounting for income taxes in
accordance with SFAS No. 109. Under this method, deferred income taxes are
recorded based upon the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the underlying assets or liabilities are
recovered or settled.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the
normal course of business. The Company does not hold or issue financial
instruments for trading purposes, nor does it hold interest rate, leveraged or
other types of derivative financial instruments. The carrying amounts of the
Company's financial instruments approximate their fair values.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles, particularly in the use of the
percentage-of-completion method of accounting, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED USEFUL --------------------------
LIVES IN YEARS 1996 1997
----------------- ------------ ------------
<S> <C> <C> <C>
Computer and telephone equipment..... 5 $ 1,893,389 $ 2,190,379
Leasehold improvements............... 3 21,437 21,437
Furniture and fixtures............... 10 920,760 863,292
------------ ------------
2,835,586 3,075,108
Less- Accumulated depreciation....... 1,538,317 1,854,330
------------ ------------
Property and equipment, net..... $ 1,297,269 $ 1,220,778
============ ============
</TABLE>
F-74 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTRACTS IN PROGRESS:
The status of contracts in progress is as follows:
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
Costs incurred on contracts in
progress.............................. $ 488,556 $ 3,145,107
Estimated earnings, net of losses....... 125,835 472,753
------------ ------------
614,391 3,617,860
Less -- Billings to date................ 870,985 3,982,475
------------ ------------
$ (256,594) $ (364,615)
============ ============
Costs and estimated profits in excess of
billings on uncompleted contracts..... $ 75,186 $ --
Billings in excess of costs and
estimated profits on uncompleted
contracts............................. (331,780) (364,615)
------------ ------------
$ (256,594) $ (364,615)
============ ============
4. DEBT:
LINE OF CREDIT
The Company has a line of credit of $1,500,000, which was unused at
December 31, 1996 and 1997. The line of credit is secured by an interest in all
the Company's accounts receivable, contract rights and equipment and expires on
June 15, 1998. Advances on the line of credit accrue interest at a rate equal to
prime (8.5% at December 31, 1997). Interest is payable quarterly. Management
believes the line of credit can be renewed upon expiration.
The line of credit contains covenants requiring the maintenance of a
borrowing base equal to the aggregate of 50% of the Company's net carrying value
of equipment plus 80% of the Company's then-current accounts receivable less
than 90 days old, and various other covenants as specified in the loan
agreement, as amended. The Company is in compliance with these covenants at
December 31, 1996 and 1997.
NOTES PAYABLE FOR STOCK REDEMPTIONS
Notes payable consist of amounts due to 12 terminated employees for stock
redemptions at book value at the date of termination. All notes payable have
maturities of one year from redemption (currently all are due in 1998) and bear
interest ranging from 8.25% to 8.5%. The Company paid interest of $49,757 and
$15,124 related to this debt for the years ended December 31, 1996 and 1997,
respectively.
5. LEASES:
The Company leases office space under an operating lease agreement which
expires in June 1999. Rent expense was $257,887, $302,176 and $366,308 for the
years ended December 31, 1995, 1996 and 1997, respectively.
The Company leases vehicles for certain key members of management which
expire 1998-2000. The lease payments under these vehicle leases were
approximately $5,437, $19,471 and $16,124 for the years ended December 31, 1995,
1996 and 1997, respectively.
F-75 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future lease payments for existing operating leases are as follows:
Year ending December 31 --
1998................................. $ 355,581
1999................................. 165,137
2000................................. 4,343
----------
$ 525,061
==========
6. INCOME TAXES:
Provisions for federal, state and local income taxes are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
Federal --
Current......................... $ 96,889 $ 100,681 $ 306,662
Deferred........................ -- 9,877 17,235
State and local --
Current......................... 24,365 27,106 96,533
Deferred........................ -- 1,976 3,447
---------- ---------- ----------
$ 121,254 $ 139,640 $ 423,877
========== ========== ==========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory personal service corporate rate of 35% to
income before income taxes as follows:
DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
Provision at the statutory rate...... $ 82,612 $ 107,647 $ 340,145
Increase resulting from --
Nondeductible expenses.......... 15,099 11,853 17,400
State income tax, net of federal
benefit....................... 23,543 20,140 66,332
---------- ---------- ----------
$ 121,254 $ 139,640 $ 423,877
========== ========== ==========
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The cumulative effects of these temporary differences represent
deferred tax assets and liabilities and relate principally to the following:
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
Accrued expenses..................... $ 169,718 $ 175,710
Property and Equipment............... (119,788) (146,462)
------------ ------------
Net deferred income tax asset... $ 49,930 $ 29,248
============ ============
F-76 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are classified in the
accompanying balance sheet as follows:
DECEMBER 31,
----------------------
1996 1997
---------- ----------
Deferred tax assets-
Current......................... $ 169,718 $ 175,710
Long-term....................... -- --
Deferred tax liabilities-
Current......................... -- --
Long-term....................... 119,788 146,462
---------- ----------
Net deferred income tax
asset................... $ 49,930 $ 29,248
========== ==========
7. STOCKHOLDERS' EQUITY:
An employee is eligible to invest upon board-of-director approval in the
voting shares of the Company upon becoming a full-time, benefited employee with
a total continuous service of one year. Nonvoting stock is restricted to
full-time employees. Redemption of shares is mandatory upon employee
termination, change in employment status or death of employee. Issuance and
redemption price of stock is based on (a) the price last fixed by the board of
directors as the stock price or (b) the book value (defined as total
stockholders' equity divided by the total shares outstanding) per share,
whichever is larger. Book value per share at December 31, 1997, is $62.25. Stock
is canceled upon redemption.
8. EMPLOYEE BENEFIT PLANS:
Employees of the Company may participate in a 401(k) plan, whereby the
employees may elect to make contributions pursuant to a salary reduction
agreement upon meeting age and length-of-service requirements. The plan provides
for the Company to match 50% of the first 6% contributed by each employee. Total
contributions by the Company under this plan were $132,895, $160,427 and
$165,345 during 1995, 1996 and 1997, respectively.
9. RELATED-PARTY TRANSACTIONS:
At December 31, 1997, the Company had advanced $27,083 to OEI in expenses
related to compliance with the letter-of-intent agreement with OEI dated
November 1997. These expenses are on behalf of the stockholders and are included
in the prepaid expenses. The current intent is for the monies advanced by the
Company to be reimbursed by the stockholders upon the consummation of the
Offering.
10. SIGNIFICANT CUSTOMERS AND VENDORS:
Significant customers and vendors are those that account for greater than
10% of the Company's revenues and expenses, respectively. During the year ended
December 31, 1995, two customers accounted for 50% and 13% of the Company's
total revenues. Receivables outstanding from these customers represented 16% and
6% of the Company's trade receivables at December 31, 1995. For the year ended
December 31, 1996, two customers accounted for 47% and 20% of total revenues.
Receivables outstanding for these customers represented 34% and 15% of the
Company's trade receivables at December 31, 1996. For the year ended December
31, 1997, three customers accounted for 39%, 28% and 14% of total revenues.
Receivables outstanding from these customers represented 12%, 21% and 0% of the
Company's trade receivables at December 31, 1997.
For the years ended December 31, 1995, 1996 and 1997, no vendors accounted
for greater than 10% of the Company's purchases.
F-77 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.
INSURANCE
The Company carries a broad range of insurance coverage, including
professional and director and officer liability, general and business, auto
liability, commercial property, foreign coverage liability, workers'
compensation and a general umbrella policy. The Company has not incurred
significant claims or losses on any of its insurance policies.
12. EXPORT SALES
Export sales were approximately $2,200,000 for the year ended December 31,
1997. Such sales were in Africa and the Middle East.
13. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Company and its stockholders entered into a definitive
agreement with OEI, providing for the acquisition of the Company by OEI.
F-78 TENTATIVE AND PRELIMINARY
(FOR DISCUSSION PURPOSES ONLY)
<PAGE>
RECYCLE THIS PAGE
<PAGE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary......................
Risk Factors............................
The Company.............................
Use of Proceeds.........................
Dividend Policy.........................
Capitalization..........................
Dilution................................
Selected Historical and Pro Forma
Combined Financial Data...............
Management's Discussion and Analysis of
Financial Condition and Results of
Operation.............................
Business................................
Management..............................
Certain Transactions....................
Principal Stockholders..................
Shares Eligible for Future Sale.........
Description of Capital Stock............
Underwriting............................
Legal Matters...........................
Experts.................................
Additional Information..................
Index to Financial Statements...........
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS, WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS ON
SUBSCRIPTIONS.
Shares
OEI INTERNATIONAL, INC.
Common Stock
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
CIBC OPPENHEIMER
SANDERS MORRIS MUNDY
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 3. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) in connection with the offering described in this
Registration Statement, all of which shall be paid by OEI. All of such amounts
(except the SEC Registration Fee, the NASD Filing Fee and the New York Stock
Exchange Listing Fee) are estimated.
SEC Registration Fee................. $
NASD Filing Fee......................
New York Stock Exchange Listing
Fee................................
Blue Sky Fees and Expenses...........
Printing and Engraving Costs.........
Legal Fees and Expenses..............
Accounting Fees and Expenses.........
Transfer Agent and Registrar Fees and
Expenses...........................
Miscellaneous........................
---------
Total...........................
=========
- ------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was 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 expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action. In an action brought to obtain a judgment in the corporation's favor,
whether by the corporation itself or derivatively by a stockholder, the
corporation may only indemnify for expenses, including attorney's fees, actually
and reasonably incurred in connection with the defense or settlement of such
action, and the corporation may not indemnify for amounts paid in satisfaction
of a judgment or in settlement of the claim. In any such action, no
indemnification may be paid in respect of any claim, issue or matter as to which
such person shall have been adjudged liable to the corporation except as
otherwise approved by the Delaware Court of Chancery or the court in which the
claim was brought. In any other type of proceeding, the indemnification may
extend to judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with such other proceeding, as well as to
expenses.
The statute does not permit indemnification unless the person seeking
indemnification has acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, in the
case of criminal actions or proceedings, the person had no reasonable cause to
believe his conduct was unlawful. The statute contains additional limitations
applicable to criminal actions and to actions brought by or in the name of the
corporation. The determination as to whether a person seeking indemnification
has met the required standard of conduct is to be made (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
II-1
<PAGE>
OEI's Certificate of Incorporation and Bylaws require OEI to indemnify its
directors and officers to the fullest extent permitted under Delaware law. OEI's
Certificate of Incorporation limits the personal liability of a director to the
corporation or its stockholders to damages for breach of the director's
fiduciary duty.
OEI has not purchased insurance on behalf of its directors and officers
against certain liabilities that may be asserted against, or incurred by, such
persons in their capacities as directors or officers of the registrant, or that
may arise out of their status as directors or officers of the registrant,
including liabilities under the federal and state securities laws. OEI has
entered into indemnification agreements to indemnify its directors and executive
officers to the maximum extent permitted under Delaware law.
The Underwriting Agreement provides for indemnification of the directors
and officers of the Company in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table reflects sales by OEI of unregistered securities within
the past three years. Share amounts have been adjusted for the -for-one
stock split effected on , 1998. Except as otherwise disclosed,
the issuances by OEI of the securities sold in the transactions referenced below
were not registered under the Securities Act, pursuant to the exemption
contemplated in Section 4(2) thereof, for transactions not involving a public
offering. No underwriter was involved in the transactions and no commissions
were paid. The consideration for which the shares of Common Stock were sold, all
of which was payable in cash, is indicated below:
<TABLE>
<CAPTION>
NUMBER OF CASH
DATE PURCHASER SHARES CONSIDERATION
- ------------------------------------------------------------ --------- -------------
<S> <C> <C>
October 9, 1997............... M. L. Burrow Family $ 113.33
Partnership, Ltd.
October 9, 1997............... Gary J. Coury $ 113.33
October 9, 1997............... Dana W. Swindler $ 86.67
October 9, 1997............... Equus II Incorporated $ 667.67
March 31, 1998................ Rick Berry $ 20.00
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
*1.1 -- Form of Underwriting Agreement dated , 1998, by and among OEI and Smith
Barney Inc.
2.1 -- Uniform Provisions for the Acquisition of the Founding Companies.
2.2 -- Agreement and Plan of Reorganization dated April 10, 1998, by and among OEI, PEI
Acquisition, Inc., Petrocon and certain of its principal stockholders.
2.3 -- Agreement and Plan of Reorganization dated as of April 10, 1998, by and among OEI, PS&S
Acquisition, Inc., PS&S and its stockholders.
2.4 -- Agreement and Plan of Reorganization dated as of April 10, 1998, by and among OEI, GEI
Acquisition, Inc., GEI and its stockholders.
2.5 -- Agreement and Plan of Reorganization dated as of April 10, 1998, by and among OEI, W-I
Acquisition Inc., W-I and its stockholders.
2.6 -- Agreement and Plan of Reorganization dated as of April 10, 1998, by and among OEI, C&I
Acquisition, Inc., C&I and certain of its principal stockholders.
*3.1 -- Amended and Restated Certificate of Incorporation of OEI.
*3.2 -- Bylaws of OEI.
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
*4.1 -- Form of Certificate representing Common Stock.
<S> <C>
*4.3 -- Form of Registration Rights Agreement among OEI and the stockholders listed on the
signature pages thereto.
*5.1 -- Opinion of Porter & Hedges, L.L.P.
10.1 -- 1998 Incentive Plan of OEI.
10.2 -- 1998 Employee Stock Purchase Plan of OEI.
10.3 -- Form of Indemnification Agreement between OEI and each of its directors and executive
officers.
10.4 -- Employment Agreement by and between OEI and Michael L. Burrow dated April 10, 1998.
10.5 -- Employment Agreement by and between OEI and Gary J. Coury dated April 10, 1998.
10.6 -- Employment Agreement by and between OEI and Rick Berry dated April 10, 1998.
10.7 -- Employment Agreement by and between OEI and Dana W. Swindler dated April 10, 1998.
10.8 -- Employment Agreement by and between OEI and Robert W. Raiford dated April 10, 1998.
10.9 -- Employment Agreement by and between GEI and Jerry G. Gulsby dated April 10, 1998.
*10.10 -- Lease dated as of May 1, 1983, as amended, between PS&S and Mountain Boulevard
Associates I and Lease Modification Agreement dated ____________, 1998.
*10.11 -- Lease Agreement dated January 12, 1981, as amended, between PS&S and Mountain
Boulevard Associates II and Lease Modification Agreement dated ___________, 1998.
*10.12 -- Lease Agreement dated December 29, 1986, as amended, between PS&S and Mountain
Boulevard Associates III and Lease Modification Agreement dated ___________, 1998.
*10.13 -- Form of Lease between PEI and PEI Investments.
*10.14 -- Lease dated December 1, 1993, as amended, between C&I and W&M of Kentucky, Inc.
*21.1 -- Subsidiaries of OEI.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Schonbraun Safris McCann Bekritsky & Co., L.L.C.
*23.3 -- Consent of Porter & Hedges, L.L.P. (contained in Exhibit 5.1).
23.4 -- Consent of W. Bernard Pieper as a nominee for director.
23.5 -- Consent of Bob G. Gower as a nominee for director.
23.6 -- Consent of C. Roland Haden as nominee for director.
24.1 -- Power of Attorney (included on the signature page of this Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates representing the shares of Common Stock offered hereby in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 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
II-3
<PAGE>
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as a 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 the purpose of determining any liability under the Securities
Act of 1933, 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>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON APRIL 16, 1998.
OEI INTERNATIONAL, INC.
By: /s/ MICHAEL L. BURROW
MICHAEL L. BURROW,
CHIEF EXECUTIVE OFFICER
Each person whose signature appears below hereby appoints Michael L. Burrow
and Rick Berry, and both of them, either of whom may act without the joinder of
the other, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, 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 registration statement for
the same offering filed pursuant to Rule 462 under the Securities Act of 1933,
and to file the same, with all exhibits thereto and all other documents in
connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing appropriate or necessary to be done, as fully and for all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<S> <C> <C>
/s/MICHAEL L. BURROW Chief Executive Officer, Director April 16, 1998
MICHAEL L. BURROW (Principal Executive Officer)
/s/RICK BERRY Executive Vice President and Chief April 16, 1998
RICK BERRY Financial Officer (Principal
Financial and Accounting Officer)
/s/GARY J. COURY President, Chief Operating Officer April 16, 1998
GARY J. COURY Director
/s/NOLAN LEHMANN Director April 16, 1998
NOLAN LEHMANN
/s/GARY L. FORBES Director April 16, 1998
GARY L. FORBES
</TABLE>
II-5
EXHIBIT 2.1
ANNEX 1
OEI INTERNATIONAL, INC.
UNIFORM PROVISIONS
FOR THE
ACQUISITION
OF
FOUNDING COMPANIES
WORDS AND TERMS USED IN THESE UNIFORM PROVISIONS WHICH ARE
DEFINED IN THE AGREEMENT AND PLAN OF REORGANIZATION AMONG OEI INTERNATIONAL,
INC., [NEWCO], [NAME OF ACQUISITION CANDIDATE] AND ITS STOCKHOLDERS NAMED
THEREIN (CALLED THEREIN AND HEREIN "THIS AGREEMENT") TO WHICH THESE UNIFORM
PROVISIONS ARE ATTACHED AS ANNEX I, ARE USED HEREIN AS DEFINED THEREIN.
<PAGE>
THE UNIFORM PROVISIONS
ARTICLE I
ADDITIONAL DEFINITIONS
Section 1.02 ADDITIONAL DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below:
"ACQUISITION PROPOSAL" has the meaning specified in Section 6.05.
"AFFILIATE" means, as to any specified Person, any other Person
who, directly or indirectly through one or more intermediaries or
otherwise, controls, is controlled by or is under common control with
the specified Person. As used in this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person (whether through
ownership of Capital Stock of the Person, by contract, or otherwise).
"BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in New York, New York or Houston, Texas are
authorized or obligated to close.
"CAPITAL LEASE" means a lease of (or other agreement conveying
the right to use) real or personal property that is required to be
classified and accounted for as a capital lease under GAAP as in effect
on the date of this Agreement.
"CAPITAL STOCK" means, with respect to: (a) any corporation, any
share, or any depositary receipt or other certificate representing any
share, of an equity ownership interest in the corporation; and (b) any
other Entity, any share, membership or other percentage interest, unit
of participation or other equivalent (however designated) of an equity
interest in the Entity.
"CASH COMPENSATION" means, as applied to any employee,
nonemployee director or officer of, or any natural person who performs
consulting or other independent contractor services for, the Company or
any Company Subsidiary, the wages, salaries, bonuses (discretionary and
formula), fees and other cash compensation paid or payable by the
Company and each Company Subsidiary to that employee or other natural
person.
"CERCLA" means the Comprehensive Environmental Response,
Conservation, and Liability Act of 1980.
"CERTIFICATE OF MERGER" means: (a) if the Surviving Corporation
is a Delaware corporation, the certificate of merger respecting the
Merger which contains the information
1
<PAGE>
required by the DGCL to effect the Merger; and (b) if the Company's
Organization State is not Delaware, the articles or certificate of
merger respecting the Merger which contains the information required by
the laws of the Company's Organization State to effect the Merger.
"CHARTER DOCUMENTS" means, with respect to any Entity at any
time, in each case as amended, modified and supplemented at that time,
(a) the articles or certificate of formation, incorporation or
organization (or the equivalent organizational documents) of the Entity,
(b) the bylaws or limited liability company agreement or regulations (or
the equivalent governing documents) of the Entity, and (c) each document
setting forth the designation, amount and relative rights, limitations
and preferences of any class or series of the Entity's Capital Stock or
of any rights in respect of the Entity's Capital Stock.
"CLAIM NOTICE" has the meaning specified in Section 9.05.
"CLOSING" has the meaning specified in Section 1.01.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY COMMITMENT" has the meaning specified in Section 4.22.
"COMPANY ERISA BENEFIT PLAN" has the meaning specified in Section
4.26(d).
"COMPANY ERISA PENSION PLAN" has the meaning specified in Section
4.26(d).
"COMPANY ERISA GROUP" means any "group of organizations" within
the meaning of Section 414(b), (c), (m) or (o) of the Code, or any
"controlled group" as defined in Section 4001(a)(14) of ERISA, of which
the Company is a member.
"COMPANY SUBSIDIARY" means at any time any Entity that is a
Subsidiary of the Company at that time.
"CONFIDENTIAL INFORMATION" means, with respect to any Person, all
trade secrets and other confidential, nonpublic and/or proprietary
information of that Person, including information derived from designs,
reports, investigations, research, testing, development,
work-in-progress, codes, marketing and sales programs, capital
expenditure projects, cost summaries, pricing formulae, contract
analyses, financial information, projections, confidential filings with
any Governmental Authority and any other confidential, nonpublic
concepts, methods of doing business, ideas, materials or information
prepared or performed for, by or on behalf of that Person.
"CURRENT BALANCE SHEET" has the meaning specified in Section
1.01.
"CURRENT BALANCE SHEET DATE" has the meaning specified in Section 1.01
2
<PAGE>
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"CURRENT MARKET PRICE" means, as to the OEI Common Stock on any
date, the average of the daily closing prices for the ten (10)
consecutive trading days before such date excluding any trades which are
not bona fide arm's length transactions. The closing price for each day
shall be (i) if the OEI Common Stock is listed or admitted for trading
on any national securities exchange, the last sale price of the OEI
Common Stock, regular way, or the mean of the closing bid and asked
prices thereof if no such sale occurred, in each case as officially
reported on the principal securities exchange on which the OEI Common
Stock is listed, (ii) if the OEI Common Stock is not then traded on any
such national securities exchange but is traded on the National Market
System, the mean between the closing high bid and low asked quotations
of the OEI Common Stock in the National Market System, as reported by
any member firm of the New York Stock Exchange selected by OEI, or (iii)
if not quoted as described in clauses (i) and (ii), the mean between the
high bid and low asked quotations for the OEI Common Stock as reported
by the National Quotation Bureau Incorporated or any similar successor
organization, as reported by any member firm of the New York Stock
Exchange selected by OEI. If the OEI Common Stock is quoted on a
national securities or central market system in lieu of a market or
quotation system described above, the closing price shall be determined
in the manner set forth in clause (i) of the preceding sentence if
actual transactions are reported and in the manner set forth in clause
(ii) of the preceding sentence, if bid and asked quotations are reported
but actual transactions are not.
"DAMAGE" to any specified Person means any cost, damage
(including any consequential, exemplary, punitive or treble damage) or
expense (including reasonable and necessary or appropriate fees and
actual expenses of and disbursements by attorneys, consultants, experts
or other Representatives and Litigation costs) to, any fine of or
penalty on, or any liability (including loss of earnings or profits) of,
any other nature of that Person.
"DAMAGE CLAIM" means, as asserted (a) against any specified
Person, any claim, demand or Litigation made or pending against that
Person for Damages to any other Person, or (b) by the specified Person,
any claim or demand of the specified Person against any other Person for
Damages to the specified Person.
"DGCL" means the General Corporation Law of the State of
Delaware.
"DERIVATIVE SECURITIES" of a specified Entity means any Capital
Stock or debt security or other Indebtedness of the specified Entity or
any other Person which is convertible into or exchangeable for, or any
option, warrant or other right to acquire, (a) any unissued Capital
Stock of the specified Entity or (b) any Capital Stock of the specified
Entity which has been issued and is being held by the Entity directly or
indirectly as treasury Capital Stock.
3
<PAGE>
"EFFECTIVE TIME" has the meaning specified in Section 2.02.
"ELECTION PERIOD" has the meaning specified in Section 9.05(b).
"EMPLOYEE POLICIES AND PROCEDURES" means at any time all employee
manuals and all material policies, procedures and work-related rules
that apply at that time to any employee, nonemployee director or officer
of, or any other natural person performing consulting or other
independent contractor services for, the Company or any Company
Subsidiary.
"EMPLOYMENT AGREEMENT" means at any time (a) any agreement to
which the Company or any Company Subsidiary is a party which then
relates to the direct or indirect employment or engagement, or arises
from the past employment or engagement, of any natural person by the
Company or any Company Subsidiary, whether as an employee, a nonemployee
officer or director, a consultant or other independent contractor, a
sales representative or a distributor of any kind, including any
employee leasing or service agreement and any noncompetition agreement,
and (b) any agreement between the Company or any Company Subsidiary and
any Person which arises from the sale of a business by that Person to
the Company or any Company Subsidiary and limits that Person's
competition with the Company or any Company Subsidiary.
"ENGINEERING CONTRACT" means any written or oral contract,
subcontract or other agreement under which the Company or a Company
Subsidiary is or may become obligated to (a) provide to or for any
Person design, engineering, construction, construction management,
technical, project management, quality control or quality assurance,
consulting, procurement, inspection, or supervisory services which
require or involve the Practice of Engineering by the Company or a
Company Subsidiary or (b) construct, erect, assemble, manufacture,
fabricate, modify, convert or demolish for, or for sale to, any Person
all or any part of any building, plant, structure or other physical
facility, any roads, highways, bridges, tunnels or railways, or any
machinery, equipment or apparatus.
"ENTITY" means any sole proprietorship, corporation, partnership
of any kind having a separate legal status, limited liability company,
business trust, unincorporated organization or association, mutual
company, joint stock company or joint venture.
"ENVIRONMENTAL LAWS" means any and all Governmental Requirements
relating to the environment or worker health or safety, including
ambient air, surface water, land surface or subsurface strata, or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes (including Solid Wastes, Hazardous Wastes or Hazardous
Substances) or noxious noise or odor into the environment or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, recycling, removal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes (including
4
<PAGE>
petroleum, petroleum distillates, asbestos or asbestos-containing
material, polychlorinated biphenyls, chlorofluorocarbons or
hydrochlorofluorocarbons).
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" means, with respect to any specified Person at
any time, any other Person, including an Affiliate of the specified
Person, that is, or at any time within six years of that time was, a
member of any ERISA Group of which the specified Person is or was a
member at the same time.
"ERISA AFFILIATE PENSION PLAN" has the meaning specified in
Section 4.26(d).
"ERISA EMPLOYEE BENEFIT PLAN" means any "employee benefit plan"
as defined in Section 3(3) of ERISA and includes any ERISA Pension
Benefit Plan.
"ERISA PENSION BENEFIT PLAN" means any "employee pension benefit
plan," as defined in Section 3(2) of ERISA, including any plan that is
covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code (excluding any Multiemployer Plan).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FINAL PROSPECTUS" means the prospectus included in the
Registration Statement at the time it becomes effective, except that if
the prospectus first furnished to the Underwriter after the Registration
Statement becomes effective for use in connection with the IPO differs
from the prospectus included in the Registration Statement at the time
it becomes effective (whether or not the prospectus so furnished to the
Underwriter is required to be filed with the SEC pursuant to Securities
Act Rule 424(b)), the prospectus so furnished will be the "FINAL
PROSPECTUS."
"FINANCIAL STATEMENTS" means the Initial Financial Statements and
the other financial statements of the Company and the Company
Subsidiaries, if any, delivered to OEI prior to the Effective Time
pursuant to Section 6.09.
"GAAP" means generally accepted accounting principles and
practices in the United States as in effect from time to time which (i)
have been concurred with by Arthur Andersen LLP and (ii) have been or
are applied on a basis consistent (except for changes concurred with by
Arthur Andersen LLP) with the most recent audited Financial Statements
delivered to OEI prior to the Effective Time.
"GENERAL RELEASE" means the general release of the Company and
the Company Subsidiaries to be executed at or before, and delivered to
OEI and the Company at, the
5
<PAGE>
Closing, effective as of the Effective Time, by each Stockholder, which
general release shall be in the form of the attached Exhibit 1.02-B,
with its blanks appropriately completed.
"GOVERNMENTAL APPROVAL" means at any time any authorization,
consent, approval, permit, franchise, certificate, license, implementing
order or exemption of, or registration or filing with, any Governmental
Authority.
"GOVERNMENTAL AUTHORITY" means any national, state, county,
municipal or other government, domestic or foreign, or any agency,
board, bureau, commission, court, department or other instrumentality of
any such government.
"GOVERNMENTAL REQUIREMENT" means at any time (a) any law,
statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, order, writ, edict, award, authorization or other
requirement of any Governmental Authority in effect at that time or (b)
any obligation included in any certificate, certification, franchise,
permit or license issued by any Governmental Authority or resulting from
binding arbitration, including any requirement under common law, at that
time.
"GUARANTY" means, for any specified Person, without duplication,
any liability, contingent or otherwise, of that Person guaranteeing or
otherwise representing liability for any obligation of any other Person
(the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly,
and including any liability of the specified Person, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or
payment of) the other Person's obligation or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of
that obligation, (b) to purchase property, securities or services for
the purpose of assuring the owner of that obligation of its payment, or
(c) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable
the primary obligor to pay that obligation; PROVIDED, HOWEVER, that the
term "GUARANTY" excludes endorsements for collection or deposit in the
ordinary course of the endorser's business.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"IMMEDIATE FAMILY MEMBER" of a Stockholder means at any time: (a)
if the Stockholder is a natural person, any child or grandchild (by
blood or legal adoption) or spouse of the Stockholder at that time, or
any child of the Stockholder's spouse; and (b) if the Stockholder is an
Entity which has as an ultimate beneficial owner one or more natural
persons, or a natural person and his spouse, any child or grandchild (by
blood or legal adoption) or spouse at that time (if not then an ultimate
beneficial owner of the Entity), or any child of the spouse, of the
ultimate beneficial owner or owners of the Entity.
"INDEBTEDNESS" of any Person means, without duplication, (a) any
liability of that Person (i) for borrowed money or arising out of any
extension of credit to or for the account
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of that Person (including reimbursement or payment obligations with
respect to surety bonds, letters of credit, banker's acceptances and
similar instruments), for the deferred purchase price of property or
services or arising under conditional sale or other title retention
agreements, other than trade payables arising in the ordinary course of
business, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) in respect of Capital Leases, or (iv) in respect of
Interest Rate Protection Agreements, (b) any liability secured by any
Lien upon any property or assets of that Person (or upon any revenues,
income or profits of that Person therefrom), whether or not that Person
has assumed the liability or otherwise become liable for its payment, or
(c) any liability of others of the type described in the preceding
clause (a) or (b) in respect of which that Person has incurred, assumed
or acquired a liability by means of a Guaranty.
"INDEMNITY NOTICE" has the meaning specified in Section 9.05(e).
"INDEMNIFIED PARTY" has the meaning specified in Section 9.05(b).
"INDEMNIFYING PARTY" has the meaning specified in Section
9.05(b).
"INFORMATION" means written information, including (a) data,
certificates, reports and statements (excluding Financial Statements)
and (b) summaries of unwritten agreements, arrangements, contracts,
plans, policies, programs or practices or of unwritten amendments or
modifications of, supplements to or waivers under any of the foregoing
documents.
"INTEREST RATE PROTECTION AGREEMENT" means, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement
providing for the transfer or mitigation of interest rate risks of that
Person, either generally or under specific contingencies, between that
Person and any other Person.
"IPO" means the first time after January 1, 1998 a registration
statement filed under the Securities Act and respecting a primary
offering by OEI of shares of OEI Common Stock is declared effective
under the Securities Act and the shares registered by that registration
statement are issued and sold by OEI.
"IPO CLOSING DATE" means the date on which OEI first receives
payment for the shares of OEI Common Stock it sells to the Underwriter
in the IPO.
"IPO PRICE" means the price per share of OEI Common Stock which
is set forth as the "price to public" on the cover page of the Final
Prospectus.
"IPO PRICING DATE" means the date, if any, on which OEI and the
Underwriter agree in the Underwriting Agreement to the price per share
of Common Stock at which the Underwriter, subject to the terms and
conditions of the Underwriting Agreement, will purchase newly issued
shares of OEI Common Stock from OEI on the IPO Closing Date.
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"IRS" means the Internal Revenue Service.
"LIEN" means, with respect to any property or asset of any Person
(or any revenues, income or profits of that Person therefrom), in each
case whether the same is consensual or nonconsensual or arises by
contract, operation of law, legal process or otherwise, (a) any
mortgage, lien, security interest, pledge, attachment, levy or other
charge or encumbrance of any kind thereupon or in respect thereof or (b)
any other arrangement under which the same is transferred, sequestered
or otherwise identified with the intention of subjecting the same to, or
making the same available for, the payment or performance of any
liability in priority to the payment of the ordinary, unsecured
creditors of that Person, including any "ADVERSE CLAIM" (as defined in
Section 8-102(a) of each applicable Uniform Commercial Code) in the case
of any Capital Stock. For purposes of this Agreement, a Person shall be
deemed to own subject to a Lien any asset that Person has acquired or
holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capital Lease or other title retention
agreement relating to that asset.
"LITIGATION" means any action, case, proceeding, claim,
grievance, suit or investigation or other proceeding conducted by or
pending before any Governmental Authority or any arbitration proceeding.
"MATERIAL" means, as applied to any specified Entity, material to
the business, operations, property or assets, liabilities, financial
condition or results of operations of the specified Entity and its
Subsidiaries considered as a whole.
"MATERIAL ADVERSE EFFECT" means, with respect to the consequences
of any fact or circumstance (including the occurrence or non-occurrence
of any event) to the Company and the Company Subsidiaries considered as
a whole (or after the Effective Time the Surviving Corporation and the
Company Subsidiaries considered as a whole), that such fact or
circumstance has caused, is causing or can reasonably be expected to
cause, singly or in the aggregate with other facts and circumstances,
any Damages in excess of the Threshold Amount.
"MATERIAL AGREEMENT" of an Entity means any contract or agreement
(a) to which the Entity or any of its Subsidiaries is a party, or by
which the Entity or any of its Subsidiaries is bound or to which any
property or assets of the Entity or any of its Subsidiaries is subject
and (b) which is Material to the Entity.
"MATERIAL ENGINEERING CONTRACT" has the meaning specified in
Section 4.22(a).
"MINIMUM CASH AMOUNT" has the meaning specified in Section
7.02(a)(iii).
"MOODY'S" means Moody's Investors Service, Inc.
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"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, Section 414 of the Code or Section 3(37) of
ERISA.
"NATIONAL MARKET SYSTEM" means the National Market System of the
Nasdaq Stock Market, Inc.
"NEWCO COMMON STOCK" means the common stock, par value $1 per
share, of Newco.
"OEI COMMON STOCK" means the common stock, par value $.001 per
share, of OEI.
"OEI INDEMNIFIED PARTY" means OEI and its Affiliates (including,
from and after the Effective Time, the Company and all Company
Subsidiaries) and each of their respective officers, directors,
employees, agents and counsel; PROVIDED, HOWEVER, that no Person who
indemnifies any OEI Indemnified Parties under this Agreement in his
capacity as a Stockholder will be an OEI Indemnified Party for purposes
of this Agreement, notwithstanding that the Person is an OEI Indemnified
Party for purposes of one or more of the Other Agreements.
"OEI INDEMNIFIED LOSS" has the meaning specified in Section
9.03(a).
"ORGANIZATION STATE" means, as applied to (a) any corporation,
its state or other jurisdiction of incorporation, (b) any limited
liability company or limited partnership, the state or other
jurisdiction under whose laws it is organized and existing in that legal
form, and (c) any other Entity, the state or other jurisdiction whose
laws govern that Entity's internal affairs.
"OTHER AGREEMENTS" has the meaning specified in the Preliminary
Statements in this Agreement.
"OTHER COMPENSATION PLAN" means any compensation arrangement,
plan, policy, practice or program established, maintained or sponsored
by the Company or any Company Subsidiary, or to which the Company or any
Company Subsidiary contributes, on behalf of any of its employees,
nonemployee directors or officers or other natural persons performing
consulting or other independent contractor services for the Company or
any Company Subsidiary, including all such arrangements, plans,
policies, practices or programs providing for severance pay, deferred
compensation, incentive, bonus or performance awards or the actual or
phantom ownership of any Capital Stock or Derivative Securities of the
Company or any Company Subsidiary, but excluding all Company ERISA
Pension Plans and Employment Agreements.
"OTHER FINANCING SOURCES" has the meaning specified in Section
7.02(a)(iii).
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"OTHER TRANSACTION DOCUMENTS" means the Other Agreements and the
other written agreements, documents, instruments and certificates at any
time executed pursuant to or in connection with the Other Agreements
(other than the Transaction Documents and the Underwriting Agreement),
all as amended, modified or supplemented from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED INVESTMENTS" means at the time of their purchase or
other acquisition by the Company or any Company Subsidiary (a)
obligations issued or guaranteed by the United States of America with a
remaining maturity not exceeding one year, (b) commercial paper with
maturities of not more than 270 days and a published rating of not less
than A-1 by S&P or P-1 by Moody's, and (c) certificates of deposit and
bankers' acceptances having maturities of not more than one year of any
commercial bank or trust company if (A) the issuing bank or trust
company has a combined capital and surplus of at least $5 million and
(B) its unsecured long-term debt obligations, or those of a holding
company of which it is a Subsidiary, are rated not less than A- by S&P
or A3 by Moody's.
"PERMITTED LIENS" means, as applied to the property or assets of
any Person (or any revenues, income or profits of that Person
therefrom): (a) Liens for Taxes if the same are not at the time due and
delinquent; (b) Liens of carriers, warehousemen, mechanics, laborers,
materialmen and landlords for sums not yet due; (c) Liens incurred in
the ordinary course of that Person's business in connection with
worker's compensation, unemployment insurance and other social security
legislation (other than pursuant to ERISA or Section 412(n) of the
Code); (d) Liens incurred in the ordinary course of that Person's
business in connection with deposit accounts or to secure the
performance of bids, tenders, Engineering Contracts, trade contracts,
statutory obligations, surety and appeal bonds, performance and
return-of-money bonds and other obligations of like nature; (e)
easements, rights-of-way, reservations, restrictions and other similar
encumbrances incurred in the ordinary course of that Person's business
or existing on property and not materially interfering with the ordinary
conduct of that Person's business or the use of that property; (f)
defects or irregularities in that Person's title to its real properties
which do not materially diminish the value of the surface estate or
interfere with the ordinary conduct of that Person's business or the use
of any of such properties; (g) any interest or title of a lessor of
assets being leased by any Person pursuant to any Capital Lease
disclosed in Section 4.19 of the Disclosure Statement or any lease that,
under GAAP, would be accounted for as an operating lease; and (h) Liens
securing purchase money Indebtedness disclosed in Section 4.18 or 4.19
of the Disclosure Statement so long as the Liens do not attach to any
property or assets other than the properties or assets purchased with
the proceeds of such Indebtedness.
"PERSON" means any natural person, Entity, estate, trust, union
or employee organization or Governmental Authority or, for the purpose
of the definition of "ERISA Affiliate," any trade or business.
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"PLAN" has the meaning specified in Section 4.27(a).
"PRACTICE OF ENGINEERING" means any service or creative work the
performance of which requires engineering education, training and
experience in the application of special knowledge of the mathematical,
physical or engineering sciences to such services or creative work, and
includes the application of such service or creative work in (a) the
design, engineering, assembly, programming, integration or installation
of control and instrumentation systems and (b) the design, engineering,
fabrication or installation of modular refining and processing plants.
"PRIVATE PLACEMENT MEMORANDUM" means the OEI Private Placement
Memorandum dated as of April ___, 1998, relating to the offer of OEI
Common Stock in connection with the Merger.
"PROFESSIONAL CODES" means any and all Governmental Requirements
relating to the Practice of Engineering or the licensing, qualification
or registration of natural persons as engineers of any classification.
"PROHIBITED TRANSACTION" means any transaction that is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt
under Section 4975 of the Code or Section 408 of ERISA.
"PROPERTY, PLANT AND EQUIPMENT" means at any time any property
that then would be included and classified as property, plant and
equipment on a consolidated balance sheet, prepared in accordance with
GAAP, of the Company and the Company Subsidiaries.
"PROPRIETARY RIGHTS" means (a) patents, applications for patents
and patent rights, (b) in each case, whether registered, unregistered or
under pending registration, trademark rights, trade names, trade name
rights, corporate names, business names, trade styles or dress, service
marks and logos and other trade designations and copyrights and (c), in
the case of the Company or any Company Subsidiary, all agreements
relating to the technology, know-how or processes used or marketed in
any business of the Company or any Company Subsidiary.
"QUALIFIED PLANS" has the meaning specified in Section 4.27(b).
"RCRA" means the Resource Conservation and Recovery Act of 1976.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement to be executed and delivered at the Closing by OEI and the
Stockholders electing to be parties thereto, which shall be in the form
of Exhibit 1.02-A, with it blanks appropriately completed.
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"REGISTRATION STATEMENT" means the registration statement
(including (a) each preliminary prospectus included therein prior to the
date on which that registration statement is declared effective under
the Securities Act (including any prospectus filed with the SEC pursuant
to Securities Act Rule 424(b)), (b) the Final Prospectus and (c) any
amendments thereof and all supplements and exhibits thereto) filed by
OEI with the SEC to register shares of OEI Common Stock under the
Securities Act for public offering and sale in the IPO.
"RELATED PARTY AGREEMENT" means any contract or other agreement,
written or oral, to which the Company or any Company Subsidiary is a
party or is bound or by which any property of the Company or any Company
Subsidiary is bound or may be subject and (a) to which any Stockholder
or any of that Stockholder's Related Persons or Affiliates also is a
party, (b) of which any Stockholder or any Stockholder's Related Persons
or Affiliates is a beneficiary, or (c) as to which any transaction
contemplated thereby properly would be characterized (without regard to
the amount involved) as a related party transaction for purposes of
applying the disclosure requirements of GAAP or the SEC applicable to
the Registration Statement.
"RELATED PERSON" of a Stockholder means: (a) if the Stockholder
is a natural person, (i) any Immediate Family Member of the Stockholder,
(ii) any Estate of the Stockholder or any Immediate Family Member of the
Stockholder, (iii) the trustee of any inter vivos or testamentary trust
of which all the beneficiaries are Immediate Family Members of the
Stockholder, and (iv) any Entity the entire equity interest in which is
owned by any one or more of the Stockholder and Immediate Family Members
of the Stockholder; and (b) if the Stockholder is an Entity, Estate or
trust, (i) any Person who owns an equity interest in the Stockholder on
the date hereof, (ii) any Person who would be a Related Person under
clause (a) of this definition of a natural person who is an ultimate
beneficial owner of the Stockholder, or (iii) any other Entity the
entire equity interest in which is owned by any one or more of the
Stockholder and Immediate Family Members of the Stockholder. As used in
this definition, "Estate" means, as to any natural person who has died
or been adjudicated mentally incompetent by a court of competent
jurisdiction, (i) that person's estate or (ii) the administrator,
conservator, executor, guardian or representative of that person's
estate.
"REPRESENTATIVES" means, with respect to any Person, the
directors, officers, employees, Affiliates, accountants (including
independent certified public accountants), advisors, attorneys,
consultants or other agents of that Person, or any other representatives
of that Person or of any of that Person's directors, officers,
employees, Affiliates, accountants (including independent certified
public accountants), underwriters, advisors, attorneys, consultants or
other agents.
"REPORTABLE EVENT" means, with respect to any Company ERISA
Pension Plan, (a) the occurrence of any of the events set forth in
Section 4043(b) or 4043(c) (other than a Reportable Event as to which
the provision of 30 days' notice to the PBGC is waived under applicable
regulations), 4062(e) or 4063(a) of ERISA with respect to that plan, (b)
any event
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requiring the Company or any ERISA Affiliate to provide security to that
plan under Section 401(a)(29) of the Code, or (c) any failure to make a
payment required by Section 412(m) of the Code with respect to that
plan.
"RESTRICTED PAYMENT" means, with respect to any Entity at any
time, any of the following effected by the Entity: (a) any declaration
or payment of any dividend or other distribution, direct or indirect, on
account of any Capital Stock of that Entity or any Affiliate of the
Entity or (b) any direct or indirect redemption, retirement, purchase or
other acquisition for value of, or any direct or indirect purchase,
payment or sinking fund or similar deposit for the redemption,
retirement, purchase or other acquisition for value of, or to obtain the
surrender of, any then outstanding Capital Stock of the Entity or any
Affiliate of the Entity or any then outstanding warrants, options or
other rights to acquire or subscribe for or purchase unissued or
treasury Capital Stock of the Entity or any of its Affiliates.
"RESTRICTED PERIOD" has the meaning specified in Section 11.02.
"RETURNS" means the returns, reports or statements (including any
information returns) any Governmental Requirement requires to be filed
for purposes of any Tax.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SOLID WASTES, HAZARDOUS WASTES OR HAZARDOUS SUBSTANCES" have the
meanings ascribed to those terms in CERCLA, RCRA or any other
Environmental Law applicable to the business or operations of the
Company or any Company Subsidiary which imparts a broader meaning to any
of those terms than does CERCLA or RCRA.
"S&P" means Standard and Poor's Rating Group.
"STOCKHOLDER INDEMNIFIED PARTY" means (a) each Stockholder and
each of that Stockholder's Affiliates (other than the Company or,
following the Effective Time, the Surviving Corporation or OEI or any of
its Subsidiaries, if the Stockholder is an Affiliate of OEI), agents and
counsel and (b) prior to the Effective Time, the Company and each of its
officers, directors, employees, agents and counsel who are not
Stockholder Indemnified Parties within the meaning of clause (a) of this
definition.
"STOCKHOLDER INDEMNIFIED LOSS" has the meaning specified in
Section 9.04.
"SUBSIDIARY" of any specified Person means at any time, any
Entity a majority of the Capital Stock of which is at that time owned or
controlled, directly or indirectly, by the specified Person.
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"SUPPLEMENTAL INFORMATION" has the meaning specified in Section
6.07.
"TAX" or "TAXES" means all net or gross income, gross receipts,
net proceeds, sales, use, ad valorem, value added, franchise,
withholding, payroll, employment, excise, property, deed, stamp,
alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges or
assessments of any nature imposed by any Governmental Requirement,
whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"TAXING AUTHORITY" means any Governmental Authority having or
exercising jurisdiction with respect to any Tax.
"TERMINATION EVENT" means, with respect to any Company ERISA
Pension Plan, (a) any Reportable Event with respect to that plan which
will or is likely to result in the termination of that plan, (b) the
termination of, or the filing of a notice of intent to terminate, that
plan or the treatment of any amendment to that plan as a termination
under Section 4041(c) of ERISA, or (c) the institution of proceedings to
terminate, or the appointment of a trustee to administer, that plan
under Section 4042 of ERISA.
"THIRD PARTY CLAIM" has the meaning specified in Section 9.05(b).
"TRANSACTION DOCUMENTS" means this Agreement, the Certificates of
Merger, the General Release, the Registration Rights Agreement, the
Transferors' Agreement and the other written agreements, documents,
instruments and certificates executed pursuant to or in connection with
this Agreement (other than the Other Transaction Documents and the
Underwriting Agreement), including those specified in Article VII to be
delivered at or before the Closing, all as amended, modified or
supplemented from time to time.
"UNDERWRITER" means, collectively, (a) the investment banking
firms that prospectively may enter into the Underwriting Agreement and
(b) from and after the IPO Pricing Date, the investment banking firms
parties to the Underwriting Agreement.
"UNDERWRITING AGREEMENT" has the meaning specified in Section
7.02(a)(iii).
"WELFARE PLAN" means an "employee welfare benefit plan" as
defined in Section 3(1) of ERISA.
"WHOLLY OWNED SUBSIDIARY" means any corporation or other Entity
all of the outstanding Capital Stock of which, on a fully diluted basis,
is owned and controlled, directly or indirectly through another Wholly
Owned Subsidiary, by the Company.
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Section 1.03. OTHER DEFINITIONAL PROVISIONS.
(a) Except as otherwise specified herein, all references herein
to any Governmental Requirement defined or referred to herein, including
the Code, CERCLA, ERISA, the Exchange Act, RCRA and the Securities Act,
shall be deemed references to that Governmental Requirement or any
successor Governmental Requirement, as the same may have been amended or
supplemented from time to time, and any rules or regulations promulgated
thereunder.
(b) When used in this Agreement, the words "herein," "hereof" and
"hereunder" and words of similar import shall refer to this Agreement as
a whole and not to any specific provision of this Agreement, and the
words "Article," "Section," "Annex," "Schedule" and "Exhibit" refer to
Articles and Sections of, and Annexes, Schedules and Exhibits to, this
Agreement, unless otherwise specified.
(c) Whenever the context so requires, the singular number
includes the plural and VICE VERSA, and a reference to one gender
includes the other gender and the neuter.
(d) The word "including" (and, with correlative meaning, the word
"include") means including, without limiting the generality of any
description preceding such word, and the words "shall" and "will" are
used interchangeably and have the same meaning.
Section 1.04 CAPTIONS. Captions to Articles, Sections and subsections of
this Agreement and its Annexes, Schedules and Exhibits are included for
convenience of reference only, and shall not constitute a part of this Agreement
or any other Transaction Document for any other purpose, nor shall they in any
way affect the meaning or construction of any provision of this Agreement or any
other Transaction Document.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.02. OWNERSHIP AND STATUS OF COMPANY CAPITAL STOCK. The
Stockholder is the record and beneficial owner (or, if the Stockholder is a
trust or the estate of a deceased natural person, the legal owner) of the number
of shares of Company Capital Stock set forth, by class, and by each series in
each class, opposite the Stockholder's name in Schedule 3.02, free and clear of
all Liens, except for the Liens accurately set forth in Schedule 3.02, all of
which will be released at or before the Effective Time.
Section 3.03. POWER OF THE STOCKHOLDER; APPROVAL OF THE MERGER.
(a) The Stockholder has the full power, legal capacity and
authority to execute and deliver this Agreement and each other
Transaction Document to which the Stockholder is a party and to perform
the Stockholder's obligations in this Agreement and in all other
Transaction Documents to which the Stockholder is a party. This
Agreement constitutes, and each such other Transaction Document, when
executed in the Stockholder's individual capacity and delivered by the
Stockholder, will constitute, the legal, valid and binding obligation of
the Stockholder, enforceable against the Stockholder in accordance with
its terms, except as their enforceability may be (i) limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and (ii)
subject to general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law). If
the Stockholder is an Entity, the Stockholder has, in accordance with
all applicable Governmental Requirements and its Charter Documents,
obtained all approvals and taken all actions necessary for the
authorization, execution, delivery and performance by the Stockholder of
this Agreement and the other Transaction Documents to which the
Stockholder is a party. If the Stockholder is acting otherwise than in
his individual capacity (whether as an executor or a guardian or in any
other fiduciary or representative capacity), all actions on the part of
the Stockholder and all other Persons (including any court) necessary
for the authorization, execution, delivery and performance by the
Stockholder of this Agreement and the other Transaction Documents to
which the Stockholder is a party have been duly taken.
(b) The Stockholder, acting in each capacity in which he is
entitled, by reason of the Company's Charter Documents or the
Governmental Requirements of the Company's Organization State or for any
other reason, to vote to approve or disapprove the consummation of the
Merger, has voted, or has granted an irrevocable proxy to
representatives of OEI to vote, all the shares of Company Capital Stock
owned by him and entitled to a vote or votes on that matter, in any one
or more of the manners prescribed or permitted by the Company's Charter
Documents or the Governmental Requirements of the Company's Organization
State, whichever are controlling, to approve this Agreement and the
consummation of the Merger and the other transactions contemplated by
this Agreement.
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Section 3.04. NO CONFLICTS OR LITIGATION. The execution, delivery and
performance in accordance with their respective terms by the Stockholder of this
Agreement and the other Transaction Documents to which the Stockholder is or
will be a party do not and will not (a) violate any Governmental Requirement,
(b) breach or constitute a default under any agreement or instrument (other than
Guarantees, if any, listed on Schedule 8.05) to which the Stockholder is a party
or by which the Stockholder or any of the shares of Company Capital Stock owned
by the Stockholder is bound, (c) result in the creation or imposition of, or
afford any Person the right to obtain, any Lien upon any of the shares of
Company Capital Stock owned by the Stockholder (or upon any revenues, income or
profits of the Stockholder therefrom) or (d) if the Stockholder is an Entity,
violate the Stockholder's Charter Documents. No Litigation is pending or, to the
knowledge of the Stockholder, threatened to which the Stockholder is a party
which (a) questions or involves the validity or enforceability of any of the
Stockholder's obligations under any Transaction Document or (b) seeks (i) to
prevent or delay the consummation by the Stockholder of the transactions
contemplated by this Agreement to be consummated by the Stockholder or (ii)
Damages in connection with any consummation by the Stockholder of the
transactions contemplated by this Agreement.
Section 3.05. NO BROKERS. The Stockholder has not, directly or
indirectly, in connection with this Agreement or the transactions contemplated
hereby (a) employed any broker, finder or agent or (b) agreed to pay or incurred
any obligation to pay any broker's or finder's fee, any sales commission or any
similar form of compensation.
Section 3.06. PREEMPTIVE AND OTHER RIGHTS; WAIVER. Except for the right
of the Stockholder to receive shares of OEI Common Stock as a result of the
Merger or to acquire OEI Common Stock pursuant to any written option or warrant
granted by OEI to the Stockholder, the Stockholder either (a) does not have any
statutory or contractual preemptive or other right of any kind (including any
right of first offer or refusal) to acquire any shares of Company Capital Stock
or OEI Common Stock or (b) hereby irrevocably waives each such right of that
type the Stockholder has or may have.
Section 3.07. CONTROL OF RELATED BUSINESSES. Except as accurately set
forth in Schedule 3.07, the Stockholder is not, and none of his Immediate Family
Members are, in any case alone or with one or more other Persons, the
controlling Affiliate of any Entity, business or trade (other than the Company
and the Company Subsidiaries, if the Stockholder is an Affiliate of the Company)
that (a) is engaged in any line of business which is the same as or similar to
any line of business in which the Company or any Company Subsidiary is engaged,
(b) is a significant supplier to, or customer or sales agent of, the Company or
any Company Subsidiary, or (c) is, or has within the three-year period ending on
the date of this Agreement, engaged in any transaction or been a party to any
agreement with the Company or any Company Subsidiary, other than an Employment
Agreement which either (i) is listed in Section 4.26(b) of the Disclosure
Statement or (ii) has expired by its terms or has been terminated without any
further liability or obligation thereunder on the part of the Company or any
Company Subsidiary.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.02. QUALIFICATION. Section 4.02 of the Disclosure Statement
accurately lists all the jurisdictions in which the Company and the Company
Subsidiaries are authorized or qualified to own or lease and to operate their
properties or to carry on their business as now conducted. The Company and each
Company Subsidiary is duly qualified to do business and in good standing as a
foreign corporation in each state (other than its Organization State) or other
jurisdiction in which it owns or leases property or in which the carrying on of
its business as now conducted so requires, except where the failure to be so
qualified would not have a Material Adverse Effect.
Section 4.03. AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS;
REQUIRED CONSENTS.
(a) The execution, delivery and performance by the Company of
this Agreement and each other Transaction Document to which it is or
will be a party, and the effectuation of the Merger and the other
transactions contemplated hereby and thereby, are within its corporate
or other power under its Charter Documents and all applicable
Governmental Requirements of its Organization State and have been duly
authorized by all proceedings, including actions permitted to be taken
in lieu of proceedings, required under its Charter Documents and all
applicable material Governmental Requirements of its Organization State.
(b) This Agreement has been, and each of the other Transaction
Documents to which the Company is or will be a party, when executed and
delivered to OEI (or, in the case of the Certificate of Merger, the
applicable Governmental Authorities) will have been, duly executed and
delivered by the Company and is, or when so executed and delivered will
be, the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as
enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law).
(c) The execution, delivery and performance in accordance with
their respective terms by the Company of the Transaction Documents to
which it is a party do not and will not (i) violate, breach or
constitute a default under (A) the Charter Documents of any of the
Company and the Company Subsidiaries, (B) other than as set forth in
Section 4.03 of the Disclosure Statement, any Governmental Requirement
applicable to any of the Company and the Company Subsidiaries or (C)
except as set forth in Section 4.03 of the Disclosure Statement, any
Material Agreement of the Company, (ii) except as set forth in Section
4.03 of the Disclosure Statement, result in the acceleration or
mandatory prepayment of any Indebtedness, or any Guaranty not
constituting Indebtedness, of any of the Company and the
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Company Subsidiaries or afford any holder of any of that Indebtedness,
or any beneficiary of any of those Guaranties, the right to require any
of the Company and the Company Subsidiaries to redeem, purchase or
otherwise acquire, reacquire or repay any of that Indebtedness, or to
perform any of those Guaranties, (iii) cause or result in the imposition
of, or afford any Person the right to obtain, any Lien upon any property
or assets of any of the Company and the Company Subsidiaries (or upon
revenues, income or profits of any of the Company and the Company
Subsidiaries therefrom), (iv) except as set forth in Section 4.03 of the
Disclosure Statement, result in the revocation, cancellation, suspension
or material modification, in any single case or in the aggregate, of any
Governmental Approval possessed by any of the Company and the Company
Subsidiaries at the date hereof and necessary for the ownership or lease
or the operation of its properties or the carrying on of its business as
now conducted, including any necessary Governmental Approval under each
applicable Environmental Law, or (v) except as set forth in Section 4.03
of the Disclosure Statement, entitle any Person other than the Company
or a Company Subsidiary to revoke, cancel, suspend or materially modify
any Company Commitment.
(d) Except for (i) the filing of the Certificates of Merger with
the applicable Governmental Authorities, (ii) filings of the
Registration Statement under the Securities Act and the SEC order
declaring the Registration Statement effective under the Securities Act,
and (iii) as may be required by the HSR Act or the applicable state
securities or blue sky laws, no Governmental Approvals are required to
be obtained, and no reports or notices to or filings with any
Governmental Authority are required to be made, by any of the Company
and the Company Subsidiaries for the execution, delivery or performance
by the Company of the Transaction Documents to which it is a party, the
enforcement against the Company of its obligations thereunder or the
effectuation of the Merger and the other transactions contemplated
thereby.
Section 4.04. CHARTER DOCUMENTS AND RECORDS; NO VIOLATION. The Company
has caused true, complete and correct copies of the Charter Documents, each as
in effect on the date hereof, and the minute books and similar corporate or
other Entity records of each of the Company and the Company Subsidiaries to be
delivered or otherwise made available to OEI. No breach or violation of any
Charter Document of any of the Company and the Company Subsidiaries has occurred
and is continuing.
Section 4.05. NO DEFAULTS. Except to the extent the consummation of the
transactions contemplated hereby will violate, breach or constitute a default
under any agreement or instrument described in Section 4.03 of the Disclosure
Statement, no act or omission by the Company or any of the Company Subsidiaries
has occurred, and to the knowledge of the Company, the Company Subsidiaries and
the Stockholders, no other condition or state of facts exists, or, with the
giving of notice or the lapse of time or both, would exist, which (a) entitles
any holder of any outstanding Indebtedness, or any Guaranty not constituting
Indebtedness, of any of the Company and the Company Subsidiaries, or a
representative of the holder, to accelerate the maturity, or require a mandatory
prepayment of that Indebtedness or Guaranty, or affords the holder or its
representative,
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or any beneficiary of that Guaranty, the right to require any of the Company and
the Company Subsidiaries to redeem, purchase or otherwise acquire, reacquire or
repay any of that Indebtedness, or to perform that Guaranty in whole or in part,
(b) entitles any Person to obtain any Lien (other than a Permitted Lien) upon
any properties or assets of any of the Company and the Company Subsidiaries (or
upon revenues, income or profits of any of the Company and the Company
Subsidiaries therefrom), or (c) to the knowledge of the Company, the Company
Subsidiaries and the Stockholders, constitutes a violation or breach of, or a
default under, any Material Agreement of the Company by any of the Company and
the Company Subsidiaries.
Section 4.06. COMPANY SUBSIDIARIES. Section 4.06 of the Disclosure
Statement either (a) accurately sets forth the form of organization, legal name,
each assumed name and Organization State of each Company Subsidiary or (b)
correctly states no Entity is a Company Subsidiary. Except as accurately
disclosed in Section 4.06 of the Disclosure Statement, each Company Subsidiary
is a Wholly Owned Subsidiary. In the case of any Company Subsidiary that is not
a Wholly Owned Subsidiary, Section 4.06 of the Disclosure Statement accurately
sets forth, by each class and each series within each class, the number of
outstanding shares of Capital Stock of the Company Subsidiary, (a) the Company's
aggregate direct and indirect ownership of those shares and (b) the name and
address of record and percentage ownership of those shares by each holder of
record thereof other than the Company or a Company Subsidiary. No Lien exists on
any outstanding share of Capital Stock of any Company Subsidiary which is owned
directly or indirectly by the Company other than (a) the Liens, if any,
described in Section 4.06 of the Disclosure Statement, all of which will be
released at or before the Effective Time, and (b) Permitted Liens. Except as
accurately set forth in Section 4.06 of the Disclosure Statement, the Company
does not own, of record or beneficially, directly or indirectly through any
Person, and does not control, directly or indirectly through any Person or
otherwise, any Capital Stock or Derivative Securities of any Entity other than a
Company Subsidiary.
Section 4.07. CAPITAL STOCK OF THE COMPANY AND THE COMPANY SUBSIDIARIES.
All the issued and outstanding shares of Capital Stock of each of the Company
and the Company Subsidiaries have been duly authorized and validly issued in
accordance with the applicable Governmental Requirements of their issuer's
Organization State and Charter Documents and are fully paid and nonassessable.
Neither the Company nor any Company Subsidiary has issued or sold any shares of
its outstanding Capital Stock in breach or violation of (a) any applicable
statutory or contractual preemptive rights, or any other rights of any kind
(including any rights of first offer or refusal), of any Person or (b) the terms
of any of its Derivative Securities which then were outstanding. Except as
accurately set forth in Section 4.07 of the Disclosure Statement, no Person has,
otherwise than solely by reason of that Person's right, if any, to vote shares
of the Capital Stock of the Company or any Company Subsidiary it holds (to the
extent those shares afford their holder any voting rights) any right to vote on
any matter with the holders of Capital Stock of the Company or any Company
Subsidiary.
Section 4.08. TRANSACTIONS IN CAPITAL STOCK. Except as accurately set
forth in Section 4.08 of the Disclosure Statement: (a) the Company has no fixed
or contingent obligation to purchase,
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redeem or otherwise acquire or reacquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof, and (b) no transaction has been effected, and no action has been taken,
respecting the equity ownership of either the Company or any Company Subsidiary,
in either case in contemplation of the transactions described in this Agreement.
Section 4.09. NO BONUS SHARES. Except as accurately set forth in Section
4.09 of the Disclosure Statement, no outstanding share of Capital Stock of the
Company was issued for less than its fair market value at the time of its
issuance or was issued in exchange for any consideration other than cash.
Section 4.10. PREDECESSOR STATUS; ETC. Section 4.10 of the Disclosure
Statement accurately lists all the legal and assumed names of all predecessor
companies for the past five years of the Company and each Company Subsidiary,
including the names of any Entities from which the Company previously acquired
material assets. Except as accurately disclosed in Section 4.10 of the
Disclosure Statement, the Company has not been a Subsidiary or division of
another corporation or a part of an acquisition that was later rescinded.
Section 4.11. RELATED PARTY AGREEMENTS. Except as set forth in Schedule
4.11, each Related Party Agreement in effect on the date of this Agreement will
have been terminated as of the IPO Closing Date, and no Related Party Agreement
will exist then or thereafter.
Section 4.12. LITIGATION. Except as accurately disclosed in Section 4.12
of the Disclosure Statement, no Litigation is pending or, to the knowledge of
the Company, any Company Subsidiary or any Stockholder, threatened to which the
Company or any Company Subsidiary is or, to the knowledge of the Company, any
Company Subsidiary or the Stockholders, may become a party.
Section 4.13. FINANCIAL STATEMENTS; DISCLOSURE.
(a) FINANCIAL STATEMENTS. The Financial Statements (including in
each case the related schedules and notes) delivered to OEI by the
Company present fairly, in all material respects, the financial position
of the Company (or the consolidated financial position of the Company
and the consolidated Company Subsidiaries, if any) at the respective
dates of the balance sheets included therein and the results of its
operations (or their consolidated operations, as the case may be) and
its cash flows (or their consolidated cash flows, as the case may be)
for the respective periods set forth therein and have been prepared in
accordance with GAAP. As of the date of each balance sheet included in
all previously delivered Financial Statements, neither the Company nor
any Company Subsidiary then had any outstanding Indebtedness to any
Person or any liabilities of any kind (including contingent obligations,
Tax assessments or forward or long-term commitments), or any unrealized
or anticipated loss, which in the aggregate then were Material to the
Company and required by GAAP to be reflected in those Financial
Statements or in the notes related thereto, which were not so reflected.
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(b) DISCLOSURE. To the knowledge of the Company and the
Stockholders:
(i) all Information (other than financial budgets and
projections) that (A) is set forth in the Disclosure Statement,
(B) has been delivered to OEI by or on behalf of the Company
pursuant to an express requirement of this Agreement, or (C) has
been furnished to OEI by or on behalf of the Company for
inclusion in the Registration Statement under the captions "THE
COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "BUSINESS," "MANAGEMENT,"
and "CERTAIN TRANSACTIONS" in any prospectus forming a part of
the Registration Statement taken together, does not contain any
untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in
the light of the circumstances under which the statements were
made, not misleading; and
(ii) all financial budgets and projections that have been
or are hereafter from time to time prepared by the Company or any
of its Representatives and made available prior to the Effective
Time to OEI pursuant to or in connection with this Agreement, any
other Transaction Document or the transactions contemplated
hereby or thereby have been and will be prepared and furnished to
OEI in good faith and were and will be based on facts and
assumptions that are believed by the management of the Company to
be reasonable in light of the then current and reasonably
foreseeable business conditions of the Company and the Company
Subsidiaries and represented and will represent management's good
faith estimate of the consolidated projected financial
performance of the Company and the Company Subsidiaries based on
the information available to the Responsible Officer at the time
so furnished (it being acknowledged by OEI that the budgets and
projections referred to in this clause (ii) are derived from
judgments made by the Company's management and are only estimates
of future results based on reasonable assumptions of the
Company's management made at the time of their preparation, and
that there can be no assurance that the budgets or projections
will be obtained or maintained or that actual results will not be
different from those budgeted or projected).
Section 4.14. COMPLIANCE WITH LAWS.
(a) Except as accurately disclosed in Section 4.14 of the
Disclosure Statement, (i) each of the Company and the Company
Subsidiaries possesses, or, if required by the applicable Professional
Codes, one or more of its employees as required by those Professional
Codes possesses, all necessary licenses, registrations and
qualifications material to the conduct of its business, and (ii) to the
knowledge of the Company, each of the Company and the Company
Subsidiaries are in compliance in all material respects with the terms
and conditions of all Governmental Approvals necessary for the ownership
or lease and the operation of its properties (including all the
facilities and sites it owns or holds under
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any lease) and the carrying on of its business as now conducted,
including its conduct of the Practice of Engineering. The Company has
identified in Section 4.14 of the Disclosure Statement all the
Governmental Approvals it possesses. To the knowledge of the Company,
all the Governmental Approvals identified in Section 4.14 of the
Disclosure Statement, are valid. Except as accurately disclosed in
Section 4.14 of the Disclosure Statement, neither the Company nor any
Company Subsidiary has received any notice from any Governmental
Authority of its intention to cancel, terminate or not renew any such
Governmental Approvals.
(b) Except as accurately disclosed in Section 4.14 of the
Disclosure Statement, each of the Company and the Company Subsidiaries:
(i) to the knowledge of the Company, has been and continues to be in
compliance in all material respects with all Governmental Requirements
applicable to it or any of its presently or previously owned or operated
properties (including all the facilities and sites now or previously
owned or held by it under any lease), businesses or operations,
including all applicable Governmental Requirements under ERISA,
Environmental Laws and Professional Codes; and (ii)(A) neither the
Company nor any Company Subsidiary has received any notice from any
Governmental Authority which asserts, or raises the possibility of
assertion of, any noncompliance by the Company or any Company Subsidiary
with any Governmental Requirements and (B) to the knowledge of the
Company and the Stockholders, no condition or state of facts exists
which would provide a valid basis for any such assertion.
Section 4.15. CERTAIN ENVIRONMENTAL MATTERS. Except as accurately
disclosed in Section 4.15 of the Disclosure Statement: (a) to the knowledge of
the Company, the Company and each Company Subsidiary have complied, and are in
compliance, with the provisions of all Environmental Laws applicable to any of
them or any of their respective presently owned or operated facilities, sites or
other properties, businesses and operations and which relate to the reporting by
the Company and each Company Subsidiary of all sites presently owned or operated
by any of them where Solid Wastes, Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (b) no release (as
defined in the applicable Environmental Laws) at, from, in or on any site owned
or leased by the Company or any Company Subsidiary has occurred which, if all
relevant facts were known to the relevant Governmental Authorities, reasonably
could be expected to require remediation to avoid deed record notices,
restrictions, liabilities or other consequences that would not be applicable if
the release had not occurred; (c) neither the Company nor any Company Subsidiary
has transported or arranged for the transportation of any Solid Wastes,
Hazardous Wastes or Hazardous Substances to, or disposed or arranged for the
disposition of any Solid Wastes, Hazardous Wastes or Hazardous Substances at,
any off-site location that reasonably could be expected to lead to any valid
claim against the Company, any Company Subsidiary, OEI or Newco, as a
potentially responsible party or otherwise, for any clean-up costs, remedial
work, damage to natural resources, personal injury or property damage, including
any claim under CERCLA; and (d) no storage tanks exist, or, to the knowledge of
the Company, has existed, on or under any of the properties owned or operated by
the Company or any Company Subsidiary from which any Solid Wastes, Hazardous
Wastes or Hazardous Substances have been released into the surrounding
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environment. The Company has provided OEI with copies (or if not available,
accurate written summaries) of all environmental investigations, studies,
audits, reviews and other analyses conducted by or on behalf, or which otherwise
are in the possession, of the Company or any Company Subsidiary respecting any
facility, site or other property now or previously owned or operated by the
Company and each Company Subsidiary.
Section 4.16. LIABILITIES AND OBLIGATIONS. Section 4.16 of the
Disclosure Statement accurately lists all present liabilities, whether accrued,
absolute, fixed or contingent, of each of the Company and the Company
Subsidiaries which exceed or reasonably could be expected to exceed $100,000 and
which (a) had been incurred prior to the Current Balance Sheet Date, but are not
reflected on the Current Balance Sheet, or (b) were incurred after the Current
Balance Sheet otherwise than in the ordinary course of business, and consistent
with the past practice, of that Entity, in each case other than (i) obligations
and liabilities of the Company and the Company Subsidiaries in respect of the
Company Commitments, (ii) obligations and liabilities of the Company in respect
of each Company ERISA Benefit Plan, and (iii) obligations and liabilities of the
Company and the Company Subsidiaries set forth in the Disclosure Statement.
Section 4.16 of the Disclosure Statement also accurately lists and describes,
for each of the Company and the Company Subsidiaries: (a) each of its
outstanding secured and unsecured Guaranties not constituting its Indebtedness
and, for each of those Guaranties, whether any Stockholder or Related Person or
Affiliate of any Stockholder is a Person whose obligation is covered by that
Guaranty, and (b) for each of the items listed under clause (a) of this
sentence, (i) if that item is secured by any property or asset of the Company or
any Company Subsidiary, the nature of the security, and (ii) if that item is
covered in whole or in part by a Guaranty of any Stockholder or any Related
Person or Affiliate of any Stockholder, the name of the guarantor.
Section 4.17. RECEIVABLES. Except as accurately set forth in Section
4.17 of the Disclosure Statement, all the accounts and notes or other advances
receivable of the Company and the Company Subsidiaries reflected on the Current
Balance Sheet were collected, or are, in the good faith belief of the Company's
management, collectible, in the respective amounts so reflected, net of the
reserves, if any, reflected in the Current Balance Sheet, and were originated in
the ordinary course of business.
Section 4.18. OWNED AND LEASED REAL PROPERTIES.
(a) Section 4.18 of the Disclosure Statement accurately lists and
correctly describes in all material respects: (i) all real properties
owned by any of the Company and the Company Subsidiaries and, for each
of those properties, its address, the type and square footage of each
structure located thereon and the nature of its use in the business of
the Company and the Company Subsidiaries; (ii) all real properties of
which any of the Company and the Company Subsidiaries is the lessee and,
for each of those properties, its address, the type and square footage
of each structure located thereon which the Company or a Company
Subsidiary is leasing, the annual rental rate, the expiration date of
its lease and the use made of the leased property in the business of the
Company and the Company
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Subsidiaries; and (iii) in the case of each real property listed as
being owned, whether it was previously owned, and in the case of each
real property listed as being leased, whether it is presently owned, by
any Stockholder or any of his Related Persons or Affiliates (other than
the Company and the Company Subsidiaries, if the Stockholder is an
Affiliate of the Company).
(b) The Company has provided OEI with true, complete and correct
copies of all title reports and title insurance policies owned or in the
possession of any of the Company and the Company Subsidiaries and
relating to any of the real properties identified in Section 4.18 of the
Disclosure Statement as being owned. Except as accurately set forth in
that Section or those reports and policies, and except for Permitted
Liens, the Company or a Company Subsidiary owns in fee, and has valid
and indefeasible title to, free and clear of all Liens, each property
listed in that Section as being owned.
(c) The Company has provided OEI with true, correct and complete
copies of all leases under which the Company or a Company Subsidiary is
leasing each of the real properties listed in Section 4.18(a)(ii) of the
Disclosure Statement as being leased, and, except as accurately set
forth in this Section 4.18(c) of the Disclosure Statement, (i) each of
the listed leases is, to the knowledge of the Company, valid and binding
on the lessor party thereto, and (ii) the lessee party thereto has not
sublet any of the leased space to any Person other than the Company or a
Company Subsidiary.
(d) The fixed assets of each of the Company and the Company
Subsidiaries are affixed only to one or more of the real properties
listed in Section 4.18 of the Disclosure Statement and, except as
accurately set forth in that Section, are well-maintained and adequate
for the purposes for which they presently are being used or held for
use, ordinary wear and tear excepted.
(e) The Company has accurately described, in all material
respects, in Section 4.18 of the Disclosure Statement all plans or
projects involving the opening of new operations, the expansion of any
existing operations or the acquisition of any real property or existing
business, with respect to which management of the Company or any Company
Subsidiary has made any expenditure in the two-year period prior to the
date of the Agreement in excess of $50,000, or which if pursued by the
Company or any Company Subsidiary would require additional capital
expenditures in excess of $50,000.
Section 4.19. OWNED AND LEASED PERSONAL PROPERTY.
(a) Section 4.19 of the Disclosure Statement accurately lists, in
all material respects, all machinery, equipment and other personal
property included in the Property, Plant and Equipment owned and leased
by any of the Company and the Company Subsidiaries, which list states,
in the case of each of those properties listed as being owned, whether
it was previously owned, and in the case of each of those properties
listed as being
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leased, whether it is presently owned, by any Stockholder or any of his
Related Persons or Affiliates (other than the Company and the Company
Subsidiaries, if the Stockholder is an Affiliate of the Company).
(b) Except as accurately set forth in Section 4.19 of the
Disclosure Statement and except for Permitted Liens, the Company or a
Company Subsidiary has good, valid and indefeasible title to, free and
clear of all Liens, each asset listed in that Section as being owned,
free and clear of all Liens.
(c) The Company has provided OEI with true, correct and complete
copies of all leases under which the Company or a Company Subsidiary is
leasing each of the properties listed in Section 4.19 of the Disclosure
Statement as being leased and all leases referred to in Section 4.21
and, except as accurately set forth in Section 4.19 of the Disclosure
Statement, (i) each of those leases is, to the knowledge of the Company,
valid and binding on the lessor party thereto, and (ii) the lessee party
thereto has not sublet any of the leased property to any Person other
than the Company or a Company Subsidiary.
(d) Except as accurately set forth in Section 4.19 of the
Disclosure Statement, all items of machinery, equipment and other
personal property listed therein are in good working order and
condition, ordinary wear and tear excepted, and adequate for the
purposes for which they presently are being used or held for use.
Section 4.20. PROPRIETARY RIGHTS. Except as accurately set forth in
Section 4.20 of the Disclosure Statement, each of the Company and the Company
Subsidiaries owns or has the legal right to use all Proprietary Rights that are
necessary to the conduct of its business as now conducted, in each case free of
any claims or infringements known to the Company or any Stockholder. Section
4.20 of the Disclosure Statement accurately (a) lists all such Proprietary
Rights and (b) indicates those owned by the Company or any Company Subsidiary
and, for those not listed as so owned, the agreement or other arrangement
pursuant to which they are possessed or used. Except as accurately set forth in
Section 4.20 of the Disclosure Statement, (a) no consent of any Person will be
required for the use of any of these Proprietary Rights by OEI or any Subsidiary
of OEI following the Effective Time and (b) no governmental registration of any
of these Proprietary Rights has lapsed or expired or been canceled, abandoned,
opposed or the subject of any reexamination request.
Section 4.21. TITLE TO OTHER PROPERTIES. In each case, free and clear of
all Liens except for Permitted Liens and as accurately set forth in Section 4.21
of the Disclosure Statement, each of the Company and the Company Subsidiaries
has good and valid title to, or holds under a lease valid and, to the knowledge
of the Company and the Stockholders, binding on the lessor party thereto, all
its tangible personal properties and assets (other than Property, Plant and
Equipment) that individually is or in the aggregate are Material to the Company.
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Section 4.22. CONTRACTS AND COMMITMENTS; SIGNIFICANT CUSTOMERS.
(a) In Section 4.22(a) of the Disclosure Statement, the Company
has completely and accurately listed each of the following (each a
"COMPANY COMMITMENT") to which any of the Company and the Company
Subsidiaries is a party or by which any of its properties is bound and
which presently remains executory in whole or in any part:
(i) each partnership, joint venture or
cost-sharing agreement;
(ii) each guaranty or suretyship,
indemnification or contribution agreement or performance bond, other than
indemnification agreements and performance bonds entered into or furnished in
connection with Engineering Contracts in the ordinary course of business;
(iii) each instrument, agreement or other
obligation evidencing or relating to Indebtedness of any of the Company and the
Company Subsidiaries or to money lent or to be lent to another Person;
(iv) each contract to purchase or sell real
property;
(v) each Engineering Contract for which
either the contract price or the cost of performance will or could reasonably be
expected to exceed 2% of the Company's total revenues (determined on a
consolidated basis if the Company has consolidated Subsidiaries) for the year
ended on the Current Balance Sheet Date (each a "MATERIAL ENGINEERING
CONTRACT");
(vi) each Related Party Agreement involving
total payments within any 12-month period in excess of $10,000 and which is not
terminable without penalty on no more than 30 days' prior notice;
(vii) each agreement (other than Engineering
Contracts and routine purchase orders or purchase order acknowledgments issued
or received in the ordinary course of business) for the acquisition or provision
of services, supplies, equipment, inventory, fixtures or other property
involving more than $50,000 in the aggregate;
(viii) each contract containing any
noncompetition agreement, covenant or undertaking; or
(ix) each other agreement or commitment not
made in the ordinary course of business that is Material to the Company.
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True, correct and complete copies of all written Company Commitments,
and true, correct and complete written descriptions of all oral Company
Commitments, have been delivered or made available to OEI. Except as
accurately set forth in Section 4.22(a) of the Disclosure Statement: (i)
there are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse
of time or both, would constitute defaults or events of default under
any Company Commitment which is Material to the Company by any of the
Company and the Company Subsidiaries or, to the knowledge of the
Company, any other party thereto; and (ii) no penalties have been
incurred, nor are amendments pending, with respect to any Company
Commitment which is Material to the Company. The Company Commitments are
in full force and effect and are valid and enforceable obligations of
the Company or the Company Subsidiaries parties thereto and, to the
knowledge of the Company and the Stockholders, the other parties
thereto, in accordance with their respective terms, and no defenses,
off-sets or counterclaims have been asserted or, to the knowledge of the
Company and the Stockholders, may be made by any party thereto (other
than by the Company or a Company Subsidiary), nor has the Company or a
Company Subsidiary, as the case may be, waived any rights thereunder,
except as accurately described in Section 4.22 of the Disclosure
Statement.
(b) Section 4.22(b) of the Disclosure Statement accurately
describes each Material Engineering Contract by identifying its parties,
the nature of the project or services being or to be provided under the
contract by the Company or a Company Subsidiary, the contract price or
the method of determining the contract price, the percentage of
completion to date, the estimated completion date, and the names of all
subcontractors engaged or retained by the Company or a Company
Subsidiary in connection with the contract. Except as disclosed in
Section 4.22(b) of the Disclosure Statement, no Engineering Contract
contains terms, conditions or requirements which:
(i) exceed the current performance capabilities of the
Company or the applicable Company Subsidiary;
(ii) will or could reasonably be expected to result in a
total cost of performance which is in excess of the contract
price; or
(iii) will or could reasonably be expected to result in
the imposition of any delay penalties on the Company or a Company
Subsidiary for failure to complete all or a portion of the work
contemplated therein within a designated period of time.
(c) Except as accurately disclosed in Section 4.22(c) of the
Disclosure Statement or contemplated hereby or by any other Transaction
Document to which the Company or any Company Subsidiary or Stockholder
is a party: (i) neither the Company nor any Company Subsidiary or
Stockholder has knowledge that the Company or any Company Subsidiary has
received notice of any plan or intention of any other party to any
Company Commitment to exercise any right to cancel or terminate any
Company Commitment, and neither the
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Company nor any Company Subsidiary or Stockholder knows of any condition
or state of facts, including the consummation of the Merger, which would
justify the exercise of such a right; and (ii) neither the Company nor
any Company Subsidiary or Stockholder currently contemplates any
amendment or change to any Company Commitment.
(d) Section 4.22(d) of the Disclosure Schedule identifies each
client or customer which accounted for 5% or more of the Company's
consolidated revenues for the year ended on the Current Balance Sheet
Date.
Section 4.23. CAPITAL EXPENDITURES. Section 4.23 of the Disclosure
Statement accurately sets forth the total amount of capital expenditures
currently budgeted to be incurred by the Company and the Company Subsidiaries
during the balance of the Company's current and next ensuing fiscal years.
Except as accurately set forth in Section 4.23 of the Disclosure Statement, to
the knowledge of the Company and the Stockholders, no condition or state of
facts exists which will cause the total capital expenditures of the Company and
the Company Subsidiaries which will be required to replace worn-out or obsolete
Property, Plant and Equipment in the Company's current and next ensuing fiscal
years to exceed the amount budgeted for capital expenditures by the Company and
the Company Subsidiaries for the current and next ensuing fiscal years in order
to maintain the types and levels of sales and services the Company and the
Company Subsidiaries presently make or provide.
Section 4.24. INVENTORIES. Except as accurately set forth in Section
4.24 of the Disclosure Statement: (a) all inventories, net of reserves
determined in accordance with GAAP, of each of the Company and the Company
Subsidiaries which are classified as such on the Current Balance Sheet are, to
the knowledge of the Company, merchantable and salable or usable in the ordinary
course of business of the Company and the Company Subsidiaries; (b) the
inventories reflected in the Financial Statements, as at the Current Balance
Sheet Date, (i) were reasonable in relation to the then existing circumstances
of the Company (and the Company Subsidiaries on a consolidated basis, if
applicable) and classified as current assets in accordance with GAAP, (ii) were
consistent with their past practices and (iii) fairly reflected the average
inventory levels maintained during the 12-month period ended on that date; and
(c) neither the Company nor any Company Subsidiary depends on any single vendor
for its inventories the loss of which could have a Material Adverse Effect on
the Company or within the last three calendar years has sustained a difficulty
Material to the Company in obtaining its inventories.
Section 4.25. INSURANCE. Except as accurately set forth in Section 4.25
of the Disclosure Statement: (a) the Company has provided OEI with: (i) a list
of all insurance policies carried by each of the Company and the Company
Subsidiaries; (ii) an accurate list of all insurance loss runs and worker's
compensation claims received for the most recently ended three policy years; and
(iii) true, complete and correct copies of all insurance policies carried by
each of the Company and the Company Subsidiaries which are in effect, all of
which have been issued by insurers of recognized responsibility and currently
are, and will remain without interruption through the IPO Closing Date, in full
force and effect; (b) no insurance carried by the Company or any Company
Subsidiary has
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been canceled by the insurer during the past five years, and neither the Company
nor any Company Subsidiary has been denied coverage during the past five years;
and (c) neither the Company, any Company Subsidiary nor any Stockholder has
received any notice or other communication from any issuer of any listed
insurance policy of any material increase in any deductibles, retained amounts
or the premiums payable thereunder, and, to the knowledge of the Company and the
Stockholders, no such increase in deductibles, retainages or premiums is
threatened.
Section 4.26. EMPLOYEE MATTERS.
(a) CASH COMPENSATION. Section 4.26 of the Disclosure Statement
accurately lists the names, titles and rates of annual Cash
Compensation, at the Current Balance Sheet Date and at the date hereof
(and the portions thereof attributable to salary or the equivalent,
fixed bonuses, discretionary bonuses and other Cash Compensation,
respectively) of all key employees (including all employees who are
officers or directors and all employees who are Immediate Family Members
of a Stockholder), nonemployee officers, nonemployee directors and key
consultants of each of the Company and the Company Subsidiaries.
(b) EMPLOYMENT AGREEMENTS. Section 4.26(b) of the Disclosure
Statement accurately lists all Employment Agreements remaining executory
in whole or in part on the date hereof, complete and correct copies of
all of which have been provided to OEI by the Company. Neither the
Company nor any Company Subsidiary is a party to any oral Employment
Agreement.
(c) OTHER COMPENSATION PLANS. Section 4.26(c) of the Disclosure
Statement accurately lists all Other Compensation Plans either remaining
executory at the date of this Agreement or to later become effective.
The Company has provided OEI with a true, correct and complete copy of
each of the listed Other Compensation Plans that is in writing and an
accurate description of each of the listed Other Compensation Plans that
is not written. Except as accurately set forth in Section 4.26(c) of the
Disclosure Statement, each of the Other Compensation Plans, including
each that is a Welfare Plan, may be unilaterally amended or terminated
by the Company or any Company Subsidiary without liability to any of
them, except as to benefits accrued thereunder prior to amendment or
termination.
(d) ERISA BENEFIT PLANS. Section 4.26(d) of the Disclosure
Statement accurately (i) lists each ERISA Pension Benefit Plan (A) the
funding requirements of which (under Section 302 of ERISA or Section 412
of the Code) are, or at any time during the six-year period ending on
the date of this Agreement were, in whole or in part, the responsibility
of the Company or any Company Subsidiary, or respecting which the
Company or any Company Subsidiary is, or at any time during that period
was, a "contributing sponsor" or an "employer" as defined in Sections
4001(a)(13) and 3(5), respectively, of ERISA (each plan described in
this clause (A) being a "Company ERISA Pension Plan"), (B) each other
ERISA Pension Benefit Plan respecting which an ERISA Affiliate is, or at
any time during that period was, such a "contributing sponsor" or
"employer" (each plan described in this
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clause (B) being an "ERISA Affiliate Pension Plan"), and (c) each other
ERISA Employee Benefit Plan that is being, or at any time during that
period was, sponsored, maintained or contributed to by the Company or
any Company Subsidiary (each plan described in this clause (c) and each
Company ERISA Pension Plan being a "Company ERISA Benefit Plan"), (ii)
states the termination date of each Company ERISA Benefit Plan and ERISA
Affiliate Pension Plan that has been terminated, and (iii) identifies
for each ERISA Affiliate Pension Plan the relevant ERISA Affiliates. The
Company has provided OEI with true, complete and correct copies of (i)
each Company ERISA Benefit Plan and ERISA Affiliate Pension Plan, (ii)
each trust agreement related thereto, and (iii) all amendments to all
such plans and trust agreements. Except as accurately set forth in
Section 4.26(d) of the Disclosure Statement, (i) neither the Company nor
any Company Subsidiary is, or at any time during the six-year period
ended on the date of this Agreement was, a member of any ERISA Group
that currently includes, or included when the Company or a Company
Subsidiary was a member, among its members any Person other than the
Company and the Company Subsidiaries, and (ii) no Person is an ERISA
Affiliate of the Company or any Company Subsidiary (other than the
Company or any Company Subsidiary in the case of any other Company
Subsidiary or any Company Subsidiary in the case of the Company, if the
Company and the Company Subsidiaries comprise an ERISA Group).
(e) EMPLOYEE POLICIES AND PROCEDURES. Section 4.26(e) of the
Disclosure Statement accurately lists all Employee Policies and
Procedures. The Company has provided OEI with a copy of all written
Employee Policies and Procedures and a written description of all
material unwritten Employee Policies and Procedures the continuance or
discontinuance of which could reasonably be expected to have a Material
Adverse Effect.
(f) UNWRITTEN AMENDMENTS. Except as accurately described in
Section 4.26(f) of the Disclosure Statement, no material unwritten
amendments have been made, whether by oral communication, pattern of
conduct or otherwise, with respect to any of the Employment Agreements,
Other Compensation Plans or Employee Policies and Procedures.
(g) LABOR COMPLIANCE. Each of the Company and the Company
Subsidiaries has been and is in compliance with all applicable
Governmental Requirements respecting employment and employment
practices, terms and conditions of employment and wages and hours, and
neither the Company nor any Company Subsidiary is liable for any arrears
of wages or penalties for failure to comply with any of the foregoing.
Neither the Company nor any Company Subsidiary has engaged in any unfair
labor practice or discriminated on the basis of race, color, religion,
sex, national origin, age, disability or handicap in its employment
conditions or practices. Except as accurately set forth in Section
4.26(g) of the Disclosure Statement, there are no (i) unfair labor
practice charges or complaints or racial, color, religious, sex,
national origin, age, disability or handicap discrimination charges or
complaints pending or, to the knowledge of the Company, threatened
against the Company or any of the Company Subsidiaries before any
Governmental Authority (nor, to the knowledge of the Company, does any
valid basis therefor exist) or (ii) existing or, to the
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knowledge of the Company, threatened labor strikes, disputes,
grievances, controversies or other labor troubles affecting the Company
or any of the Company Subsidiaries (nor, to the knowledge of the
Company, does any valid basis therefor exist).
(h) UNIONS. Neither the Company nor any Company Subsidiary or
ERISA Affiliate has ever been a party to any agreement with any union,
labor organization or collective bargaining unit. No employees of any of
the Company and the Company Subsidiaries are represented by any union,
labor organization or collective bargaining unit. Except as accurately
set forth in Section 4.26(h) of the Disclosure Statement, to the
knowledge of the Company, none of the employees of the Company and the
Company Subsidiaries has threatened to organize or join a union, labor
organization or collective bargaining unit.
(i) NO ALIENS. All employees of each of the Company and the
Company Subsidiaries are citizens of, or are authorized in accordance
with federal immigration laws to be employed in, the United States.
(j) CHANGE OF CONTROL BENEFITS. Except as accurately set forth in
Section 4.26(j) of the Disclosure Statement, neither the Company nor any
of the Company Subsidiaries is a party to any agreement, or has
established any policy, practice or program, requiring it to make a
payment or provide any other form of compensation or benefit or vesting
rights to any person performing services for the Company or any of the
Company Subsidiaries which would not be payable or provided in the
absence of this Agreement or the consummation of the transactions
contemplated by this Agreement, including any parachute payment under
Section 280G of the Code.
(k) RETIREES. Neither the Company nor any of the Company
Subsidiaries has any obligation or commitment to provide medical, dental
or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired except (i) as
may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code, the applicable parallel provisions of ERISA
and any other applicable federal or state law, (ii) continuation of
benefits in the event of disability, and (iii) conversion privileges
provided under any insured Company ERISA Employee Benefit Plans.
(l) INDEPENDENT CONTRACTORS. No Person that was engaged by the
Company or a Company Subsidiary as an independent contractor can or will
be characterized or deemed to be an employee of the Company under any
Governmental Requirement for any purpose including for purposes of any
Taxes or any Plan.
Section 4.27. COMPLIANCE WITH ERISA, ETC.
(a) COMPLIANCE. Each of the Company ERISA Benefit Plans and Other
Compensation Plans (each, a "PLAN") (i) is in substantial compliance
with all applicable
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provisions of ERISA and the Code, as well as with all other applicable
Governmental Requirements, and (ii) has been administered, operated and
managed in accordance with its governing documents.
(b) QUALIFICATION. All Plans that are intended to qualify under
Section 401(a) of the Code (the "QUALIFIED PLANS") are so qualified and
have been determined by the IRS to be so qualified (or application for
determination letters have been timely submitted to the IRS). The
Company has provided OEI with true, complete and correct copies of the
current plan determination letters, most recent actuarial valuation
reports, if any, most recent Form 5500, or, as applicable, Form
5500-C/R, filed with respect to each Qualified Plan and most recent
trustee or custodian report. To the extent that any Qualified Plans have
not been amended to comply with applicable Governmental Requirements,
the remedial amendment period permitting retroactive amendment of these
Qualified Plans has not expired and will not expire within 120 days
after the Effective Time. All reports and other documents required to be
filed with any governmental agency or distributed to plan participants
or beneficiaries (including annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or Returns) have been timely
filed or distributed.
(c) NO PROHIBITED TRANSACTIONS, ETC. None of the Stockholders,
any Plan or the Company or any Company Subsidiary has engaged in any
Prohibited Transaction. No Plan has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(a)
of ERISA, and no circumstances exist under which the Company or any
Company Subsidiary could have any liability (including being subject to
any statutory Lien to secure payment of any such liability), to the PBGC
under Title IV of ERISA or to the IRS for any excise tax or penalty with
respect to any Plan maintained or contributed to by the Company or any
of its ERISA Affiliates. Further:
(i) there have been no terminations, partial terminations
or discontinuances of contributions to any Qualified Plan without
a determination by the IRS that such action does not adversely
affect the tax-qualified status of that plan;
(ii) no Termination Event has occurred;
(iii) no Reportable Event has occurred with respect to any
Plan which was not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of
the Effective Time, will equal or exceed the actuarial present
value of all "BENEFIT LIABILITIES" (within the meaning of Section
4001(a)(16) of ERISA) under that plan in accordance with the
assumptions contained in the Regulations of the PBGC governing
the funding of terminated defined benefit plans;
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(v) with respect to Plans qualifying as "GROUP HEALTH
PLANS" under Section 4980B of the Code or Section 607(l) or 609
of ERISA and related regulations (relating to the benefit
continuation rights imposed by "COBRA" or qualified medical child
support orders), the Company and each Company Subsidiary have
complied in all material respects with all reporting, disclosure,
notice, election and other benefit continuation and coverage
requirements imposed thereunder as and when applicable to those
plans, and neither the Company nor any Company Subsidiary has
incurred (or will incur) any liability or is (or will be) subject
to any loss, assessment, excise tax penalty, loss of federal
income tax deduction or other sanction, arising on account of or
in respect of any failure by the Company or any Company
Subsidiary, at any time prior to the Effective Time, to comply
with any such federal or state benefit continuation or coverage
requirement, which is capable of being assessed or asserted
before or after the Effective Time against the Company, any
Company Subsidiary, the Surviving Corporation or OEI with respect
to any of those group health plans;
(vi) the Financial Statements as of the Current Balance
Sheet Date reflect the approximate total pension, medical and
other benefit liability for all Plans, and no material funding
changes or irregularities are reflected thereon which would cause
those Financial Statements to be not representative of prior
periods;
(vii) neither the Company nor any Company Subsidiary has
incurred liability under Section 4062 of ERISA;
(viii) there are no investigations or audits of any Plan
by any Governmental Authority which are pending or, to the
knowledge of the Company and the Stockholders, threatened, and
there have been no such investigations or audits that have been
concluded that resulted in any liability of the Company or any
Company Subsidiary that has not been fully discharged; and
(ix) neither the Company nor any Company Subsidiary has
participated in any voluntary compliance or self-correction
program established by the IRS, or entered into any closing
agreement with the IRS with respect to the form or operation of
any Plan.
(d) MULTIEMPLOYER PLANS. Except as set forth in Section 4.27(d)
of the Disclosure Statement, neither the Company nor any Company
Subsidiary, and no ERISA Affiliate of any of them, is, or at any time
during the six-year period ended on the date of this Agreement was,
obligated to contribute to a Multiemployer Plan. Neither the Company nor
any Company Subsidiary, and no ERISA Affiliate of any of them, has made
a complete or partial withdrawal from a Multiemployer Plan so as to
incur withdrawal liability as defined in Section 4201 of ERISA.
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(e) CLAIMS AND LITIGATION. Except as accurately set forth in
Section 4.27(e) of the Disclosure Statement, no Litigation or claims
(other than routine claims for benefits) are pending or, to the
knowledge of the Company, threatened against, or with respect to, any of
the Plans or with respect to any fiduciary, administrator or sponsor
thereof (in their capacities as such), or any party-in-interest thereof.
(f) EXCISE TAXES, DAMAGES AND PENALTIES. No act, omission or
transaction has occurred which would result in the imposition on the
Company or any Company Subsidiary of (i) breach of fiduciary duty
liability damages under Section 409 of ERISA, (ii) a civil penalty
assessed pursuant to Section 502 of ERISA or (iii) any excise tax under
applicable provisions of the Code with respect to any Plan.
(g) VEBA WELFARE TRUST. Any trust funding a Plan which is
intended to be exempt from federal income taxation pursuant to Section
501(c)(9) of the Code, satisfies the requirements of that section and
has received a favorable determination letter from the IRS regarding the
Plan's exempt status and has not, since receipt of the most recent
favorable determination letter, been amended or operated in a way that
would adversely affect its exempt status.
Section 4.28. TAXES.
(a) Each of the following representations and warranties in this
Section 4.28 is qualified to the extent set forth in Section 4.28 of the
Disclosure Statement.
(b) All Returns required to be filed with respect to any Tax for
which any of the Company and the Company Subsidiaries is liable have
been duly and timely filed with the appropriate Taxing Authority, and
each such Return correctly reflects the Tax liability and all other
information required to be reported thereon. Each Tax shown to be
payable on each such Return has been paid, each Tax payable by the
Company or a Company Subsidiary by assessment has been timely paid in
the amount assessed, and adequate reserves have been established on the
consolidated books of the Company and the Company Subsidiaries for all
Taxes for which any of the Company and the Company Subsidiaries is
liable, but the payment of which is not yet due. Neither the Company nor
any Company Subsidiary is, or ever has been, liable for any Tax payable
by reason of the income or property of a Person other than the Company
or a Company Subsidiary. Each of the Company and the Company
Subsidiaries has timely filed true, correct and complete declarations of
estimated Tax in each jurisdiction in which any such declaration is
required to be filed by it. No Liens for Taxes exist upon the assets of
the Company or any Company Subsidiary except Liens for Taxes which are
not yet due. Neither the Company nor any Company Subsidiary is, or ever
has been, subject to Tax in any jurisdiction outside of the United
States. No Litigation with respect to any Tax for which the Company or
any Company Subsidiary is asserted to be liable is pending or, to the
knowledge of the Company or any Stockholder, threatened, and no basis
which the Company or any Stockholder believes to be valid exists on
which any
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claim for any such Tax can be asserted against the Company or any
Company Subsidiary. There are no requests for rulings or determinations
in respect of any Taxes pending between the Company, or any Company
Subsidiary, and any Taxing Authority. No extension of any period during
which any Tax may be assessed or collected and for which the Company or
any Company Subsidiary is or may be liable, and no extension of the time
within which the Company or any Company Subsidiary must file any Return,
has been granted to, or requested from, any Taxing Authority. Neither
the Company nor any Company Subsidiary is or has been a party to any tax
allocation or sharing agreement. All amounts required to be withheld by
any of the Company and the Company Subsidiaries and paid to governmental
agencies for income, social security, unemployment insurance, sales,
excise, use and other Taxes have been collected or withheld and paid to
the proper Taxing Authority. The Company and each Company Subsidiary
have made all deposits required by law to be made with respect to
employees' withholding and other employment Taxes.
(c) Neither the Company nor any Stockholder is a "foreign
person," as that term is referred to in Section 1445(f)(3) of the Code.
(d) The Company has not filed a consent pursuant to Section 341
(f) of the Code or any comparable provision of any other tax statute and
has not agreed to have Section 341 (f)(2) of the Code or any comparable
provision of any other Tax statute apply to any disposition of an asset.
No asset of the Company or of any Company Subsidiary is subject to any
provision of applicable law which eliminates or reduces the allowance
for depreciation or amortization in respect of that asset below the
allowance generally available to an asset of its type. No accounting
method changes of the Company or of any Company Subsidiary exist or are
proposed or threatened which could give rise to an adjustment under
Section 481 of the Code.
Section 4.29. GOVERNMENT CONTRACTS. Except as accurately set forth in
Section 4.29 of the Disclosure Statement, neither the Company nor any Company
Subsidiary is a party to any governmental contract subject to price
redetermination or renegotiation.
Section 4.30. ABSENCE OF CHANGE. Since the Current Balance Sheet Date,
except as accurately set forth in Section 4.30 of the Disclosure Statement, none
of the following has occurred with respect to the Company or any Company
Subsidiary:
(a) to the knowledge of the Company and the Stockholders, any
circumstance, condition, event or state of facts (either singly or in
the aggregate), other than conditions affecting the economy industry
generally, which has caused, is causing or could reasonably be expected
to cause a Material Adverse Effect on the Company;
(b) any change in its authorized Capital Stock or in any of its
outstanding Capital Stock or Derivative Securities;
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(c) any Restricted Payment, except any declaration or payment of
dividends by any Company Subsidiary solely to the Company;
(d) any increase in, or any commitment or promise to increase,
the rates of Cash Compensation as of the date hereof, or the amounts or
other benefits paid or payable under any Company ERISA Pension Plan or
Other Compensation Plan, except for ordinary and customary bonuses and
salary increases for employees (other than the Stockholders or their
Immediate Family Members) at the times and in the amounts consistent
with its past practice;
(e) any work interruptions, labor grievances or claims filed, or
any similar event or condition of any character, that will have a
Material Adverse Effect on the Surviving Corporation following the
Effective Time;
(f) any distribution, sale or transfer of, or any Company
Commitment to distribute, sell or transfer, any of its assets or
properties of any kind which singly is or in the aggregate are Material
to the Company, other than distributions, sales or transfers in the
ordinary course of its business and consistent with its past practices
to Persons other than to the Stockholders and their Immediate Family
Members and Affiliates;
(g) any cancellation, or agreement to cancel, any Indebtedness,
obligation or other liability owing to it, including any Indebtedness,
obligation or other liability of any Stockholder or any Related Person
or Affiliate thereof, provided that the Company or a Company Subsidiary
may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, if the adjustments
are (i) included in the Supplemental Information provided OEI pursuant
to Section 6.07 or (ii) do not exceed $25,000 in the aggregate;
(h) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets,
property or rights or requiring consent of any Person to the transfer
and assignment of any such assets, property or rights;
(i) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of its business or not consistent with
its past practices;
(j) any waiver of any of its rights or claims that singly is or
in the aggregate are Material to the Company;
(k) any transaction by it outside the ordinary course of its
business or not consistent with its past practices and which involves in
excess of $200,000;
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(1) any incurrence by it of any Indebtedness or any Guaranty not
constituting its Indebtedness, or any Company Commitment to incur any
Indebtedness or any such Guaranty;
(m) any investment in the Capital Stock, Derivative Securities or
Indebtedness of any Person, other than a Permitted Investment;
(n) except in accordance with the Company's consolidated capital
expenditure budget for the Company's current fiscal year, any capital
expenditure or series of related capital expenditures by the Company and
the Company Subsidiaries collectively in excess of $100,000, or
commitments by the Company and the Company Subsidiaries to make capital
expenditures totaling in excess of $100,000; or
(o) any cancellation or termination of a Material Agreement of
the Company.
Section 4.31. BANK RELATIONS; POWERS OF ATTORNEY. Section 4.31 of the
Disclosure Statement accurately lists and identifies:
(a) the name of each financial institution in which the Company
or any Company Subsidiary has borrowing or investment arrangements,
deposit or checking accounts or safe deposit boxes;
(b) the types of those arrangements and accounts, including, as
applicable, names in which accounts or boxes are held, the account or
box numbers and the name of each Person authorized to draw thereon or
have access thereto; and
(c) the name of each Person holding a general or special power of
attorney from the Company or any Company Subsidiary and a description of
the terms of each such power.
Section 4.32. RELATIONS WITH GOVERNMENTS, ETC. Neither the Company nor
any Company Subsidiary has made, offered or agreed to offer anything of value to
any governmental official, political party or candidate for government office
which would cause the Company or any Company Subsidiary to be in violation of
the Foreign Corrupt Practices Act of 1977 or any Governmental Requirement to a
similar effect.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF OEI AND NEWCO
Section 5.02. ORGANIZATION; POWER. OEI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and each of OEI and Newco has all requisite corporate power and authority under
the laws of its Organization State and its Charter Documents to own or lease and
to operate its properties presently and following the Effective Time and to
carry on its business as now conducted and as proposed to be conducted following
the Effective Time. Neither OEI nor Newco has engaged in any operations since
its organization other than in connection with their formation and
capitalization and the transactions contemplated by this Agreement and the Other
Agreements.
Section 5.03. AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS;
REQUIRED CONSENTS.
(a) The execution, delivery and performance by each of OEI and
Newco of this Agreement and each other Transaction Document to which it
is a party, and the effectuation of the Merger and the other
transactions contemplated hereby and thereby, are within its corporate
power under its Charter Documents and the applicable Governmental
Requirements of its Organization State and have been duly authorized by
all proceedings, including actions permitted to be taken in lieu of
proceedings, required under its Charter Documents and the applicable
Governmental Requirements of its Organization State.
(b) This Agreement has been, and each of the other Transaction
Documents to which either of OEI or Newco is a party, when executed and
delivered to the other parties thereto (or, in the case of the
Certificate of Merger, the applicable Governmental Authorities), will
have been, duly executed and delivered by it and is, or when so executed
and delivered will be, its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as
enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law).
(c) The execution, delivery and performance in accordance with
their respective terms by each of OEI and Newco of the Transaction
Documents to which it is a party do not and will not (i) violate, breach
or constitute a default under (A) the Charter Documents of OEI or Newco,
(B) any Governmental Requirement applicable to OEI or Newco or (C) any
Material Agreement of OEI or Newco, (ii) result in the acceleration or
mandatory prepayment of any Indebtedness, or any Guaranty not
constituting Indebtedness, of OEI or Newco or afford any holder of any
of that Indebtedness, or any beneficiary of any of those Guaranties, the
right to require OEI or Newco to redeem, purchase or otherwise acquire,
reacquire or repay any of that Indebtedness, or to perform any of those
Guaranties, (iii) cause or result in the imposition of, or afford any
Person the right to obtain, any Lien upon any
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property or assets of OEI or Newco (or upon any revenues, income or
profits of either OEI or Newco therefrom) or (iv) result in the
revocation, cancellation, suspension or material modification, in any
single case or in the aggregate, of any Governmental Approval possessed
by OEI or Newco at the date of this Agreement and necessary for the
ownership or lease and the operation of its properties or the carrying
on of its business as now conducted, including any necessary
Governmental Approval under each applicable Environmental Law.
(d) Except for (i) the filing of the Certificate of Merger with
the applicable Governmental Authorities, (ii) filings of the
Registration Statement under the Securities Act and a registration
statement on Form 8-A with respect to the registration of the OEI Common
Stock under the Exchange Act and the SEC order declaring those
registration statements effective under the Securities Act and the
Exchange Act, respectively, and (iii) as may be required by the HSR Act
or the applicable state securities or blue sky laws, no Governmental
Approvals are required to be obtained, and no reports or notices to or
filings with any Governmental Authority are required to be made, by OEI
or Newco for the execution, delivery or performance by OEI or Newco of
the Transaction Documents to which it is a party, the enforcement
against OEI or Newco, as the case may be, of its obligations thereunder
or the effectuation of the Merger and the other transactions
contemplated thereby.
Section 5.04. CHARTER DOCUMENTS. OEI has delivered to the Company true,
complete and correct copies of the Charter Documents of each of OEI and Newco.
No breach or violation of any Charter Document of either OEI or Newco has
occurred and is continuing.
Section 5.05. CAPITAL STOCK OF OEI AND NEWCO.
(a) Immediately prior to the Effective Time, (i) the authorized
Capital Stock of OEI will be comprised of (A) 40 million shares of OEI
Common Stock and (B) one million shares of preferred stock, $.001 par
value per share, (ii) before giving effect to the Merger and the merger
transactions contemplated by the Other Agreements, (A) the number of
shares of OEI Common Stock then issued and outstanding, will be as set
forth in the Registration Statement when it becomes effective under the
Securities Act, (B) no shares of the OEI preferred stock then will be
issued or outstanding, and (C) OEI will have authorized and reserved for
issuance, pursuant to Other Compensation Plans or the exercise of
Derivative Securities the number of shares of OEI Common Stock set forth
in the Registration Statement when it becomes effective under the
Securities Act.
(b) The authorized Capital Stock of Newco is comprised of 1,000
shares of Newco Common Stock, all of which shares are issued,
outstanding and owned, of record and beneficially, by OEI.
(c) All shares of OEI Common Stock and Newco Common Stock
outstanding immediately prior to the Effective Time, and all shares of
OEI Common Stock to be issued
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pursuant to Section 2.04, when issued, will have been duly authorized
and validly issued in accordance with the DGCL or the Business
Corporation Act, as the case may be, and their issuer's Charter
Documents, and will be fully paid and nonassessable. None of the shares
of OEI Common Stock to be issued pursuant to Section 2.04 will, when
issued, have been issued in breach or violation of (i) any applicable
statutory or contractual preemptive rights, or any other rights of any
kind (including any rights of first offer or refusal), of any Person or
(ii) the terms of any of its Derivative Securities then outstanding.
Section 5.06. SUBSIDIARIES. Immediately prior to the IPO Closing Date,
(a) OEI will have no Subsidiaries other than Newco and each Entity defined as
"Newco" in each of the Other Agreements, (b) Newco will have no Subsidiaries,
and (c) neither OEI nor Newco will own, of record or beneficially, directly or
indirectly through any Person or otherwise (except pursuant hereto or to the
Other Agreements), any Capital Stock or Derivative Securities of any Entity not
described in this Section 5.06 as a Subsidiary of OEI (in the case of OEI) or
any Entity (in the case of Newco).
Section 5.07. LIABILITIES. Except as disclosed in the Private Placement
Memorandum, neither OEI nor Newco has any material operations or liabilities of
any kind other than those engaged in or incurred in connection with this
Agreement and the Other Agreements and the transactions contemplated hereby and
thereby, including the IPO.
Section 5.08. COMPLIANCE WITH LAWS; NO LITIGATION. Each of OEI and Newco
is in compliance with all Governmental Requirements applicable to it, and no
Litigation is pending or, to the knowledge of OEI, threatened to which OEI or
Newco is or may become a party which questions or involves the validity or
enforceability of any obligation of OEI or Newco under any Transaction Document,
or which seeks (or reasonably may be expected to seek) (a) to prevent or delay
consummation by OEI or Newco of the transactions contemplated by this Agreement
to be consummated by OEI or Newco, as the case may be, or (b) Damages from OEI
or Newco in connection with any such consummation.
Section 5.09. NO BROKERS. OEI has not, directly or indirectly, in
connection with this Agreement or the transactions contemplated hereby, employed
any broker, finder or agent, or agreed to pay or incurred any obligation to pay
any broker's or finder's fee, any sales commission or any similar form of
compensation.
Section 5.10. PRIVATE PLACEMENT MEMORANDUM. At the date hereof, the
Private Placement Memorandum (other than the historical financial statements,
including the notes thereto, of the Founding Companies (other than the Company)
and the historical information contained therein respecting the Company and the
Stockholders, to which this Section 5.10 does not apply) does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not materially misleading in
the light of the circumstances under which those statements are made.
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Section 5.11. REGISTRATION AND OTHER RIGHTS. Except as set forth in the
Registration Rights Agreement or otherwise described in the Private Placement
Memorandum or the Registration Statement, at the Effective Time OEI will have no
(a) commitment to any Person to cause securities of OEI to be registered under
the Securities Act or the securities laws of any state, (b) outstanding
Derivative Securities, or (c) outstanding agreements or commitments of any
character committing OEI to issue or acquire shares of its Capital Stock or
Derivative Securities.
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ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.02 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) From the date of this Agreement until the IPO Closing Date,
the Company, for the benefit of OEI and each Other Founding Company,
will (i) afford to the Representatives of OEI and each Other Founding
Company reasonable access to all the key employees, sites, properties,
books and records of each of the Company and the Company Subsidiaries,
(ii) provide OEI with such additional financial and operating data and
other information relating to the business and properties of each of the
Company and the Company Subsidiaries as OEI or any Other Founding
Company may from time to time reasonably request, and (iii) cooperate
with OEI and each Other Founding Company and their respective
Representatives in the preparation of any documents or other material
which may be required in connection with any Transaction Documents or
any Other Transaction Documents. Each Stockholder and the Company agree,
for the benefit of OEI and each Other Founding Company, that they will
treat all Confidential Information obtained by them in connection with
the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to each Other Founding Company as
confidential in accordance with the provisions of Section 11.01. In
addition, OEI will cause each Other Founding Company to enter into a
provision identical to this Section 6.02 to require each Other Founding
Company to keep confidential any Confidential Information respecting any
of the Company and the Company Subsidiaries obtained by that Other
Founding Company.
(b) Each of the Company and the Stockholders will use its best
efforts to secure, as soon as practicable after the execution of this
Agreement, all approvals or consents of third Persons as may be
necessary to consummate the transactions contemplated hereby.
(c) From the date hereof until the IPO Closing Date, OEI and
Newco will (i) afford to the Representatives of the Company and the
Stockholders access to all sites, properties, books and records of OEI
and Newco, (ii) provide the Company with such additional financial and
operating data and other information relating to the business and
properties of OEI and Newco as the Company or any Stockholder may from
time to time reasonably request, and (iii) cooperate with the Company
and the Stockholders and their respective Representatives in the
preparation of any documents or other material which may be required in
connection with any Transaction Documents.
(d) If this Agreement is terminated pursuant to Section 12.01,
OEI promptly will return all written Confidential Information of the
Company it then possesses to the Company.
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Section 6.03. CONDUCT OF BUSINESS PENDING CLOSING. From the date of this
Agreement until the Effective Time, the Company will, and will cause each
Company Subsidiary to, except as and only to the extent set forth in Schedule
6.03:
(a) carry on its businesses in substantially the same manner as
it has before, and not introduce any material new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform all its obligations under agreements relating to or
affecting its assets, properties and other rights;
(d) keep in full force and effect, without interruption, all its
present insurance policies or other comparable insurance coverage;
(e) use reasonable commercial efforts to (i) maintain and
preserve its business organization intact, (ii) retain its present
employees, and (iii) maintain its relationships with suppliers,
subcontractors, customers and others having business relations with it;
(f) comply in all material respects with all applicable
Governmental Requirements; and
(g) except as required or expressly permitted by this Agreement,
maintain the instruments and agreements governing its outstanding
Indebtedness and leases on their present terms and not enter into new or
amended Indebtedness or lease instruments or agreements involving
amounts over $25,000 in any case or $50,000 in the aggregate, without
the prior written consent of OEI (which consent will not be unreasonably
withheld).
Section 6.04. PROHIBITED ACTIVITIES. From the date of this Agreement
until the Effective Time, without the prior written consent of OEI or unless as
required or expressly permitted by this Agreement, the Company will not, and
will not permit any Company Subsidiary to, except as and only to the extent set
forth in Schedule 6.04:
(a) make any change in its Charter Documents;
(b) issue any of its Capital Stock or issue or otherwise create
any of its Derivative Securities;
(c) make any Restricted Payment (other than as provided in
Schedule 6.04);
(d) make any investments (other than Permitted Investments) in
the Capital Stock, Derivative Securities or Indebtedness of any Person;
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(e) enter into any contract or commitment (other than an
Engineering Contract) or incur or agree to incur any liability or make
any capital expenditures in a single transaction or a series of related
transactions involving an aggregate amount of more than $25,000
otherwise than in the ordinary course of its business and consistent
with its past practice;
(f) increase or commit or promise to increase the Cash
Compensation payable or to become payable to any officer, director,
stockholder, employee or agent, consultant or independent contractor of
any of the Company and the Company Subsidiaries or make any
discretionary bonus or management fee payment to any such Person, except
bonuses or salary increases to employees (other than the Stockholders or
their Immediate Family Members) at the times and in the amounts
consistent with its past practice;
(g) create or assume any Liens (other than Permitted Liens) upon
any of its assets or properties, whether now owned or hereafter
acquired, except for purchase money Liens incurred in connection with
the acquisition of equipment with an aggregate cost not in excess of
$25,000 and necessary or desirable for the conduct of the business of
any of the Company and the Company Subsidiaries;
(h) adopt, establish, amend (except as may be necessary to comply
with any Governmental Requirement or to maintain the qualified or exempt
status of a Plan under ERISA or the Code) or terminate any ERISA
Employee Benefit Plan, or any Other Compensation Plan or Employee
Policies and Procedures, or take any discretionary action, or omit to
take any contractually required action, if that action or omission could
either (i) deplete the assets of any ERISA Employee Benefit Plan or any
Other Compensation Plan or (ii) increase the liabilities or obligations
under any such plan;
(i) sell, assign, lease or otherwise transfer or dispose of any
of its owned or leased Property, Plant or Equipment otherwise than in
the ordinary course of its business and consistent with its past
practice;
(j) negotiate for the acquisition of any business or the
start-up of any new business;
(k) merge, consolidate or effect a share exchange with, or agree
to merge, consolidate or effect a share exchange with, any other Entity;
(1) waive any of its material rights or claims, provided that it
may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, but such
adjustments will not be deemed to be included in Section 4.17 of the
Disclosure Statement unless specifically listed in the Supplemental
Information;
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(m) commit a material breach of or amend materially or terminate
any Material Agreement of the Company or any of its Governmental
Approvals; or
(n) enter into any other transaction (i) outside the ordinary
course of its business and consistent with its past practice or (ii)
prohibited hereby.
Section 6.05. NO SHOP: RELEASE OF DIRECTORS.
(a) Each of the Company and the Stockholders agrees that, from
the date of this Agreement until the Effective Time, neither the Company
nor any Stockholder, nor any of their respective officers and directors
shall, and the Company and each Stockholder will direct and use their
best efforts to cause each of their respective Representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or
the making or implementation of any proposal or offer (including any
proposal or offer to the Stockholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company (any such proposal or offer being herein
called an "ACQUISITION PROPOSAL") or engage in any activities,
discussions or negotiations concerning, or provide any Confidential
Information respecting, the Company, any Other Founding Company or OEI
to, or have any discussions with, any Person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. The Company and each Stockholder
will: (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons previously
conducted with respect to any of the foregoing, and each will take the
steps necessary to inform the Persons referred to in the first sentence
of this Section 6.05(a) of the obligations undertaken in this Section
6.05(a); and (ii) notify OEI immediately if any such inquiries or
proposals are received by, any such information is requested from or any
such discussions or negotiations are sought to be initiated or continued
with the Company or any Stockholder.
(b) Each of the Company and the Stockholders hereby (i) waives
every right, if any, the Governmental Requirements of the Company's
Organization State afford the Company or Stockholders to require the
Company's directors (or their equivalents if the Company is not a
corporation), in the exercise of their fiduciary duties in their
capacity as such, to engage in any of the activities prohibited by this
Section 6.05 and (ii) releases each such person from any and all
liability he might otherwise have to the Company or any Stockholders but
for this release.
Section 6.06. NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to OEI of (a) the existence or occurrence of
each condition or state of facts which becomes known to them and which will or
reasonably could be expected to cause any representation or warranty of the
Company or any Stockholder contained herein to be untrue or incorrect in any
material respect at or prior to the Closing or on the IPO Closing Date and (b)
any material failure of any Stockholder or the Company to comply with or satisfy
any covenant, condition or agreement
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to be complied with or satisfied by that Person hereunder. OEI shall give prompt
notice to the Company of (a) the existence or occurrence of each condition or
state of facts which will or reasonably could be expected to cause any
representation or warranty of OEI or Newco contained herein to be untrue or
inaccurate at or prior to the Closing or on the IPO Closing Date and (b) any
material failure of OEI or Newco to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 6.06 shall not be deemed to (a)
modify the representations or warranties herein of the party delivering that
notice, or any other party, which modification may be made only pursuant to
Section 6.07, (b) modify the conditions set forth in Article VII or (c) limit or
otherwise adversely affect the remedies available hereunder to the party
receiving that notice.
Section 6.07. SUPPLEMENTAL INFORMATION. Each of the Company and the
Stockholders agrees that, with respect to its representations and warranties
contained in this Agreement, it will have the continuing obligation until the
Closing to provide OEI promptly with such additional supplemental Information
(collectively, the "SUPPLEMENTAL INFORMATION"), in the form of (a) amendments to
then existing Schedules or Sections of the Disclosure Statement or (b)
additional Schedules or Sections of the Disclosure Statement, as would be
necessary, in the light of the circumstances, conditions, events and states of
facts then known to the Company or any Stockholder, to make each of those
representations and warranties true and correct in all material respects as of
the Closing and on the IPO Closing Date. For purposes only of determining
whether the conditions to the obligations of OEI and Newco which are specified
in Sections 7.04(a)(ii)(A) and 7.04(b)(ii) have been satisfied, and not for any
purpose under Article IX, the Schedules and the Disclosure Statement as of the
Closing and on the IPO Closing Date shall be deemed to be the Schedules and the
Disclosure Statement as of the date hereof as amended or supplemented by the
Supplemental Information provided to OEI prior to the Closing pursuant to this
Section 6.07; PROVIDED, HOWEVER, that if the Supplemental Information so
provided discloses the existence of circumstances, conditions, events or states
of facts which, in any combination thereof, (a) have had a Material Adverse
Effect on the Company which was not reflected in the determination of the Merger
Consideration or (b) in the judgment of OEI (which shall be conclusive for
purposes of this Section 6.07 and Article XII, but not for any purpose of
Article IX), are having or will have a Material Adverse Effect on the Company or
the Surviving Corporation, as the case may be, OEI will be entitled either (i)
to terminate this Agreement pursuant to Section 12.01(a)(iv) or (ii) to treat as
OEI Indemnified Losses for all purposes of Article IX (which treatment will not
prejudice the right of any Stockholder under Article IX to contest Damage Claims
made by OEI in respect of those OEI Indemnified Losses) all Damages to the
Company or the Surviving Corporation which are attributable to the
circumstances, conditions, events and states of facts first disclosed herein
after the date hereof in the Supplemental Information; and PROVIDED FURTHER,
HOWEVER, that if the circumstances, conditions, events or states of facts
disclosed in the Supplemental Information and having or judged to have in the
future such a Material Adverse Effect (A) have not resulted from a breach by the
Company or the Stockholders of any of their covenants set forth in Article VI or
elsewhere in this Agreement and (B) do not indicate that any representation or
warranty of the Stockholders and the Company made in Articles III and IV shall
have been untrue or inaccurate at the date of this Agreement, then OEI shall
only be entitled to terminate this Agreement pursuant to Section 12.01(a)(iv),
and shall not be entitled to
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treat as OEI Indemnified Losses any such Damages to the Company or the Surviving
Corporation. OEI will provide the Company with copies of the Registration
Statement, including all pre-effective amendments thereto, promptly after the
filing thereof with the SEC under the Securities Act.
Section 6.08. COOPERATION IN CONNECTION WITH THE IPO. The Company and
the Stockholders will (a) provide OEI and the Underwriter with all the
Information concerning the Company or any of the Stockholders which is
reasonably requested by OEI and the Underwriter from time to time in connection
with effecting the IPO and (b) cooperate with OEI and the Underwriter and their
respective Representatives in the preparation and amendment of the Registration
Statement (including the Financial Statements) and in responding to the comments
of the SEC staff, if any, with respect thereto. The Company and each Stockholder
agree promptly to (a) advise OEI if, at any time during the period in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the then current Registration Statement
prospectus concerning the Company, any Company Subsidiary or the Stockholders
becomes incorrect or incomplete in any material respect and (b) provide OEI with
the information needed to correct or complete that information.
Section 6.09. ADDITIONAL FINANCIAL STATEMENTS. The Company will furnish
to OEI:
(a) as soon as available and in any event within 30 days after
the end of each of the Company's fiscal quarters which ends prior to the
IPO Pricing Date, an unaudited consolidated balance sheet of the Company
and the Company Subsidiaries as of the end of that fiscal quarter and
the related consolidated statements of income or operations, cash flows
and stockholders' or other owners' equity for that fiscal quarter and
for the period of the Company's fiscal year ended with that quarter, in
each case (i) setting forth in comparative form the figures for the
corresponding portion of the Company's previous fiscal year and (ii)
prepared in accordance with GAAP applied on basis consistent throughout
the periods indicated (excepting footnotes) and consistent with the
basis on which the Initial Financial Statements including the Current
Balance Sheet were prepared; and
(b) if requested by OEI in connection with any amendment of the
Registration Statement and promptly following any such request, such
summary consolidated operating or other financial information of the
Company and the Company Subsidiaries as of the end of either the first
or second fiscal month in any of the Company's fiscal quarters as OEI
may request.
Section 6.10. TERMINATION OF PLANS. If requested by OEI, the Company
will, or will cause the applicable Company Subsidiary to, if permitted by all
applicable Governmental Requirements to do so, terminate each Plan identified in
Section 4.26(c) or (d) of the Disclosure Statement as a "Plan To Be Terminated"
at, or if agreed by the Company, prior to, the Effective Time.
Section 6.11. DISPOSITION OF UNWANTED ASSETS. At or prior to the
Closing, the Company will make all arrangements and take all such actions as are
necessary and satisfactory to OEI to dispose,
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prior to the Effective Time, of those assets of it or of one or more of the
Company Subsidiaries which are listed in, and which shall be disposed of as
provided in, Schedule 6.11.
Section 6.12. HSR ACT MATTERS. If OEI shall determine that filings under
the HSR Act are necessary or appropriate in connection with the effectuation of
the Merger or the consummation of the acquisitions contemplated by the Other
Agreements, and advises the Company in writing of that determination, the
Company promptly will compile and file or provide to OEI for filing under the
HSR Act such information respecting it as the HSR Act requires of an Entity to
be acquired, and the expiration or termination of the applicable waiting period
and any extension thereof under the HSR Act shall be deemed a condition
precedent set forth in Section 7.02(b). All filing fees associated with filings
under the HSR Act shall be paid by OEI.
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ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.02. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
(a) The obligation of each Party to take the actions contemplated
to be taken by that Party at the Closing is subject to the satisfaction
of each of the following conditions on or before the date of the
Closing:
(i) NO LITIGATION. No Litigation shall be pending on the
date of the Closing to restrain, prohibit or otherwise interfere
with, or to obtain material damages or other relief from OEI or
the Surviving Corporation in connection with, the consummation of
the Merger or the IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals
(other than the acceptance for filing of the Certificate of
Merger) required to be obtained by any of the Company, OEI and
Newco in connection with the consummation of the Merger and the
IPO shall have been obtained; and
(iii) THE REGISTRATION STATEMENT. (A) The Registration
Statement, as amended to cover the offering, issuance and sale by
OEI of such number of shares of OEI Common Stock at the IPO Price
(which need not be set forth in the Registration Statement when
it becomes effective under the Securities Act) as shall yield
aggregate cash proceeds to OEI (net of the Underwriter's discount
or commissions) in at least the amount (the "MINIMUM CASH
AMOUNT") sufficient when added to the funds, if any, available
from other sources (the "OTHER FINANCING SOURCES"), if any, and
as set forth in the Registration Statement when it becomes
effective under the Securities Act to enable OEI to pay or
otherwise deliver on the IPO Closing Date (1) the total cash
portion of the Merger Consideration then to be delivered pursuant
to Section 2.04, (2) the total cash portion of the merger or
other acquisition consideration then to be delivered pursuant to
the Other Agreements as a result of the consummation of the
mergers or other acquisition transactions contemplated thereby,
and (3) the total amount of Indebtedness of the Founding
Companies and OEI which the Registration Statement discloses at
the time it becomes effective under the Securities Act will be
repaid on the IPO Closing Date with proceeds received by OEI from
the IPO and the Other Financing Sources, shall have been declared
effective under the Securities Act by the SEC; (B) no stop order
suspending the effectiveness of the Registration Statement shall
have been issued by the SEC, and the SEC shall not have initiated
or threatened to initiate Litigation for that purpose; (C) the
Underwriter shall have agreed in writing (the "UNDERWRITING
AGREEMENT," which term includes the related pricing agreement, if
any) to purchase from OEI on a firm commitment basis for resale
to the public initially at the IPO
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Price, subject to the conditions set forth in the Underwriting
Agreement, such number of shares of OEI Common Stock covered by
the Registration Statement as, when multiplied by the price per
share of OEI Common Stock to be paid by the Underwriter to OEI
pursuant to the Underwriting Agreement, shall equal at least the
Minimum Cash Amount; and (D) neither the Registration Statement
nor the Final Prospectus shall contain any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which those statements are made, not
misleading.
(b) The obligation of each Party hereto with respect to the
actions to be taken on the IPO Closing Date is subject to the
satisfaction on that date of each of the following conditions:
(i) NO LITIGATION. No Litigation shall be pending on the
IPO Closing Date to restrain, prohibit or otherwise interfere
with, or to obtain material damages or other relief from OEI or
the Surviving Corporation in connection with, the consummation of
the Merger or the IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals
required to be obtained by the Company, OEI and Newco in
connection with the consummation of the Merger and the IPO shall
have been obtained;
(iii) RECEIPT OF CERTAIN CERTIFICATES. Each party to the
Transferors' Agreement or his Representative shall have received
the certificates that such party is entitled to receive on the
IPO Closing Date pursuant to Section 3.5 of the Transferors'
Agreement;
(iv) REGISTRATION STATEMENT AND FINAL PROSPECTUS. Neither
the Registration Statement, in its form at the Effective Time,
nor the Final Prospectus shall contain any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which those statements are made, not
misleading; and
(vi) CLOSING OF THE IPO. (A) OEI shall have issued and
sold shares of OEI Common Stock to the Underwriter in accordance
with the Underwriting Agreement for initial resale at the IPO
Price and received payment therefor in an amount at least equal
to the amount by which (1) the Minimum Cash Amount exceeds (2)
the aggregate amount of funds actually received on the IPO
Closing Date, if any, from any one or more of the Other Financing
Sources and (B) the IPO Price shall have been at least $9.60.
Section 7.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and each Stockholder with respect
to actions to be taken by them at or
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before the Closing and the actions to be taken on the IPO Closing Date are
subject to the satisfaction, or the written waiver by the Company on behalf of
itself and each Stockholder pursuant to Section 11.05 on or before the date of
the Closing of, in addition to the conditions specified in Section 7.02 (a) or
7.02 (b), as applicable, (i) all the conditions set forth in Section 7.01 (b),
if any, and (ii) all the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. All the
representations and warranties of OEI and Newco in Article V
shall be true and correct in all material respects as of the
Closing as though made at that time;
(B) DELIVERY OF DOCUMENTS. OEI shall have delivered to the
Company, with copies for each Stockholder:
(1) an OEI officer's certificate respecting the
representations and warranties of OEI and Newco in Article
V and compliance with the covenants of OEI and Newco in
Article VI and in the form thereof attached as an exhibit
to the Closing Memorandum;
(2) opinions dated the IPO Closing Date and
addressed to the Company and the Stockholders from Counsel
for OEI and Newco substantially in the forms thereof
attached as exhibits to the Closing Memorandum, upon which
the Underwriters and their counsel are authorized to rely;
(3) a certificate of the secretary or any assistant
secretary of OEI in the form thereof (without attachments
thereto) attached as an exhibit to the Closing Memorandum
and respecting, and to which there shall be attached, (a)
the Charter Documents of OEI and Newco (certified by the
Secretary of State of the State of Delaware in the case of
the certificates of incorporation of OEI included
therein); (b) the resolutions of the boards of directors
of OEI and Newco respecting the Transaction Documents and
the transactions contemplated thereby; (c) a certificate
respecting the incumbency and true signatures of the OEI
and Newco officers who execute the Transaction Documents
on behalf of OEI and Newco, respectively; (d) a specimen
certificate evidencing shares of OEI Common Stock; (e) the
prospectus included in the Registration Statement when it
became effective; and (f) a facsimile copy of the
Underwriting Agreement as executed and delivered by OEI
and the Underwriter;
(4) the Registration Rights Agreement duly executed
and delivered by OEI; and
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(5) a certificate, dated as of a Current Date, duly
issued by the Secretary of State of the State of Delaware,
showing OEI to be in good standing and authorized to do
business in that State.
Section 7.04. CONDITIONS TO THE OBLIGATIONS OF OEI AND NEWCO.
(a) The obligations of OEI and Newco with respect to actions to
be taken by them at or before the Closing are subject to the
satisfaction on or before the date of the Closing of, in addition to the
conditions specified in Section 7.02 (a), (i) all the conditions set
forth in Section 7.01(c), if any, and (ii) all the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. All the
representations and warranties of the Stockholders and the
Company in Articles III and IV shall be true and correct in all
material respects as of the Closing as though made at that time;
(B) DELIVERY OF DOCUMENTS. The Stockholders and the
Company shall have delivered to OEI:
(1) a Company officer's certificate, signed by a
Responsible Officer, respecting the representations and
warranties of the Stockholders and the Company in Articles
III and IV and compliance with the covenants of the
Stockholders and the Company in Article VI and in the form
thereof attached as an exhibit to the Closing Memorandum;
(2) opinions dated the IPO Closing Date and
addressed to OEI and the Underwriters, respectively, from
Counsel for the Company and the Stockholders substantially
in the form thereof attached as exhibits to the Closing
Memorandum;
(3) a certificate of the secretary or any assistant
secretary of the Company in the form thereof (without
attachments thereto) attached as an exhibit to the Closing
Memorandum and respecting, and to which is attached, (a)
the Charter Documents of the Company; (b) the resolutions
of the board of directors of the Company respecting the
Transaction Documents and the transactions contemplated
thereby; and (c) a certificate respecting the incumbency
and true signatures of the Responsible Officers who
execute the Transaction Documents on behalf of the
Company;
(4) from each Stockholder, a General Release duly
executed and delivered by that Stockholder;
(5) from each Stockholder, an executed Form W-9 or
Form W-8, as the case may be, and in the event any
Stockholder is not a U.S. citizen or
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resident for U.S. tax purposes, from the Company, a
properly executed statement in form and substance
reasonably acceptable to OEI for purposes of satisfying
OEI's obligation under Treasury regulations Section
1.1445-2(c)(3) promulgated under the Code; and
(6) for each of the Company and the Company
Subsidiaries, a certificate, dated as of a Current Date,
duly issued by the appropriate Governmental Authorities in
its Organization State and, unless waived by OEI, in each
other jurisdiction listed for it in Section 4.02 of the
Disclosure Statement, showing it to be in existence, good
standing (or otherwise in tax compliance) and authorized
to do business in its Organization State and those other
jurisdictions and that all state franchise and/or income
tax returns and taxes due by it in its Organization State
and those other jurisdictions for all periods prior to the
Closing have been filed and paid.
(b) The obligations of OEI and Newco with respect to the actions
to be taken on the IPO Closing Date are subject to the satisfaction on
that date of (i) all the conditions set forth in Section 7.01(d), if
any, and (ii) the condition that all the representations and warranties
of the Stockholders and the Company in Articles III and IV shall be true
and correct in all material respects as of the IPO Closing Date as
though made on that date.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.02. DISCLOSURE. If, subsequent to the IPO Pricing Date and
prior to the 25th day after the date of the Final Prospectus, any Stockholder
becomes aware of any fact or circumstance which would change (or, if after the
Effective Time, would have changed) a representation or warranty of the Company
or any Stockholder in this Agreement or would affect any document delivered
pursuant hereto in any material respect that Stockholder will promptly give
notice of that fact or circumstance to OEI.
Section 8.03. PREPARATION AND FILING OF TAX RETURNS. Each party hereto
will, and will cause its Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a liability
for Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. This cooperation and information shall include
providing copies of all relevant portions of the relevant Returns, together with
such accompanying schedules and work papers, documents relating to rulings or
other determinations by Taxing Authorities and records concerning the ownership
and Tax bases of property as are relevant which a party possesses. Each party
will make its employees, if any, reasonably available on a mutually convenient
basis at its cost to provide an explanation of any documents or information so
provided. Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs attributable to the preparation
and filing of those Returns.
Section 8.04. DIRECTORS. OEI will cause such corporate proceedings as on
its part will be necessary to cause each of the persons, if any, who are named
in the Final Prospectus as persons who will become members of the board of
directors of OEI following the Effective Time to be appointed to the board when
the prospectus so provides.
Section 8.05. REMOVAL OF GUARANTIES. Within ten days following the
Effective Time, OEI will cause the Stockholder Guaranties listed in Schedule
8.05 to be terminated.
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ARTICLE IX
INDEMNIFICATION
Section 9.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the
provisions of this Agreement will survive the Closing and the Effective Time
notwithstanding any investigation at any time made by or on behalf of any party
hereto or the provision of any Supplemental Information pursuant to Section
6.07, provided that the representations and warranties set forth in Articles IV,
V and VI and in any certificate delivered in connection herewith with respect to
any of those representations and warranties will terminate and expire two years
after the IPO Closing Date, except as follows: (a) the representations and
warranties of the Stockholders which relate expressly or by necessary
implication to Taxes or ERISA will survive until the expiration of the
applicable statutes of limitations (including all periods of extension and
tolling); (b) the representations and warranties of the Stockholders which
relate expressly or by necessary implication to the environment or Environmental
Laws will survive for a period of three years form the Effective Time; and (c)
the representations and warranties of OEI and the Company will terminate and
expire at the Effective Time. After a representation and warranty has terminated
and expired, no claim for indemnification will or may be sought on the basis of
that representation and warranty by any Person who would have been entitled
pursuant to this Article IX to indemnification on the basis of that
representation and warranty prior to its termination and expiration, provided
that, in the case of each representation and warranty that will terminate and
expire as provided in this Section 9.02, no claim presented in writing for
indemnification pursuant to this Article IX on the basis of that representation
and warranty prior to its termination and expiration will be affected in any way
by the termination and expiration.
Section 9.03. INDEMNIFICATION OF OEI INDEMNIFIED PARTIES.
(a) Subject to the applicable provisions of Sections 9.02 and
9.07, the Stockholders covenant and agree that they, jointly and
severally, will indemnify, protect and hold harmless each OEI
Indemnified Party, and, solely with respect to clause (iii) of this
Section 9.03(a), the Underwriters from and after the Effective Time,
from and against all Damages that arise from, are based on or relate or
otherwise are attributable to (i) any breach of the representations and
warranties of the Stockholders or the Company set forth herein (other
than in Article III) or in certificates delivered in connection herewith
(other than in respect of certificates relating only to the
representations and warranties in Article III), (ii) any nonfulfillment
of any covenant or agreement on the part of the Stockholders or the
Company under this Agreement, (iii) any liability under the Securities
Act, the Exchange Act or other applicable Governmental Requirement which
arises out of or is based on (A) any untrue statement of a material fact
relating to the Company and the Company Subsidiaries, or any of them,
which is (1) provided to OEI or its counsel, or the Underwriters and
their counsel, by the Company or the Stockholders and (2) contained in
any preliminary prospectus relating to the IPO, the Registration
Statement or any prospectus forming a part thereof, or any amendment
thereof or supplement thereto, or (B) any omission or alleged
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omission to state therein a material fact relating to the Company and
the Company Subsidiaries, or any of them, required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, and which is
not provided to OEI or its counsel by the Company or the Stockholders
(each such Damage Claim and each Damage Claim described in Section
9.03(b) being an "OEI INDEMNIFIED LOSS").
(b) Each Stockholder, severally and not jointly with any other
Person, covenants and agrees that he will indemnify, protect and hold
harmless each OEI Indemnified Party, and, solely with respect to clause
(iii) of this Section 9.03(a), the Underwriters from and after the
Effective Time, from and against, and hold each OEI Indemnified Party
harmless from and in respect of, all Damage Claims that arise from, are
based on or relate or otherwise are attributable to (i) any breach of
the representations and warranties of that Stockholder solely as to that
Stockholder set forth in Article III or in certificates delivered by
that Stockholder and relating to those representations and warranties,
(ii) any nonfulfillment of any several, and not joint and several,
agreement on the part of that Stockholder under this Agreement or (iii)
any liability under the Securities Act, the Exchange Act or other
applicable Governmental Requirement which arises out of or is based on
(A) any untrue statement or alleged untrue statement of a material fact
relating solely to that Stockholder which is (1) provided to OEI or its
counsel, or the Underwriters and their counsel, by that Stockholder and
(2) contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (B) any omission or alleged
omission to state therein a material fact relating solely to that
Stockholder required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which
they were made, not misleading, and which is not provided to OEI or its
counsel, or the Underwriters and their counsel, by that Stockholder.
(c) Notwithstanding anything to the contrary contained herein,
the amount of any Damages sustained by any Indemnified Party shall be
determined only after giving credit for the amount of the net monetary
benefit received by such Indemnified Party from any insurance carrier
with respect to any policy of insurance (not including any amounts the
Indemnified Party is required to pay with respect to deductibles or to
reimburse to such insurer), resulting from or attributable to, the
event, occurrence, state of facts, actions or other circumstance causing
or giving rise to such Damages.
(d) The Underwriters shall be deemed third party beneficiaries of
the indemnification obligations of the Stockholders set forth in
paragraphs (a) and (b) of this Section 9.03, with respect to the matters
specified therein as to which they are to be indemnified. The
Stockholders agree to execute such documents as the Underwriters may
reasonably request to confirm the Stockholders' indemnification
obligations to the Underwriters.
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Section 9.04. INDEMNIFICATION OF STOCKHOLDER INDEMNIFIED PARTIES. OEI
covenants and agrees that it will indemnify each Stockholder Indemnified Party
against, and hold each Stockholder Indemnified Party harmless from and in
respect of, all Damage Claims (that arise from, are based on or relate or
otherwise are attributable to (i) any breach by OEI or Newco of their
representations and warranties set forth herein or in their certificates
delivered to the Company or the Stockholders in connection herewith, (ii) any
nonfulfillment of any covenant or agreement on the part of OEI or Newco under
this Agreement (each such Damage Claim being a "STOCKHOLDER INDEMNIFIED LOSS");
or (iii) any liability under the Securities Act, the Exchange Act or other
applicable Governmental Requirement which arises out of or is based on (A) any
untrue statement or alleged untrue statement of a material fact relating to OEI,
Newco or any of the Other Founding Companies contained in any preliminary
prospectus relating to the IPO, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or (B)
any omission or alleged omission to state therein a material fact relating to
OEI, Newco or any of the Other Founding Companies, or any of them, required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
Section 9.05. CONDITIONS OF INDEMNIFICATION.
(a) All claims for indemnification under this Agreement shall be
asserted and resolved as provided in this Section 9.05.
(b) A party claiming indemnification under this Agreement (an
"INDEMNIFIED PARTY") shall promptly (i) notify the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") of any third-party
claim or claims asserted against the Indemnified Party ("Third Party
Claim") that could give rise to a right of indemnification under this
Agreement and (ii) transmit to the Indemnifying Party a written notice
("CLAIM NOTICE") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to the claim (if
any), an estimate of the amount of damages attributable to the Third
Party Claim to the extent feasible (which estimate shall not be
conclusive of the final amount of the claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement.
Except as set forth in Section 9.02, the failure to promptly deliver a
Claim Notice shall not relieve the Indemnifying Party of its obligations
to the Indemnified Party with respect to the related Third Party Claim
except to the extent that the resulting delay is materially prejudicial
to the defense of the claim. Within 15 days after receipt of any Claim
Notice (the "ELECTION PERIOD"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article IX with
respect to the Third Party Claim and (ii) if the Indemnifying Party does
not dispute its potential liability to the Indemnified Party with
respect to the Third Party Claim, whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to
defend the Indemnified Party against the Third Party Claim.
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(c) If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall
have the right to defend, at its sole cost and expense, the Third Party
Claim by all appropriate proceedings, which proceedings shall be
prosecuted diligently by the Indemnifying Party to a final conclusion or
settled at the discretion of the Indemnifying Party in accordance with
this Section 9.05(c) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect
to the Third Party Claim and otherwise cooperate with the Indemnifying
Party in the defense of the Third Party Claim; PROVIDED, HOWEVER, that
the Indemnifying Party shall not enter into any settlement with respect
to any Third Party Claim that purports to limit the activities of, or
otherwise restrict in any way, any Indemnified Party or any Affiliate of
any Indemnified Party without the prior consent of that Indemnified
Party (which consent may be withheld in the sole discretion of that
Indemnified Party). The Indemnified Party is hereby authorized, at the
sole cost and expense of the Indemnifying Party if found liable
hereunder, to file, during the Election Period, any motion, answer or
other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party.
The Indemnified Party may participate in, but not control, any defense
or settlement of any Third Party Claim controlled by the Indemnifying
Party pursuant to this Section 9.05(c) and will bear its own costs and
expenses with respect to its participation; PROVIDED, HOWEVER, that if
the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised in writing by counsel that there may
be one or more legal defenses available to it which are different from
or additional to those available to the Indemnifying Party, then the
Indemnified Party may employ separate counsel at the expense of the
Indemnifying Party, and, on its written notification of that employment,
the Indemnifying Party shall not have the right to assume or continue
the defense of the action on behalf of the Indemnified Party.
(d) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this
Article IX, (B) elects not to defend the Indemnified Party pursuant to
Section 9.05(c) or (C) fails to notify the Indemnified Party that the
Indemnifying Party elects to defend the Indemnified Party pursuant to
Section 9.05(c) or (ii) elects to defend the Indemnified Party pursuant
to Section 9.05(c) but fails diligently and promptly to prosecute or
settle the Third Party Claim, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying Party
(if the Indemnified Party is entitled to indemnification hereunder), the
Third Party Claim by all appropriate proceedings, which proceedings
shall be promptly and vigorously prosecuted by the Indemnified Party to
a final conclusion or settled. The Indemnified Party shall have full
control of such defense and proceedings. Notwithstanding the foregoing,
if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article IX and
if such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party
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shall not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this Section 9.05 or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and
the Indemnified Party shall reimburse the Indemnifying Party in full for
all reasonable and appropriate costs and expenses of such litigation.
The Indemnifying Party may participate in, but not control, any defense
or settlement controlled by the Indemnified Party pursuant to this
Section 9.05(d), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation.
(e) If any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim,
the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "INDEMNITY NOTICE") describing in reasonable detail the
nature of the claim, an estimate of the amount of Damages attributable
to that claim to the extent feasible (which estimate shall not be
conclusive of the final amount of the claim) and the basis of the
Indemnified Party's request for indemnification under this Agreement. If
the Indemnifying Party does not notify the Indemnified Party within 30
days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes the claim, the claim specified by the Indemnified Party
in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed the
claim, as provided above, the dispute shall be resolved by proceedings
in an appropriate court of competent jurisdiction if the parties do not
reach a settlement of such dispute within 60 days after the date of
delivery of the Indemnity Notice.
(f) Payments of all amounts owing by an Indemnifying Party
pursuant to this Article IX relating to a Third Party Claim shall be
made within 30 days after the latest of (i) the settlement of that Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of that Third Party Claim or (iii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's
liability to the Indemnified Party under this Agreement. Payments of all
amounts owing by an Indemnifying Party pursuant to Section 9.05(e) shall
be made within 30 days after the later of (i) the expiration of the
60-day Indemnity Notice period or (ii) the expiration of the period for
appeal of a final adjudication of the Indemnifying Party's liability to
the Indemnified Party under this Agreement. If and after the aggregate
amount of all Damage Claims paid by a Stockholder under this Article IX
equals or exceeds the amount of cash included in the Merger
Consideration received by that Stockholder, then that Stockholder, in
payment and satisfaction of any remaining unsatisfied or subsequent
Damage Claims in respect of which that Stockholder may be required to
indemnify any OEI Indemnified Party, may transfer and surrender to the
Company such number of shares of OEI Common Stock included in the Merger
Consideration received by such Stockholder as shall equal (i) the amount
of all such remaining unsatisfied or subsequent Damage Claims divided by
(ii) $12 or, if at the time such Stockholder pays such remaining Damage
Claim such Stockholder is prohibited from selling shares of the OEI
Common Stock pursuant to Section 11.02, the greater of $12 or the
Current Market Price.
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Section 9.06. REMEDIES EXCLUSIVE. Except as otherwise expressly provided
in this Agreement, the remedies provided in this Article IX are the exclusive
remedies available to one party against the other, either at law or in equity,
in respect of any matter indemnified against in this Article IX.
Section 9.07. LIMITATIONS ON INDEMNIFICATION.
(a) Notwithstanding the provisions of Section 9.03(a), neither
the Company nor any of the Stockholders shall be required to indemnify
or hold harmless any of the OEI Indemnified Parties on account of any
OEI Indemnified Loss under Section 9.03(a) unless the liability of the
Company and the Stockholders in respect of that OEI Indemnified Loss,
when aggregated with the liability of the Company and the Stockholders
in respect of all OEI Indemnified Losses under Section 9.03 (a),
exceeds, and only to the extent the aggregate amount of all those OEI
Indemnified Losses does exceed, the Threshold Amount. In no event shall
(i) the aggregate joint and several liability of the Company and the
Stockholders under this Agreement, including Section 9.03(a), exceed the
Ceiling Amount or (ii) the aggregate liability of each Stockholder under
this Agreement, including Sections 9.03(a) and 9.03(b), exceed the
product of the Pro Rata Share of that Stockholder multiplied by the
Ceiling Amount.
(b) Notwithstanding the provisions of Section 9.04, OEI shall not
be required to indemnify or hold harmless any of the Stockholder
Indemnified Parties on account of any Stockholder Indemnified Loss
unless the liability of OEI in respect of that Stockholder Indemnified
Loss, when aggregated with the liability of OEI in respect of all
Stockholder Indemnified Losses, exceeds, and only to the extent the
aggregate amount of all those Stockholder Indemnified Losses does
exceed, the Threshold Amount. In no event shall OEI be liable under this
Agreement, including Section 9.04, for any amount in excess of the
Ceiling Amount.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01.TREATMENT OF CONFIDENTIAL INFORMATION.
(a) Each of the Company and the Stockholders, severally and not
jointly with any other Person, acknowledges that it has or may have had
in the past, currently has and in the future may have access to
Confidential Information of the Company and the Company Subsidiaries,
the Other Founding Companies and their Subsidiaries and OEI and its
Subsidiaries. Each of the Company and the Stockholders, severally and
not jointly with any other Person, agrees that it will keep confidential
all such Confidential Information furnished to it and, except with the
specific prior written consent of OEI will not disclose such
Confidential Information to any Person except (a) Representatives of
OEI, (b) its own Representatives, provided that these Representatives
(other than counsel) agree to the confidentiality provisions of this
Section 11.01; and provided, further, that Confidential Information
shall not include (i) such information which becomes known to the public
generally through no fault of any Stockholder, (ii) information required
to be disclosed by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), each Stockholder shall, if possible, give
prior written notice thereof to OEI and provide OEI with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense
of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any Stockholder of the provisions of this Section
11.01 with respect to any Confidential Information, OEI shall be
entitled to an injunction restraining such Stockholder from disclosing,
in whole or in part, that Confidential Information. Nothing herein shall
be construed as prohibiting OEI from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
(b) Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 11.01(a), and
because of the immediate and irreparable damage that would be caused to
OEI for which it would have no other adequate remedy, each of the
Company and the Stockholders agrees that OEI may enforce the provisions
of Section 11.01(a) by injunctions and restraining orders against each
of them who breaches any of those provisions.
(c) The obligations of OEI set forth in Section 6.02(d) are
incorporated in this Section 11.01 by this reference.
(d) The obligations of the parties under this Section 11.01 shall
survive the termination of this Agreement.
62
EXHIBIT 2.2
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF APRIL 10, 1998
BY AND AMONG
OEI INTERNATIONAL, INC.
PEI ACQUISITION, INC.
PETROCON ENGINEERING, INC.
AND
CERTAIN OF ITS
STOCKHOLDERS
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made as
of April 10, 1998, among OEI INTERNATIONAL, INC., a Delaware corporation
("OEI"), PEI ACQUISITION, INC., a Texas corporation and a wholly owned
subsidiary of OEI ("NEWCO"), PETROCON ENGINEERING, INC., a Texas corporation
(the "COMPANY"), and the persons listed on the signature pages of this Agreement
under the caption "STOCKHOLDERS" (collectively, the "STOCKHOLDERS," and each of
them, individually, a "STOCKHOLDER").
PRELIMINARY STATEMENTS
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "MERGER") on
the terms and subject to the conditions of this Agreement;
(ii) OEI, VIA mergers involving other OEI subsidiaries,
will acquire the stock of all or some of the entities other than
the Company identified in the accompanying Addendum I (each an
"OTHER FOUNDING COMPANY" and, collectively with the Company, the
"FOUNDING COMPANIES") under agreements similar to this Agreement
entered into among the Other Founding Companies, their
stockholders, OEI and other subsidiaries of OEI (collectively,
the "OTHER AGREEMENTS"); and
(iii) OEI will effect a public offering of shares of its
common stock.
The respective boards of directors of OEI, Newco and the Company have
approved and adopted this Agreement to effect a transaction involving a transfer
of the nature described in Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01:
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Addendum, Annexes and Exhibits, as each of
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them may be amended, modified or supplemented from time to time under
their provisions or the provisions of this Agreement.
"ALLIANCE GROUP" means Norbert C. Roobaert, David L. Hopson,
Michael J. Mahoney, Jeffrey J. Jaffurs, Steven V. Schindler, Herbert W.
Fortenberry, M. Duane Long, and Gregory W. Rhodes.
"BUSINESS CORPORATION ACT" means the Texas Business Corporation
Act.
"CEILING AMOUNT" means $31,789,500.
"CLOSING" has the meaning specified in Section 7.01(a).
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by OEI for the Closing, in which there shall be included the
forms of certificates of officers, the opinions of counsel and certain
other documents to be delivered at the Closing as provided in Article
VII.
"COMPANY COMMON STOCK" means the common stock, $1.00 par value
per share, of the Company.
"COMPANY PREFERRED STOCK" means the preferred stock, $1.00 par
value per share, of the Company.
"COUNSEL FOR OEI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Gardere &
Wynne, L.L.P.
"CURRENT BALANCE SHEET" means the audited balance sheet of the
Company at December 31, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means December 31, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DERIVATIVE SECURITY CONVERSION RATIO means 0.68060125.
"DISCLOSURE STATEMENT" means the written statement executed, for
identification purposes only, by an officer of the Company and delivered
to OEI prior to the execution and delivery of this Agreement, in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholders
in this
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Agreement or (b) it is confirmed that no exception is taken to that
representation and warranty.
"EXISTING EMPLOYMENT AGREEMENTS" mean the Employment Agreements
between the Company and Thomas H. Noble, Willie E. Rigsby, Robert A.
Marks, Norbert C. Roobaert and David L. Hopson, respectively, more fully
described in Schedule 4.11.
"EXISTING STOCK OPTION PLAN" means the Company's Amended and
Restated Stock Option Plan dated September 20, 1996, as amended by
Amendment No. 1 dated January 29, 1997, and Amendment No. 2 dated
November 21, 1997.
"FAMILY PARTNERSHIP AFFILIATE" means, with respect to M. L.
Burrow Family Partnership, Ltd., The Lawrence J. Bradford Family Limited
Partnership, Ltd. and The Olan Weeks Family Limited Partnership, Ltd.,
Michael L. Burrow, Lawrence J. Bradford and Olan B. Weeks, respectively.
"FAMILY PARTNERSHIPS" means M. L. Burrow Family Partnership,
Ltd., The Lawrence J. Bradford Family Limited Partnership, Ltd. and The
Olan Weeks Family Limited Partnership, Ltd., each of which is a
Stockholder.
"INITIAL FINANCIAL STATEMENTS" means the audited balance sheets
of the Company at December 31, 1997 and 1996 and the related audited
statements of income, stockholders' equity and cash flows for each of
the Company's three fiscal years in the three-year period ended December
31, 1997, together with the related audit report of Arthur Andersen LLP.
"ISOs" means the currently outstanding employee incentive stock
options for the purchase of an aggregate 596,053 shares of Company
Common Stock granted under the Existing Stock Option Plan.
"LIMITATION PERIOD" has the meaning specified in Section 11.18.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENTS" means the Employment Agreements dated
as of April 10, 1998, but to be effective as of the Closing, between the
Company and Jimmie N. Carpenter, Douglas W. Eckols and Olan B. Weeks,
respectively.
"NEWCO" means PEI Acquisition, Inc., a Texas corporation.
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"NSOs" means the currently outstanding employee nonqualified
stock options for the purchase of an aggregate 532,925 shares of Company
Common Stock granted under the Existing Stock Option Plan.
"OEI" means OEI International, Inc., a Delaware corporation.
"OEI ACQUISITION CANDIDATE" means any Entity engaged in the
Practice of Engineering and which shall have been called on by any of
the Company, OEI or a Subsidiary of the Company or OEI in connection
with the possible acquisition by any of them of that Entity or with
respect to which any of them has made an acquisition analysis.
"OEI INCENTIVE PLAN" means the 1998 Incentive Plan of OEI.
"OTHER STOCKHOLDERS" means at any time all Persons, other than
the Stockholders, who own shares of Company Common Stock at such time.
"OUTSTANDING DERIVATIVE SECURITIES" means collectively, the ISOs,
NSOs and Warrants.
"PARTIES" means the parties to this Agreement.
"PRO RATA SHARE" means for each Stockholder and each Other
Stockholder the fraction expressed as a percentage (a) the numerator of
which is the number of shares of outstanding Company Common Stock owned
by that Stockholder or Other Stockholder immediately prior to the
Effective Time, and (b) the denominator of which is the total number of
shares of outstanding Company Common Stock owned by all Stockholders and
all Other Stockholders immediately prior to the Effective Time.
"RESPONSIBLE OFFICER" means either of Michael L. Burrow or Gary
J. Coury.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDER PRO RATA SHARE" means for each Stockholder the
fraction expressed as a percentage (a) the numerator of which is the
number of shares of outstanding Company Common Stock owned by that
Stockholder immediately prior to the Effective Time, and (b) the
denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders immediately prior to the
Effective Time.
"SHAREHOLDERS' AGREEMENT" means the Amended and Restated
Shareholders' Agreement dated as of April 17, 1997, among the Company
and each of the Stockholders and Other Stockholders.
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"SUBSTITUTE DERIVATIVE SECURITIES" means collectively, the
Substitute ISOs, Substitute NSOs and Substitute Warrants.
"SUBSTITUTE ISOs" means employee incentive stock options to be
issued pursuant to the OEI Incentive Plan for the purchase of shares of
OEI Common Stock in exchange for the ISOs as provided in Section 2.07.
"SUBSTITUTE NSOs" means employee nonqualified stock options to be
issued pursuant to the Incentive Plan for the purchase of shares of OEI
Common Stock in exchange for the NSOs as provided in Section 2.07.
"SUBSTITUTE WARRANT AGREEMENT" means the Warrant Agreement in
substantially the form of Exhibit 1.01-A to be entered into at the
Closing among the Company, Willie E. Rigby and Robert A. Marks.
"SUBSTITUTE WARRANTS" means the warrants for the purchase of OEI
Common Stock to be issued pursuant to the Substitute Warrant Agreement
in exchange for the Warrants as provided in Section 2.07.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01(a).
"THRESHOLD AMOUNT" means $847,700.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"TRANSFERORS' AGREEMENT" means the Transferors' Agreement and
Plan of Transfer entered into as of April 10, 1998, among OEI, the
Stockholders and the other Persons party thereto.
"UNIFORM PROVISIONS" means the Uniform Provisions for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
"WARRANTS" means the currently outstanding warrants for the
purchase of an aggregate of 525,386 shares of Company Common Stock
granted under the Warrant Agreement between the Company and Willie E.
Rigby and Robert A. Marks dated October 17, 1996.
Section 1.02. DEFINITIONS IN UNIFORM PROVISIONS. Capitalized terms used
in this Agreement but not defined in this Section 1.01 have the meanings
assigned to them in the Preliminary Statements or in Article I of the Uniform
Provisions (the text of which is by this reference incorporated in this
Agreement), as the case may be.
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ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. On the terms and subject to the
conditions of this Agreement, the Company will cause a Certificate of Merger to
be duly executed and delivered on or promptly after the date of the Closing to
the Secretary of State of the State of Texas.
Section 2.02. THE EFFECTIVE TIME. The effective time of the Merger (the
"EFFECTIVE TIME") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the certificate or articles of incorporation of the
Company will be amended to change its authorized capital stock to 1,000 shares,
par value $1.00 per share, of Common Stock, (d) the Company will be the
Surviving Corporation and, as such, will, all with the effect provided by the
Business Corporation Act, (i) possess all the properties and rights, and be
subject to all the restrictions and duties, of the Company and Newco and (ii) be
governed by the laws of the State of Texas, (e) the Charter Documents of the
Company then in effect (after giving effect to the amendment of the Company's
certificate or articles of incorporation specified in clause (c) of this
sentence) will become and thereafter remain (until changed in accordance with
(i) applicable law, in the case of the certificate or articles of incorporation
or (ii) their terms, in the case of the bylaws) the Charter Documents of the
Surviving Corporation, (f) the initial board of directors of the Surviving
Corporation will be the Persons named in Schedule 2.03, who will hold the office
of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Texas and the Charter Documents of the Surviving
Corporation, and (g) the officers of the Surviving Corporation immediately
following the Merger will be as set forth in Schedule 2.03, and each of the
Persons so designated in Schedule 2.03 will serve in each office specified for
that Person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until his or her successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of OEI Common Stock, or the amount of cash only, set
forth or determined as provided in Schedule 2.04 (the "MERGER
CONSIDERATION"), (ii) cease to be outstanding and to exist, and (iii) be
canceled and retired;
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(b) each share of Company Common Stock held in the treasury of
the Company or by any Company Subsidiary will (i) cease to be
outstanding and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on such conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder and each
Other Stockholder, as the holder of certificates representing shares of
Company Common Stock, will, on surrender of his certificates to OEI (or
any agent which may be appointed by OEI for purposes of this Section
2.05), receive, and OEI will pay and issue to each Stockholder and each
Other Stockholder, in each case subject to the provisions of Section
2.06, the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes,
be deemed to evidence ownership of the number of whole shares of OEI
Common Stock included in the Merger Consideration payable in respect of
that certificate pursuant to Section 2.04 and the amount of cash payable
in respect of that certificate pursuant to Section 2.04. All shares of
OEI Common Stock issuable in the Merger will be deemed for all purposes
to have been issued by OEI at the Effective Time. All cash included in
the Merger Consideration shall be paid by OEI's company checks,
certified or official bank checks, or wire transfers, at OEI's option.
In the case of wire transfers, the transfers shall be to accounts
designated by the respective Stockholders or Other Stockholders, as the
case may be, at least five Business Days before the IPO Closing Date.
(b) Each Stockholder will deliver to OEI (or any agent that may
be appointed by OEI for purposes of this Section 2.05), on or before the
IPO Closing Date, the certificates representing Company Common Stock
owned by the Stockholder duly endorsed in blank by him, or accompanied
by stock powers duly executed by him in blank, and with all necessary
transfer tax and other revenue stamps, acquired at his expense, affixed
and canceled. In the event this Agreement is terminated pursuant to
Article XII prior to the Effective Time, OEI or its agent will return
all such certificates and other documents to the Stockholders. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the
stock powers accompanying, the certificates representing Company Common
Stock delivered by him.
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(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to OEI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of OEI Common Stock have
been issued in the Merger until the unsurrendered certificates are
surrendered as provided herein, but (i) on such surrender, OEI will
cause to be paid, to the Person in whose name the certificates
representing such shares of OEI Common Stock shall then be issued, the
amount of dividends or other distributions previously paid with respect
to such whole shares of OEI Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender,
and the amount of any cash payable to such Person for and in lieu of
fractional shares pursuant to Section 2.06 and (ii) at the appropriate
payment date or as soon as practicable thereafter, OEI will cause to be
paid to that Person the amount of dividends or other distributions with
a record date, or which have been accrued, subsequent to the Effective
Time, but which are not payable until a date subsequent to surrender,
which are payable with respect to such number of whole shares of OEI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends
or other distributions (or cash for and in lieu of fractional shares) on
surrender of outstanding certificates.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of OEI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of OEI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of OEI Common Stock
multiplied by $12.
Section 2.07. TREATMENT OF DERIVATIVE SECURITIES.
(a) EXCHANGE. Schedule 2.07 accurately sets forth each Derivative
Security outstanding on the date hereof, the name of the holder of such
Derivative Security, the number of shares of Company Common Stock
covered by such Derivative Security and the exercise price and
expiration date of such Derivative Security. Each ISO, NSO and Warrant
outstanding at the Effective Time shall be exchanged for a Substitute
ISO, Substitute NSO and Substitute Warrant, respectively, which will
entitle the holder of such Derivative Security to purchase a number of
shares (rounded to the nearest whole share) of OEI Common Stock equal to
the number of shares of Company Common Stock subject to the Derivative
Security for which such Substitute Derivative Security is being
exchanged multiplied by the Derivative Security Conversion Ratio. The
exercise price per share of OEI Common Stock for each Substitute
Derivative Security shall be an amount (rounded to the nearest whole
cent) equal to the exercise price applicable to the Outstanding
Derivative Security for which such Substitute Derivative Security is
being exchanged divided by the Derivative Security Conversion Ratio.
Each Substitute Derivative Security will have the same expiration date,
and shall contain substantially the same terms (other than the exercise
price), as the Derivative Security for which such Substitute Derivative
Security is being exchanged. Each Substitute ISO and each Substitute NSO
will be subject in all respects to
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the terms of the Incentive Plan. Each of the Substitute Warrants will be
issued pursuant to, and will be subject in all respects to the terms of,
the Substitute Warrant Agreement.
(b) CONSENT TO EXCHANGE. By execution of this Agreement, each
Stockholder and each Family Partnership Affiliate who is the holder of
Outstanding Derivative Securities agrees that each such Outstanding
Derivative Security which is outstanding at the Effective Time will be
exchanged for a Substitute Derivative Security in accordance with the
terms of Section 2.07(a). On or before the date hereof, each Person who
holds one or more Outstanding Derivative Securities and who is not a
Stockholder has agreed in writing that each such Outstanding Derivative
Security will be exchanged for a Substitute Derivative Security in
accordance with the terms of Section 2.07(a). The Company has delivered
a true and correct copy of each such written agreement to OEI.
Section 2.08. SPECIAL MEETING. The Company hereby agrees to call a
special meeting of the holders of the Company Common Stock to be held to vote
upon the Merger. The Company will use its best efforts to hold such meeting no
later than 25 days after the date of this Agreement. The Company will recommend
approval of the Merger. The notice of such special meeting shall state that any
holder of Company Common Stock who is an Other Stockholder is or may be entitled
to assert dissenters' rights under Article 5.11 of the Business Corporation Act,
and the Company shall provide to each Other Stockholder entitled to vote at the
special meeting of copy of such Subtitle and a copy of this Agreement or a
summary of this Agreement. By execution of this Agreement, each of the
Stockholders hereby waives its right to assert dissenter's rights under Article
5.11 of the Business Corporation Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to OEI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of OEI
Common Stock to be issued to him pursuant to Section 2.04 solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of
those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of OEI Common Stock other than this Agreement, the
Transferors' Agreement and the Registration Rights Agreement; (iii)
unless otherwise specified on Schedule 3.01, the Stockholder is an
"accredited investor" as defined in Securities Act Rule 501 (a); (iv)
the Stockholder (A) is able to bear the economic risk of an investment
in the OEI Common Stock to be acquired by him pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the OEI Common Stock, (D)
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has had an adequate opportunity to ask questions and receive answers
from the officers of OEI concerning any and all matters relating to the
transactions contemplated by this Agreement, including the background
and experience of the current and proposed officers and directors of
OEI, the plans for the operations of the business of OEI, the business,
operations and financial condition of the Other Founding Companies and
any plans of OEI for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all those
questions have been answered to his satisfaction; (v) if such
Stockholder is a Family Partnership, such Family Partnership was
organized for estate planning and other purposes and was not organized
for the specific purpose of acquiring shares of OEI Common Stock; and
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, OEI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of Texas,
and the Company (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State and (ii) has the
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its
business as now conducted;
(b) the authorized Capital Stock of the Company is comprised of
20,000,000 shares of Company Common Stock and 1,000,000 shares of
Company Preferred Stock; of which, as of the date hereof, 4,591,828
shares of Company Common Stock have been issued and are now outstanding
and 1,725,386 shares have been reserved for issuance upon exercise of
Derivative Securities; no shares of Company Preferred Stock are
outstanding; no shares of Company Common Stock or Company Preferred
Stock are held by the Company as treasury shares; and
(c) as of the date hereof, the Stockholders own, in the
aggregate, 96.26% of the issued and outstanding shares of the Company
Common Stock;
(d) the obligation of the Company to issue options pursuant to
Section 1.9 of the Stock Purchase Agreement between the Company, Willie
E. Rigsby and Robert A. Marks has been satisfied, no additional options
are to be issued pursuant to such Section 1.9 and the
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options issued pursuant to such Section 1.9 are included in the
Outstanding Derivative Securities, have been validly exercised for
Company Common Stock or have expired;
(e) each of the Stockholders who is a party to one of the
employment agreements identified in Section 4.26(j) of the Disclosure
Statement hereby agrees that neither the Merger nor any transaction
contemplated hereby (including but not limited to the Mergers with the
Other Founding Companies and the IPO) will constitute a "change in
control" for purposes of those employment agreements or give rise to a
right to terminate such Stockholder's employment "for good reason"
pursuant to those employment agreements; and
(f) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct (except that the
representation in Section 4.03(a) with respect to the due authorization
of this Agreement is subject to the requirement that stockholder
approval of the Merger be obtained at the special meeting to be held
pursuant to Section 2.08), and the agreements set forth therein are
agreed to. References to "Stockholder" or "Stockholders" shall mean
"Stockholder or Other Stockholder" or "Stockholders or Other
Stockholders," as the case may be, in Sections 4.16, 4.18(a), 4.19(a),
4.26(a), 4.30(f) and 4.30(g) of the Uniform Provisions and in the
definition of the term "Related Person" in Section 1.02 of the Uniform
Provisions. The reference to "Stockholders" shall mean "Stockholders and
Other Stockholders" in Section 4.30(d) of the Uniform Provisions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF OEI AND NEWCO
Section 5.01. BY OEI AND NEWCO. OEI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
The reference to the term "the Stockholders" in Section 5.10 of the Uniform
Provision shall be deemed to be a reference to "the Stockholders and the Other
Stockholders."
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each Party will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this
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reference) to be performed or observed by that Party. References to
"Stockholder" or "Stockholders" shall mean "Stockholder or Other Stockholder" or
"Stockholders or Other Stockholders," as the case may be, in Section 6.04(f) of
the Uniform Provisions and the second and fourth times either such term is used
in Section 6.08 of the Uniform Provisions.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the Parties
will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the Business Corporation Act,
(A) the execution of a Certificate of Merger meeting the requirements of
the Business Corporation Act and providing that the Merger will become
effective on the IPO Closing Date and (B) the filing of the Certificate
of Merger with the Secretary of State of the State of Texas), (ii)
verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05, and (iii) satisfy the document delivery
requirements to which the obligations of the Parties to effect the
Merger and the other transactions contemplated hereby are conditioned by
the provisions of this Article VII (all those actions collectively being
the "CLOSING"). The Closing will take place at the offices of Porter &
Hedges, L.L.P., 700 Louisiana, Houston, Texas at 10:00 a.m., Houston
time, or at such later time on the IPO Pricing Date as OEI shall specify
by written notice to either Responsible Officer. The actions taken at
the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificate of Merger will become effective pursuant to Section 2.02,
and all transactions contemplated by this Agreement to be closed or
completed on or before the IPO Closing Date, including the surrender of
the Company Common Stock in exchange for the Merger Consideration will
be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the
parties only pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in Sections 7.02(a) and 7.03. The obligations of the Stockholders
with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions:
(i) the Transferors' Agreement and each of the New Employment Agreements
then shall be in full force and effect; (ii) at the special meeting of
the holders of the Company Common Stock to be held pursuant to Section
2.07 of this Agreement, the holders of at least two-thirds of the
outstanding shares of voting Company Common Stock shall have approved
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the Merger and the plan of merger described in this Agreement; and (iii)
all the conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF OEI AND NEWCO. The
obligations of OEI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to OEI a
copy of the articles or certificate of incorporation, as amended to the
date of the Closing and certified by the Secretary of State of the State
of Texas as of a Current Date, of the Company; (ii) at the special
meeting of the holders of the Company Common Stock to be held pursuant
to Section 2.07 of this Agreement, the holders of at least two-thirds
majority of the outstanding shares of voting Company Common Stock shall
have approved the Merger and the plan of merger described in this
Agreement; and (iii) all the conditions set forth in Sections 7.02(a)
and 7.04(a).
(d) CERTAIN CONDITIONS TO BE MET BY IPO CLOSING DATE. The
obligations of OEI and Newco with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of the
following conditions: (i) the Transferors' Agreement and each of the New
Employment Agreements then shall be in full force and effect; and (ii)
all the conditions set forth in Sections 7.02(b) and 7.04(b).
(e) INCORPORATION OF ARTICLE VII OF UNIFORM PROVISIONS. The text
of Article VII of the Uniform Provisions hereby is incorporated herein
by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each Party
(other than the Company) will comply with each covenant for which provision is
made in Article VIII of the Uniform Provisions (the text of which Article hereby
is incorporated herein by this reference) to be performed or observed by that
Party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Sections 9.03(a) and 9.03(d), the term "Stockholders"
shall be deemed to refer to "Stockholders and Family Partnership Affiliates."
For purposes of Section 9.07(a), the term "Stockholder Pro Rata Share" shall be
substituted for the term "Pro Rata Share." For purposes of Section 9.07(b), the
Ceiling Amount
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shall be 96.28% of the amount determined as the Ceiling Amount for other
purposes in this Agreement and the Uniform Provisions.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder") and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, in any
business engaged in the Practice of Engineering in competition with the
Company, any Company Subsidiary or OEI or any Subsidiary of OEI (OEI and
its Subsidiaries collectively being called "OEI" for purposes of this
Article X) within any territory surrounding any office or facility (each
a "facility") in which any of the Company or the Company Subsidiaries
was engaged in business on the date hereof or immediately prior to the
Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
parish in which the facility is located, and (iv) the area located
within 100 miles of the facility, all of such locations being herein
collectively called the "TERRITORY");
(b) call on any natural Person who is at that time employed by
the Company, any Company Subsidiary or OEI with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or OEI, provided that a Stockholder may call on and hire any
of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or OEI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or OEI within the Territory and (ii)
with the knowledge of the customer relationship; or
(d) call on any OEI Acquisition Candidate, with the knowledge of
that Person's status as an OEI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than OEI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 1% of a class of the outstanding Capital Stock of a
competing Entity if that class of Capital Stock is publicly traded.
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Section 10.02. DAMAGES. Because of the difficulty of measuring economic
losses to OEI as a result of any breach by a Restricted Stockholder or any other
Stockholder of his covenants in Section 10.01, and because of the immediate and
irreparable damage that could be caused to OEI for which it would have no other
adequate remedy, each Restricted Stockholder (and, in the case of paragraphs (b)
and (d) of Section 10.01, each Stockholder) agrees that OEI may enforce the
provisions of Section 10.01 by injunctions and restraining orders against the
Restricted Stockholder or Stockholder, as the case may be, if he breaches any of
those provisions.
Section 10.03. REASONABLE RESTRAINT. The Parties each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholder or Stockholders, as the case may be, in light of the activities and
business of OEI on the date hereof, the current business plans of OEI and the
investment by each Stockholder in OEI as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in this Article
X are severable and separate. The unenforceability of any specific covenant in
this Article X is not intended by any Party to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction determines that the scope, time or territorial restrictions set
forth in Section 10.01 are unreasonable as applied to any Restricted Stockholder
or Stockholder, as the case may be, the Parties, including the Restricted
Stockholder or Stockholder in question, acknowledge their mutual intention and
agreement that those restrictions be enforced to the fullest extent the court
deems reasonable, and thereby shall be reformed to that extent as applied to
that Restricted Stockholder or Stockholder, as the case may be, and any other
Restricted Stockholder or Stockholder, as the case may be, similarly situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each Party to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder or Stockholder against
OEI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by OEI of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Restricted Stockholder and Stockholder by excluding from
that computation any time during which the Restricted Stockholder or Stockholder
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision of
this Agreement by any Party.
Section 10.06. MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated by this
Agreement.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each Party will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that Party.
Section 11.02. RESTRICTIONS ON TRANSFERS OF OEI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "RESTRICTED PERIOD"), no Stockholder
voluntarily will: (i) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint or otherwise dispose of (A) any shares of
OEI Common Stock received by any Stockholder in the Merger (including
but not limited to shares issued or to be issued pursuant to any of the
Substitute Derivative Securities received by such Stockholder pursuant
to Section 2.07(a)) or (B) any interest in (including any option to buy
or sell) any such shares of OEI Common Stock, in whole or in part, and
OEI will have no obligation to, and shall not, treat any such attempted
transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of OEI Common
Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of OEI Common Stock acquired
pursuant to Section 2.04 (including, for example engaging in put, call,
short-sale, straddle or similar market transactions); PROVIDED, HOWEVER,
that this Section 11.02 shall not restrict any transfer of OEI Common
Stock acquired by a Stockholder pursuant to Section 2.04 to any of that
Stockholder's Related Persons who agree in writing to be bound by the
provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the OEI Common Stock delivered to each Stockholder pursuant
to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as OEI may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE EXPIRATION OF THE
RESTRICTED PERIOD.
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(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of OEI Common Stock to be
delivered to him pursuant to Section 2.04 (A) have not been and, except
pursuant to the Registration Rights Agreement, if applicable, will not
be registered under the Securities Act and therefore may not be resold
by him without compliance with the Securities Act and (B) will, as a
result of their restrictions on transferability which are imposed by
this Agreement during the Restricted Period, have a value materially
less at the Effective Time than the value of then freely tradeable
shares of OEI Common Stock, and (ii) covenants that none of the shares
of OEI Common Stock issued to him pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the
SEC and applicable state securities laws and regulations. All
certificates evidencing shares of OEI Common Stock issued pursuant to
Section 2.04 will bear the following legend in addition to the legend
prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY ONLY BE SOLD OR
OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT ACT
AND OTHER APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing shares of OEI Common Stock issued
to each Stockholder pursuant to Section 2.04 will bear any legend
required by (i) the securities or blue sky laws of the state in which
that Stockholder resides or (ii) the Underwriter in connection with any
agreement of that Stockholder with the Underwriter to the effect set
forth in Section 11.02(a).
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly and
severally represent and warrant to OEI that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify OEI
against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its Parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the Parties, the successors
of OEI, and the heirs and legal representatives of the Stockholders (and, in the
case of any trust, the successor trustees of the trust). Neither this Agreement
nor any other Transaction Document is intended, or shall be construed, deemed or
interpreted, to confer on any Person not a party hereto or thereto any rights or
remedies hereunder or thereunder, except as provided in Section 6.05(b) or
11.14, in Article IX, or as otherwise provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement and
the documents delivered pursuant to it constitute the entire agreement and
understanding among the Parties and supersede all prior agreements and
understandings, both written and oral, relating to the
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subject matter of this Agreement. This Agreement may be amended, modified or
supplemented, and any right hereunder may be waived, if, but only if, the
amendment, modification, supplement or waiver is in writing and signed by the
Majority Stockholders, the Company and OEI. The waiver of any of the terms and
conditions of this Agreement shall not be construed or interpreted as, or deemed
to be, a waiver of any of its other term or conditions.
Section 11.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) OEI will pay the fees, expenses and disbursements of
OEI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments to this Agreement
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by OEI and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the Company may
pay any fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date, up to a
maximum of $40,000 in the aggregate, and (c) the Stockholders will pay from
personal funds, and not from funds of the Company or any Company Subsidiary, (i)
all sales, use, transfer and other similar taxes and fees (collectively,
"TRANSFER TAXES") incurred in connection with the transactions contemplated
hereby, and (ii) the fees, expenses and disbursements in excess of $40,000 in
the aggregate of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company, OEI or the
Surviving Corporation, will pay all Taxes due upon receipt of the consideration
payable to the Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the Party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Business Day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate Party or
Parties, at the address of such Party set forth below (or at such other address
as such party may designate by written notice to all other Parties in accordance
herewith):
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(i) if to OEI or Newco, addressed to it at:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77009
Attn.: Michael L. Burrow,
Chief Executive Officer
Telecopy No.: (713) 880-6300
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 226-1331
(ii) if to the Stockholders, addressed to them at their
respective addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Petrocon Engineering, Inc.
3155 Executive Blvd.
Beaumont, Texas 77705
Attn: M.L. Burrow, Chairman/CEO
Telecopy No.: (409) 840-2420
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Gardere & Wynne
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attn: Gary Clark
Telecopy No.: (214) 999-4667
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF: PROVIDED, HOWEVER, THAT MATTERS
PERTAINING SOLELY TO THE LEGALITY AND EFFECTUATION OF THE MERGER SHALL BE
GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any Party as a result of
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any breach or default hereunder by any other Party shall impair any such right,
power or remedy, nor shall it be construed, deemed or interpreted as a waiver of
or acquiescence in any such breach or default, or of any similar breach or
default occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the Parties as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. Except as otherwise provided in
Section 9.06, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive, but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither OEI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that OEI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to October 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to OEI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
SECTION 11.15. APPOINTMENT OF PROXIES. EACH STOCKHOLDER HEREBY
IRREVOCABLY APPOINTS, CONSTITUTES AND NOMINATES EACH OF GARY L. FORBES AND TRACY
H. COHEN AND EACH OF THEM ACTING SEPARATELY, THE TRUE AND LAWFUL ATTORNEY AND
PROXY FOR THE STOCKHOLDER, WITH FULL POWER OF SUBSTITUTION, IN THE NAME, PLACE
AND STEAD OF THE STOCKHOLDER, TO VOTE, AT THE SPECIAL MEETING OF STOCKHOLDERS TO
BE HELD PURSUANT TO SECTION 2.08 OF THIS AGREEMENT, AND ANY ADJOURNMENT OR
POSTPONEMENT OF SUCH SPECIAL MEETING, ALL SHARES OF COMPANY COMMON STOCK WHICH
ARE REGISTERED IN THE NAME OF THE STOCKHOLDER ON THE STOCK TRANSFER RECORDS OF
THE COMPANY, IN
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FAVOR OF THE MERGER AND THE PLAN OF MERGER DESCRIBED IN THIS AGREEMENT. EACH
STOCKHOLDER IS GRANTING THE PROXY AND THE POWERS AND AUTHORITIES GRANTED IN THIS
SECTION 11.15 IN CONSIDERATION OF OEI'S AND NEWCO'S EXECUTION OF THIS AGREEMENT
AND THEIR AGREEMENT TO CONSUMMATE THE MERGER AND PAY THE MERGER CONSIDERATION,
AND IN CONSIDERATION OF EACH OTHER STOCKHOLDERS' EXECUTION OF THIS AGREEMENT.
EACH STOCKHOLDER ACKNOWLEDGES AND AGREES THAT THE PROXY GRANTED BY THE
STOCKHOLDER UNDER THIS SECTION 11.15 IS IRREVOCABLE AND IS COUPLED WITH AN
INTEREST IN THAT (I) OEI AND NEWCO ARE UNWILLING TO EXECUTE AND DELIVER THIS
AGREEMENT UNLESS EACH STOCKHOLDER GRANTS THE PROXY, (II) THE MERGER IS IN THE
BEST INTERESTS OF THE COMPANY AND WILL BENEFIT BOTH THE COMPANY AND ALL
STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW, AND (III) ALL OF THE OTHER
STOCKHOLDERS WISH TO BE ASSURED THAT THE MERGER WILL BE APPROVED. ALL PREVIOUS
PROXIES TO VOTE SHARES OF COMPANY COMMON STOCK OWNED BY A STOCKHOLDER ARE HEREBY
REVOKED BY THAT STOCKHOLDER.
Section 11.16. ALLIANCE GROUP. Each member of the Alliance Group hereby
waives his right to any further adjustment at or after the Effective Time to the
number of shares of Company Common Stock owned by him pursuant to Section 1.8 of
the Agreement and Plan of Merger dated as of January 31, 1997, among the
Company, Energy Integration Services, Inc., Alliance Engineering Associates
Incorporated and the Alliance Group.
Section 11.17. FAMILY PARTNERSHIP AFFILIATES. Each Family Partnership
Affiliate hereby agrees that he shall be liable for, and obligated to perform,
each representation, warranty, covenant, indemnity obligation and each other
agreement and undertaking of the Family Partnership of which such Person is a
Family Partnership Affiliate to the same extent, and subject to the same
qualifications and limitations, as if such Family Partnership Affiliate were
named in this Agreement as a Stockholder in the place and stead of such Family
Partnership. The obligations of each Family Partnership and the Family
Partnership Affiliate thereof shall in all respects be joint and several, and
any right or obligation which any Party would be entitled to enforce against any
Family Partnership may be enforced directly against the Family Partnership
Affiliate of such Family Partnership as a direct and primary obligation of such
Family Partnership Affiliate.
Section 11.18. SUSPENSION AND TERMINATION OF SHAREHOLDERS' AGREEMENT.
The outstanding shares of the Company Common Stock are subject to the
Shareholders' Agreement which provides, INTER ALIA, options to purchase and to
sell shares of the Company Common Stock upon the occurrence of certain events
specified therein. The Company and the Stockholders agree that:
(a) at the Effective Time, the Shareholders' Agreement shall be
terminated without any further action on the part of any party thereto;
(b) the execution and delivery of this Agreement by the Company
and the Stockholders shall not be affected by, or constitute a breach of
or default under, the Shareholders' Agreement;
(c) if at the date hereof there has began to run, or if after the
date hereof and prior to the Effective Time there shall begin to run,
any period of time (herein called a
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"LIMITATION PERIOD") within which any party bound by or entitled to the
benefits of, or whose shares of the Common Stock are subject to, the
Shareholders' Agreement must, under the terms of the Shareholders'
Agreement, give any notice, offer such shares for sale, accept any offer
to purchase any such shares, purchase shares, make any election or take
any other action in order to preserve or maintain any right or benefit
of such party, then such Limitation Period shall cease to run and shall
be tolled as of the date of this Agreement, or, in the case of any
Limitation Period beginning after the date hereof, shall not begin to
run, unless and until such Limitation Period shall be resumed and
reinstated as provided in the following Section 11.18(e);
(d) so long as any Limitation Period is tolled pursuant to
Section 11.18(c), no party to the Shareholders' Agreement may exercise
any right or option such party would otherwise have but for the
provisions of this Section 11.18; and
(e) if this Agreement is terminated pursuant to Article XII, then
as of the close of business on the date this Agreement is so terminated,
the provisions of this Section 11.18 shall terminate and any Limitation
Period shall resume and be reinstated or shall commence, as the case may
be, ten days following such termination, and promptly thereafter, the
Company shall notify each of the parties to the Shareholders' Agreement
that the provisions of this Section 11.18 have terminated.
By their execution and delivery of this Agreement, pursuant to Section 20 of the
Shareholders' Agreement, the Company and the Stockholders (who hold more than
67% of the shares of Capital Stock subject to the Shareholders' Agreement)
hereby amend the Shareholders' Agreement as set forth in this Section 11.18.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of OEI and the
Company;
(ii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by October 31, 1998, unless the failure
of such transactions to be consummated results from the willful
failure of the Party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be
performed or adhered to by that Party prior to or at the Closing
or thereafter on the IPO Closing Date;
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(iii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if a material breach or
default shall be made by the other Party (or in the case of the
Stockholders and the Company, any of them) in the observance or
in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by OEI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by OEI or the Company if the Underwriting Agreement
is terminated pursuant to its terms after the Closing and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 Business
Days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of Texas, but before the IPO has
been consummated, OEI will take all actions that Counsel for the Company
and the Stockholders advises OEI are required by the applicable laws of
the State of Texas to rescind the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any Party except (a) as provided in Section 11.07, (b) to the
extent that such liability is based on the breach of that Party of any of its or
his representations, warranties or covenants set forth in of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
OEI INTERNATIONAL, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, Chief Executive Officer
PEI ACQUISITION, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, President
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PETROCON ENGINEERING, INC.
By: /s/ GARY J. COURY
Gary J. Coury, President
STOCKHOLDERS:
/s/ TERRY D. ALLEN
Terry D. Allen
/s/ FAHAD AL-TAMIMI
Fahad Al-Tamimi
/s/ BLAKE BERGMAN
Blake Bergman
The Lawrence J. Bradford Family Limited
Partnership, Ltd.
By: Lawrence J. Bradford Family L.L.C., General
Partner
By: /s/ LAWRENCE J. BRADFORD
Lawrence J. Bradford, Manager
M. L. Burrow Family Partnership, Ltd.
By: M. L. Burrow Family, L.L.C., General
Partner
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, Manager
/s/ JIMMIE NEAL CARPENTER
Jimmie Neal Carpenter
/s/ RONALD J. CHAPMAN
Ronald J. Chapman
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/s/ GARY J. COURY
Gary J. Coury
/s/ DOUGLAS W. ECKOLS
Douglas W. Eckols
/s/ HERBERT W. FORTENBERRY
Herbert W. Fortenberry
/s/ DAVID L. HOPSON
David L. Hopson
/s/ JEFFREY J. JAFFURS
Jeffrey J. Jaffurs
/s/ ROBERT KNOST
Robert Knost
/s/ M. DUANE LONG
M. Duane Long
/s/ MICHAEL J. MAHONEY
Michael J. Mahoney
/s/ THOMAS NOBLE
Thomas Noble
/s/ HUGH E. PARSONS
Hugh E. Parsons
/s/ LARRY PRESSWOOD
Larry Presswood
25
<PAGE>
/s/ ROBERT W. RAIFORD
Robert W. Raiford
/s/ GREGORY W. RHODES
Gregory W. Rhodes
/s/ NORBERT C. ROOBAERT
Norbert C. Roobaert
/s/ STEVEN V. SCHINDLER
Steven V. Schindler
/s/ BRIAN J. SHAWCROSS
Brian J. Shawcross
/s/ DAVID W. SMITH
David W. Smith
/s/ OWEN VAUGHN, JR.
Owen Vaughn, Jr.
/s/ BYRON WALKER, SR.
Byron Walker, Sr.
/s/ LOWELL WALKER
Lowell Walker
The Olan Weeks Family Limited Partnership, Ltd.
By: Olan Weeks Family, L.L.C., General Partner
By: /s/ OLAN B. WEEKS
Olan B. Weeks, Manager
26
<PAGE>
FAMILY PARTNERSHIP AFFILIATES:
/s/ MICHAEL L. BURROW
Michael L. Burrow
/s/ LAWRENCE J. BRADFORD
Lawrence J. Bradford
/s/ OLAN B. WEEKS
Olan B. Weeks
27
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI Engineering, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
(2) The Founding Companies are:
Chemical & Industrial Engineering, Inc.
Gulsby Engineering, Inc.
Paulus, Sokolowski and Sartor, Inc.
Petrocon Engineering, Inc.
W-Industries, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI Engineering, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
therein as therein defined.
(2) The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
Michael L. Burrow
Gary J. Coury
Rick Berry
Willie E. Rigsby
Norbert C. Roobaert
(3) The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
Michael L. Burrow Chairman of the Board, Chief Executive
Officer
Gary J. Coury President, Chief Operating Officer
Robert W. Raiford Executive Vice President, Chief
Financial Officer, Secretary, Treasurer
Thomas H. Noble Executive Vice President
Dana W. Swindler Vice President-Mergers & Acquisitions
Jimmie N. Carpenter Executive Vice President
Douglas W. Eckols Senior Vice President
Olan B. Weeks Senior Vice President
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI Engineering, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
(2) The name and address of each Stockholder are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME ADDRESS
Stockholders:
Terry D. Allen Box 2281-134 Sherwood Tail, Silsbee, Texas 77656
Fahad Al-Tamimi Salah Al-Din Al Ayyoubi District, Riyadh 11451 Saudi Arabia
Blake Bergman 3159 Sandalwood, Port Neches, Texas 77651
The Lawrence J. Bradford Family Limited
Partnership, Ltd. 990.Stacewood Drive, Beaumont, Texas 77706
M.L. Burrow Family Partnership, Ltd. 7955 Shire Lane, Beaumont, Texas 77706
Jimmie Neal Carpenter 5935 Ventura, Beaumont, Texas 77706
Ronald J. Chapman 890 Nantucket, Beaumont, Texas 77706
Gary J. Coury 503 Audobon, League City, Texas 77373
Douglas W. Eckols 2215 Edson Drive, Beaumont, Texas 77706
Herbert W. Fortenberry 1915 Mission Creek, Houston, Texas 77084
David L. Hopson 12546 Saracen, Cypress, Texas 77429
Jeffrey J. Jaffurs 1111 Cascade Creek, Katy, Texas 77450
Robert Knost 4595 Brookhollow, Vidor, Texas 77662
M. Duane Long 13726 Senca Park Drive, Houston, Texas 77077
Michael J. Mahoney 15806 Juneau Lane, Houston, Texas 77040
Thomas H. Noble 5990 Pinkstaff Lane, Beaumont, Texas 77706
Hugh E. Parsons 5514 Cherry Ridge Road, Richmond, Texas 77469-9630
Larry Presswood 16502 Rawhide Trail, Cypress, Texas 77429
Robert W. Raiford 15123 Greenleaf Lane, Houston, Texas 77062
Gregory W. Rhodes 12510 Twin Sisters, Cypress, Texas 77429
Norbert C. Roobaert 406 Rennie Drive, Katy, Texas 77450
Steven V. Schindler 10415 Ivyridge, Houston, Texas 77043
Brian J. Shawcross P.O. Box 212 Dhahran Airport, 31932 Al-Khobar, Saudi Arabia
David W. Smith 12028 Crestwood, Lumberton, Texas 77657
Owen Vaughn, Jr. Route 6, Box 384C, Silsbee, Texas 77656
Bryon Walker, Sr. 1208 South 23rd Street, Nederland, Texas 77627
Lowell Walker, Sr. 3116 Memphis Avenue, Nederland, Texas 77627
The Olan Weeks Family Limited Partnership, Ltd. 1001 Beverly, Orange, Texas 77630
</TABLE>
<PAGE>
(3) The aggregate Merger Consideration payable to Stockholders and Other
Stockholders shall be comprised of (i) $12,715,786 cash (the "Cash
Consideration") and (ii) 2,118,888 shares (the "Merger Shares") of OEI Common
Stock.
(4) Each Other Stockholder will receive an amount of cash equal to the
product obtained by multiplying (i) the Pro Rate Share of such Other Stockholder
times (ii) the sum of (a) the Cash Consideration plus (b) the product obtained
by multiplying the Merger Shares times the IPO Price. Other Stockholders will
not receive any of the Merger Shares.
(5) Each Stockholder will receive his Stockholder Pro Rata Share of the
Cash Consideration remaining after payment of the cash to be paid to the Other
Stockholders pursuant to the preceding paragraph and his Stockholder Pro Rata
Share of the Merger Shares.
<PAGE>
SCHEDULE 2.07
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.07 are used
herein as therein defined.
(2) Set forth below is a list of each outstanding Derivative Security
which accurately lists the name of the holder of such Derivative Security and
the number of shares of Company Common Stock covered by such Derivative Security
and the exercise price and expiration date of each such Derivative Security:
EXISTING DERIVATIVE SECURITIES
NAME TYPE NO. OF SHARES EXERCISE PRICE EXPIRATION DATE
---- ---- ------------- -------------- ---------------
M.L. Burrow NSO 4,000 4.44 01-Apr-03
J.N. Carpenter NSO 4,000 4.44 01-Apr-03
D.W. Eckols NSO 4,000 4.44 01-Apr-03
T.D. Allen NSO 2,800 4.44 01-Apr-03
R.J. Chapman NSO 2,400 4.44 01-Apr-03
R. Knost NSO 2,400 4.44 01-Apr-03
R. Bell NSO 750 4.44 01-Apr-04
D.W. Smith NSO 2,400 4.44 01-Apr-03
O.G. Vaughn NSO 3,000 4.44 01-Apr-03
L.J. Walker NSO 2,300 4.44 01-Apr-03
G.A. Abshire NSO 200 4.44 01-Apr-03
J.W. Aiena NSO 1,550 4.44 01-Apr-03
W.B. Bergman NSO 900 4.44 01-Apr-03
M.D. Blount NSO 800 4.44 01-Apr-03
D.M. Brown NSO 325 4.44 01-Apr-03
W.A. Campbell NSO 300 4.44 01-Apr-03
D. Canizaro NSO 325 4.44 01-Apr-03
J.W. Carothers NSO 1,450 4.44 01-Apr-03
R.G. Chapman NSO 800 4.44 01-Apr-03
R.J. Cook NSO 200 4.44 01-Apr-03
G.J. Coury NSO 5,000 4.44 01-Apr-03
G.J. Coury NSO 190,896 4.44 19-Sept-06
G.J. Coury ISO 153,850 6.50 18-Sept-06
D.R. Crim NSO 1,450 4.44 01-Apr-03
K.L. Douglas NSO 275 4.44 01-Apr-03
<PAGE>
EXISTING DERIVATIVE SECURITIES
NAME TYPE NO. OF SHARES EXERCISE PRICE EXPIRATION DATE
---- ---- ------------- -------------- ---------------
M.D. Duhon NSO 2,000 4.44 01-Apr-03
S.G. Erickson NSO 300 4.44 01-Apr-03
L.W. Faulk NSO 1,450 4.44 01-Apr-03
L.W. Faulk NSO 1,344 4.44 01-Apr-06
A.F. Gardner NSO 275 4.44 01-Apr-03
J.P. Greeson NSO 1,350 4.44 01-Apr-03
J.K. Grissom NSO 800 4.44 01-Apr-03
R.T. Hebert NSO 700 4.44 01-Apr-03
C.H. Iwasko NSO 325 4.44 01-Apr-03
J.E. Kemble NSO 225 4.44 01-Apr-03
D.W. Kotz NSO 800 4.44 01-Apr-03
D.W. Kotz NSO 509 4.44 01-Apr-05
K.A. Langston NSO 1,500 6.50 15-Dec-07
D.R. Leblanc NSO 900 4.44 01-Apr-03
K.D. Lee NSO 325 4.44 01-Apr-03
R.G. Martin NSO 362 4.44 01-Apr-05
M. Mateker NSO 1,350 4.44 01-Apr-03
W.D. McDowell NSO 275 4.44 01-Apr-03
W.D. McDowell NSO 298 4.44 01-Apr-05
G. Meyers NSO 1,000 4.44 01-Apr-03
G. Meyers NSO 499 4.44 01-Apr-05
M.P. O'Keefe NSO 1,550 4.44 01-Apr-03
R.J. Owen NSO 700 4.44 01-Apr-03
L.J. Palmer NSO 900 4.44 01-Apr-03
D.A. Pearce NSO 325 4.44 01-Apr-03
H.R. Porterfield NSO 900 4.44 01-Apr-03
R.W. Raiford NSO 3,000 4.44 01-Apr-03
R.W. Raiford NSO 58,744 4.44 19-Sept-06
R.W. Raiford ISO 153,850 6.50 19-Sept-08
I.D. Robertson NSO 800 4.44 01-Apr-03
T.J. Sey NSO 300 4.44 01-Apr-03
J.S. Seelbach NSO 300 4.44 01-Apr-03
G. Shelden NSO 175 4.44 01-Apr-03
A. Simon NSO 800 4.44 01-Apr-03
R.A. Spinks NSO 1,550 4.44 01-Apr-03
R.A. Spinks ISO 174 4.44 01-Apr-05
H.D. Springer NSO 275 4.44 01-Apr-03
J.P. Stafford NSO 1,550 4.44 01-Apr-03
J.C. Stewart NSO 300 4.44 01-Apr-03
W.O. Strong NSO 1,250 4.44 01-Apr-03
G. Van Cleve NSO 2,000 4.44 01-Apr-03
B.A. Virnig NSO 2,000 4.44 01-Apr-03
B.P. Walker NSO 1,550 4.44 01-Apr-03
M.W. Barnes NSO 700 4.44 01-Apr-03
O.B. Weeks NSO 4,000 4.44 01-Apr-03
R.R. Welty NSO 800 4.44 01-Apr-03
<PAGE>
EXISTING DERIVATIVE SECURITIES
NAME TYPE NO. OF SHARES EXERCISE PRICE EXPIRATION DATE
---- ---- ------------- -------------- ---------------
R.J. White NSO 200 4.44 01-Apr-03
J.C. Willcox NSO 900 4.44 01-Apr-03
J.G. Woodard NSO 800 4.44 01-Apr-03
F. Al- Tamimi NSO 1,704 4.44 01-Apr-05
F. Al-Tamimi NSO 135,998 4.44 06-Aug-07
D.E. Lockwood NSO 1,000 4.44 19-Sept-06
D. Swindler ISO 225,225 4.44 19-Sep-06
J. Nelson NSO 30,000 6.50 19-Sep-06
C.G. Keigley NSO 30,000 6.50 19-Sep-06
D. Kernion NSO 30,000 6.50 19-Sep-06
Maurice D. Duhon NSO 1,000 6.50 16-Dec-07
Mark S. Mateker NSO 1,000 6.50 15-Dec-07
William R. Miller NSO 3,000 6.50 15-Dec-07
Bruce A. Virnig NSO 1,000 6.50 15-Dec-07
William O. Allen NSO 500 6.50 15-Dec-07
Terry D. Allen NSO 200 6.50 15-Dec-07
Robert A. Knost NSO 200 6.50 15-Dec-07
John P. Stafford NSO 200 6.50 15-Dec-07
Guy VanCleve, Jr. NSO 200 6.50 15-Dec-07
Ronald J. Chapman NSO 200 6.50 15-Dec-07
Alice L. Colbert NSO 200 6.50 15-Dec-07
Leroy W. Faulk, Jr. NSO 200 6.50 15-Dec-07
Ivan D. Robertson NSO 200 6.50 15-Dec-07
Daniel W. Kotz NSO 200 6.50 15-Dec-07
Russell R. Welty NSO 140 6.50 15-Dec-07
Jan T. Galloway NSO 140 6.50 15-Dec-07
William D. McDowell NSO 140 6.50 15-Dec-07
Halbert D. Springer NSO 140 6.50 15-Dec-07
Jeff S. Seelbach NSO 140 6.50 15-Dec-07
James E. Dorsey, Jr. NSO 1,000 6.50 15-Dec-07
Richard D. Bobalik NSO 1,000 6.50 15-Dec-07
Warren A. Thompson NSO 1,000 6.50 15-Dec-07
Richard P. Broussard NSO 1,000 6.50 15-Dec-07
Gerald A. Fields NSO 1,000 6.50 15-Dec-07
Joseph A. Legleu NSO 1,000 6.50 15-Dec-07
George A. Lowery NSO 1,000 6.50 15-Dec-07
Donald K. Lum NSO 1,000 6.50 15-Dec-07
Prentiss R. Penton NSO 1,000 6.50 15-Dec-07
Kevin J. Roussel NSO 1,000 6.50 15-Dec-07
Perry J. Wiggins NSO 1,000 6.50 15-Dec-07
Allan S. Wise NSO 1,000 6.50 15-Dec-07
Mark C. Conrad NSO 1,500 6.50 15-Dec-07
Bisuddha N. Datta NSO 1,500 6.50 15-Dec-07
Edmund-Hugo Lunde NSO 1,500 6.50 15-Dec-07
W. Kent McAllister NSO 1,500 6.50 15-Dec-07
Todd A. Murphy NSO 1,500 6.50 15-Dec-07
<PAGE>
EXISTING DERIVATIVE SECURITIES
NAME TYPE NO. OF SHARES EXERCISE PRICE EXPIRATION DATE
---- ---- ------------- -------------- ---------------
Meredith N. Barnes NSO 1,200 6.50 15-Dec-07
Jearald E. Brown NSO 1,000 6.50 15-Dec-07
Dave E. Lockwood NSO 1,000 6.50 15-Dec-07
- --------------------------------------------------------------------------------
TOTAL 1,128,978
R.A. Marks Warrant 232,693 62.41 17-Oct-03
W.E. Rigsby Warrant 256,693 62.41 17-Oct-03
R.E. Mitchen Warrant 36,000 62.41 17-Oct-03
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
(2) Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a) except for the following:
NAME
Blake Bergman
Herbert W. Fortenberry
Jeffrey J. Jaffurs
M. Duane Long
Michael J. Mahoney
Hugh E. Parsons
Larry Presswood
Gregory W. Rhodes
Steven V. Schindler
Brian J. Shawcross
Bryon Walker, Sr.
The Lawrence J. Bradford Family
Limited Partnership, Ltd.
The Olan Weeks Family Limited
Partnership, Ltd.
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI Engineering, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
(2) The following table sets forth the ownership of the Company's
Capital Stock as of the date hereof:
TOTAL
NAME CLASS SHARES
---- ----- ------
STOCKHOLDERS:
Terry D. Allen Common 271,323
Fahad Al-Tamimi Common 273,606
Blake Bergman Common 14,643
The Lawrence J. Bradford Family Limited Common 180,000
Partnership, Ltd.
M.L. Burrow Family Partnership, Ltd. Common 957,914
Jimmie Neal Carpenter Common 424,344
Ronald J. Chapman Common 184,557
Gary J. Coury Common 14,074
Douglas W. Eckols Common 326,426
Herbert W. Fortenberry Common 22,944
David L. Hopson Common 139,992
Jeffrey J. Jaffurs Common 28,973
Robert Knost Common 156,225
M. Duane Long Common 24,551
Michael J. Mahoney Common 30,498
Thomas H. Noble Common 83,000
Hugh E. Parsons Common 10,135
Larry Presswood Common 11,253
Robert W. Raiford Common 120,000
Gregory W. Rhodes Common 24,551
Norbert C. Roobaert Common 237,986
Steven V. Schindler Common 27,448
Brian J. Shawcross Common 10,000
David W. Smith Common 141,875
<PAGE>
TOTAL
NAME CLASS SHARES
---- ----- ------
Owen Vaughn, Jr. Common 181,285
Bryon Walker, Sr. Common 39,599
Lowell Walker, Sr. Common 183,036
The Olan Weeks Family Limited Partnership,
Ltd. Common 300,000
- --------------------------------------------------------------------------------
SUBTOTAL FOR STOCKHOLDERS 4,420,238
- --------------------------------------------------------------------------------
OTHER STOCKHOLDERS:
J. Baugh Common 2,250
G. Benoit Common 1,525
R. Blanton Common 5,625
D. Canizaro Common 5,625
J. Carothers Common 5,625
R.G. Chapman Common 5,625
M. Connelly Common 3,000
D. Connelly Common 500
G. Creamer Common 250
D. Crim Common 5,847
M. Day Common 1,125
R. Dodson Common 900
M. Duhon Common 2,813
L. Faulk Common 1,000
G. Figlia-Alongi Common 200
V. Garcia Common 3,000
K. Gardner Common 1,500
T. Green Common 866
D. Gonsolin Common 4,421
F. Grisanti Common 1,025
J. Halter Common 5,625
E. Hendrix Common 1,125
C. Irwin Common 1,000
C. Iwasko Common 3,000
R. Jackson Common 6,075
J. Kemble Common 5,625
T. Kyler Common 1,125
D. LeBlanc Common 3,375
G. Long Common 2,651
R. Martin Common 1,000
M. Mateker Common 5,625
J. McLaughlin Common 1,125
R. Miller Common 1,000
H. Newman Common 2,525
A. Newman Common 2,525
M. O'Keefe Common 5,694
J. O'Neil Common 1,000
M. Owens Common 1,125
J. Palmer Common 2,000
<PAGE>
TOTAL
NAME CLASS SHARES
---- ----- ------
L. Palmer Common 3,500
D. Pearce Common 5,625
J. Phillips Common 1,126
D. Robertson Common 1,500
I.D. Robertson Common 5,625
C. Roberts Common 1,500
P. Shawcross Common 5,000
J. Stafford Common 5,625
S. Stewart Common 5,625
B. Tielke Common 2,253
J. Tielke Common 4,500
G.N. VanCleve Common 6,750
J. Vilforth Common 300
B. Virnig Common 9,732
F. White Common 1,125
R. Wilson Common 5,862
- --------------------------------------------------------------------------------
SUBTOTAL FOR OTHER STOCKHOLDERS 171,590
- --------------------------------------------------------------------------------
GRAND TOTAL 4,591,828
- -------------------------------------------------------------------=============
(3) No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
(2) The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $10,000:
PEI Investments, a Texas joint venture owned one-third by the Company,
one-third by Michael L. Burrow and one-third by Persons who are not
Stockholders, has leased the Company's corporate headquarters building
in Beaumont, Texas, to the Company pursuant to the Lease Agreements
between the Company and PEI Investments identified in Section 4.18(a)
of the Disclosure Statement. The Company has guaranteed the loan in
the outstanding principal amount as, of the Current Balance Sheet
Date, of $229,916.14 from Silsbee State Bank to PEI Investments which
is secured by a mortgage on the corporate headquarters building.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
(2) The following Related Party Agreements will be permitted to continue
in effect past the date of the Closing in accordance with their terms, subject
to the following provisions of this Schedule:
(a) The New Employment Agreements.
(b) Employment Agreement dated March 1, 1998, between the Company and
Thomas H. Noble providing for the employment of Mr. Noble as an
Executive Vice President of the Company during the term ending
March 1, 2001.
(c) Employment Agreement dated October 17, 1996, between the Company
and Willie E. Rigsby providing for the employment of Mr. Rigsby
as the Chairman of the Board of RPM Engineering, Inc. during the
term ending October 17, 2001.
(d) Employment Agreement dated October 17, 1996, between the Company
and Robert A. Marks providing for the employment of Mr. Marks as
the President of RPM Engineering, Inc. during the term ending
October 17, 1999.
(e) Employment Agreement dated January 31, 1997, between the Company
and David L. Hopson providing for the employment of Mr. Hopson as
the Vice President and Secretary of RPM Engineering, Inc. during
the term ending January 31, 2001.
(f) Employment Agreement dated January 31, 1997, between the Company
and Norbert C. Roobaert providing for the employment of Mr.
Roobaert as the President of Alliance Engineering Associates,
Inc. during the term ending January 31, 2001.
(g) The Substitute Derivative Securities issued pursuant to Section
2.07.
<PAGE>
(h) Lease Agreements identified in Section 4.18(a) of the Disclosure
Statement, between the Company and PEI Investments, a Texas joint
venture of which the Company owns a one-third interest and
Michael L. Burrow or M.L. Burrow Family Partnership, Ltd. owns a
one-third interest with respect to the Company's corporate
headquarter building in Beaumont, Texas.
(i) Note payable to RPM Investments Ltd., a partnership owned by
certain Stockholders in the principal amount of $200,000 as of
the Current Balance Sheet Date.
(j) Contract of Sale dated July 10, 1996, between the Company and
Thomas H. Noble regarding the purchase by the Company of the
stock of Triangle Engineers and Construction, Inc. to the extent
that the indemnity obligations in Articles V and VI of such
agreement and the covenant not to compete in Article VII of such
agreement have not terminated.
(k) Covenant Not to Compete Agreement dated July 10, 1996, between
Thomas H. Noble and the Company.
(l) Stock Purchase Agreement dated October 17, 1996, between the
Company and Willie E. Rigsby and Robert A. Marks regarding the
purchase by the Company of RPM Engineering, Inc. to the extent
that the earnout provisions of Section 1.3 of that agreement have
not been fully performed and the indemnity obligations contained
in Section 4 of that agreement have not terminated.
(m) The Alliance Agreement to the extent the indemnity obligations in
Article IV. of such agreement have not terminated.
(n) Creole Trading, Inc. owes Triangle Engineers and Constructors,
Inc. approximately $50,000 for build-out expenses on a facility
formerly occupied by Triangle and owned by an Affiliate of Thomas
H. Noble. Creole Trading, Inc. is owned by, among others, Thomas
H. Noble.
(o) Allen Service Shop provides electrical maintenance services at
the Executive I facility at 3105 Executive Blvd. under an oral
agreement. Charges for services rendered under such oral
agreement have generally cost approximately $900 per month. Allen
Service Shop is owned by Terry D. Allen.
<PAGE>
SCHEDULE 6.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.03 are used
herein as therein defined.
(2) The Company may deviate from the restrictions in Section 6.03 with
the consent in writing of OEI.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
(2) The Company and the Company Subsidiaries may adjust, in the ordinary
course of business, present salaries of employees who are not officers or
directors of the Company.
(3) The Company may pay normal merit bonuses to employees in amounts
consistent with the Company's past practices, policies and agreements.
(4) Prior to the Closing, the Company may issue shares of Company Common
Stock to the extent necessary to satisfy its obligations with respect to the
exercise of any of the Outstanding Derivative Securities.
(5) Prior to the Closing, the Company may issue shares of Common Stock
to the extent necessary to satisfy the Company's obligations with respect to
Section 1.8 of the Alliance Agreement and any agreement which amends, modifies
or satisfies the Company's obligations with respect to Section 1.8 of the
Alliance Agreement.
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
(2) The Company will make all arrangements and take all such actions as
are necessary and satisfactory to OEI to dispose, prior to the Effective Time,
of the following assets in the manner indicated below:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
(2) At or within 10 days following the Effective Time, OEI will cause
the following Stockholder and Other Stockholder Guarantees to be terminated:
None
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PEI Acquisition, Inc.
Petrocon Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
(2) Each of the Stockholders identified below is a Restricted
Stockholder and subject to all the restrictions set forth in Section 10.01 of
the captioned Agreement:
None
EXHIBIT 2.3
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF APRIL 10, 1998
BY AND AMONG
OEI INTERNATIONAL, INC.,
PS&S ACQUISITION, INC.,
PAULUS, SOKOLOWSKI AND SARTOR, INC.
AND
ITS STOCKHOLDERS
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made as
of April 10, 1998, among OEI International, Inc., a Delaware corporation
("OEI"), PS&S Acquisition, Inc., a New Jersey corporation and a wholly owned
subsidiary of OEI ("NEWCO"), Paulus, Sokolowski and Sartor, Inc., a New Jersey
corporation (the "COMPANY"), and the persons listed on the signature pages of
this Agreement under the caption "STOCKHOLDERS" (collectively, the
"STOCKHOLDERS," and each of them, individually, a "STOCKHOLDER").
PRELIMINARY STATEMENTS
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "MERGER") on
the terms and subject to the conditions of this Agreement;
(ii) OEI, VIA mergers involving other OEI subsidiaries,
will acquire the stock of all or some of the entities other than
the Company identified in the accompanying Addendum I (each an
"OTHER FOUNDING COMPANY" and, collectively with the Company, the
"FOUNDING COMPANIES") under agreements similar to this Agreement
entered into among the Other Founding Companies, their
stockholders, OEI and other subsidiaries of OEI (collectively,
the "OTHER AGREEMENTS"); and
(iii) OEI will effect a public offering of shares of its
common stock.
The respective boards of directors of OEI, Newco and the Company have
approved and adopted this Agreement to effect a transaction involving a transfer
of the nature described in Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01:
"AAA RELATED INDEBTEDNESS" means all indebtedness of the Company
incurred to fund distributions to the Stockholders made during the
period from January 1, 1998 to the IPO Closing Date from the Company's
Accumulated Adjustment Account.
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<PAGE>
"ACCUMULATED ADJUSTMENT ACCOUNT" means the accumulated adjustment
account maintained by the Company under Section 1368(e)(1) of the Code
and representing the undistributed retained earnings of the Company on
which the Stockholders have paid U.S. federal income taxes.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Addendum, Annexes and Exhibits, as each of them may be amended, modified
or supplemented from time to time under their provisions or the
provisions of this Agreement.
"BUSINESS CORPORATION ACT" means the New Jersey Business
Corporation Act.
"CEILING AMOUNT" means $11,304,750.
"CLOSING" has the meaning specified in Section 7.01(a).
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by OEI for the Closing, in which there shall be included the
forms of certificates of officers, the opinions of counsel and certain
other documents to be delivered at the Closing as provided in Article
VII.
"COMPANY COMMON STOCK" means the common stock, no par value of
the Company.
"COUNSEL FOR OEI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Budd Larner
Gross Rosenbaum Greenberg & Sade, P.C.
"CURRENT BALANCE SHEET" means the audited balance sheet of the
Company at December 31, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means December 31, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company for identification purposes and delivered to OEI prior to
the execution and delivery of this Agreement, in which either (a)
exceptions are taken to each of certain of the representations and
warranties made by the Company, the Stockholders and the Other
Stockholders in this Agreement or (b) it is confirmed that no exception
is taken to that representation and warranty.
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<PAGE>
"INITIAL FINANCIAL STATEMENTS" means the audited consolidated
balance sheets of the Company at December 31, 1997 and 1996 and the
related audited statements of income, stockholders' equity and cash
flows for each of the Company's three fiscal years in the three-year
period ended December 31, 1997, together with the related audit report
of Arthur Andersen LLP.
"LEASE MODIFICATION AGREEMENTS" means the Lease Modification
Agreements in substantially the form of Exhibit 1.01-A attached hereto
pursuant to which the leases described in paragraphs 1, 2 and 3 of
Schedule 4.11 are to be amended.
"LIMITATION PERIOD" has the meaning specified in Section
11.17(c).
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENTS" means the Employment Agreements dated
as of April 10, 1998, but to be effective as of the Closing, between the
Company and William Paulus, Jr., Anthony J. Sartor, Philip A. Falcone
and Marilyn Lennon, respectively.
"NEWCO" means PS&S Acquisition, Inc., a New Jersey corporation.
"OEI" means OEI International, Inc., a Delaware corporation.
"OEI ACQUISITION CANDIDATE" means any Entity engaged in the
Practice of Engineering and which shall have been called on by any of
the Company, OEI or a Subsidiary of the Company or OEI in connection
with the possible acquisition by any of them of that Entity or with
respect to which any of them has made an acquisition analysis.
"PARTIES" means the parties to this Agreement.
"PC STOCKHOLDERS" has the meaning specified in Section 11.16.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company Common
Stock owned by that Stockholder, as set forth in Schedule 2.04, and (b)
the denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders, as set forth in Schedule
2.04.
"PS&S PC" means Paulus, Sokolowski & Sartor Engineering, P.C., a
New Jersey professional corporation.
3
<PAGE>
"RESPONSIBLE OFFICER" means any of William Paulus, Jr., Anthony
J. Sartor or Philip A. Falcone.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated
August 3, 1992, among the Company and the Stockholders.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01(a).
"THRESHOLD AMOUNT" means $301,500.
"TRANSFERORS' AGREEMENT" means the Transferors' Agreement and
Plan of Transfer entered into as of April 10, 1998, among OEI, the
Stockholders and the other Persons party thereto.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
Section 1.02. KNOWLEDGE DEFINED. When a representation and warranty in
Article IV is made to the "KNOWLEDGE" of the Company or the Company and the
Stockholders, it means receipt of notice by, or actual knowledge of (i) any
Responsible Officer or (ii) any Stockholder, but no representation or warranty
made by the Company and the Stockholders in Article IV may be qualified or
limited by reference to "KNOWLEDGE" unless due inquiry has actually been made of
the Company by the Responsible Officers and the Stockholders.
Section 1.03. DEFINITIONS IN UNIFORM PROVISIONS. Capitalized terms used
in this Agreement but not defined in this Section 1.01 have the meanings
assigned to them in the Preliminary Statements or in Article I of the Uniform
Provisions (the text of which is by this reference incorporated in this
Agreement), as the case may be. The parties hereto acknowledge that the
definition of the term "DAMAGE" in Article I of the Uniform Provisions is not
intended to entitle any OEI Indemnified Party to recover from the Stockholders
exemplary, punitive or treble damages, unless such damages have been incurred by
such OEI Indemnified Party as a result of a Third Party Claim against such OEI
Indemnified Party.
4
<PAGE>
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. On the terms and subject to the
conditions of this Agreement, the Company will cause a Certificate of Merger to
be duly executed and delivered on or promptly after the date of the Closing to
the Secretary of State of the State of New Jersey.
Section 2.02. THE EFFECTIVE TIME. The effective time of the Merger (the
"EFFECTIVE TIME") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the certificate or articles of incorporation of the
Company will be amended to change its authorized capital stock to 1,000 shares,
par value $1.00 per share, of Common Stock, (d) the Company will be the
Surviving Corporation and, as such, will, all with the effect provided by the
Business Corporation Act, (i) possess all the properties and rights, and be
subject to all the restrictions and duties, of the Company and Newco and (ii) be
governed by the laws of the State of New Jersey, (e) the Charter Documents of
the Company then in effect (after giving effect to the amendment of the
Company's certificate or articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law, in the case of the certificate or articles of
incorporation or (ii) their terms, in the case of the bylaws) the Charter
Documents of the Surviving Corporation, (f) the initial board of directors of
the Surviving Corporation will be the Persons named in Schedule 2.03, who will
hold the office of director of the Surviving Corporation subject to the
provisions of the applicable laws of the State of New Jersey and the Charter
Documents of the Surviving Corporation, and (g) the officers of the Surviving
Corporation immediately following the Merger will be as set forth in Schedule
2.03, and each of the Persons so designated in Schedule 2.03 will serve in each
office specified for that Person in Schedule 2.03, subject to the provisions of
the Charter Documents of the Surviving Corporation, until his or her successor
is duly elected to, and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of OEI Common Stock set forth or determined as
provided in Schedule 2.04 (the "MERGER CONSIDERATION"), (ii) cease to be
outstanding and to exist, and (iii) be canceled and retired;
5
<PAGE>
(b) each share of Company Common Stock held in the treasury of
the Company or by any Company Subsidiary will (i) cease to be
outstanding and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on such conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock,
will, on surrender of his certificates to OEI (or any agent which may be
appointed by OEI for purposes of this Section 2.05), receive, and OEI
will pay and issue to each Stockholder, in each case subject to the
provisions of Section 2.06, the Merger Consideration; and (ii) until any
certificate representing Company Common Stock has been surrendered and
replaced pursuant to this Section 2.05, that certificate will, for all
purposes, be deemed to evidence ownership of the number of whole shares
of OEI Common Stock included in the Merger Consideration payable in
respect of that certificate pursuant to Section 2.04. All shares of OEI
Common Stock issuable in the Merger will be deemed for all purposes to
have been issued by OEI at the Effective Time. All cash included in the
Merger Consideration shall be paid by OEI's company checks, certified or
official bank checks, or wire transfers, at OEI's option. In the case of
wire transfers, the transfers shall be to accounts designated by the
respective Stockholders at least five Business Days before the IPO
Closing Date.
(b) Each Stockholder will deliver to OEI (or any agent that may
be appointed by OEI for purposes of this Section 2.05), on or before the
IPO Closing Date, the certificates representing Company Common Stock
owned by the Stockholder, as the case may be, duly endorsed in blank by
him, or accompanied by stock powers duly executed by him in blank, and
with all necessary transfer tax and other revenue stamps, acquired at
his expense, affixed and canceled. In the event this Agreement is
terminated pursuant to Article XII prior to the Effective Time, OEI or
its agent will return all such certificates and other documents to the
Stockholders. Each Stockholder shall cure any deficiencies in the
endorsement of the certificates or other documents of conveyance
respecting, or in the stock powers accompanying, the certificates
representing Company Common Stock delivered by him.
6
<PAGE>
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to OEI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of OEI Common Stock have
been issued in the Merger until the unsurrendered certificates are
surrendered as provided herein, but (i) on such surrender, OEI will
cause to be paid, to the Person in whose name the certificates
representing such shares of OEI Common Stock shall then be issued, the
amount of dividends or other distributions previously paid with respect
to such whole shares of OEI Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender,
and the amount of any cash payable to such Person for and in lieu of
fractional shares pursuant to Section 2.06 and (ii) at the appropriate
payment date or as soon as practicable thereafter, OEI will cause to be
paid to that Person the amount of dividends or other distributions with
a record date, or which have been accrued, subsequent to the Effective
Time, but which are not payable until a date subsequent to surrender,
which are payable with respect to such number of whole shares of OEI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends
or other distributions (or cash for and in lieu of fractional shares) on
surrender of outstanding certificates.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of OEI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of OEI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of OEI Common Stock
multiplied by $12.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to OEI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring any shares of OEI
Common Stock to be issued to him pursuant to Section 2.04 solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of
those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of OEI Common Stock other than this Agreement, the
Transferors' Agreement and the Registration Rights Agreement; (iii)
unless otherwise specified on Schedule 3.01, the Stockholder is an
"accredited investor" as defined in Securities Act Rule 501 (a); (iv)
the Stockholder (A) is able to bear the economic risk of an investment
in any OEI Common Stock to be acquired by him pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable
7
<PAGE>
of evaluating the merits and risks of the proposed investment in any OEI
Common Stock, the Stockholder is to receive as Merger Consideration, (D)
has had an adequate opportunity to ask questions and receive answers
from the officers of OEI concerning any and all matters relating to the
transactions contemplated by this Agreement, including the background
and experience of the current and proposed officers and directors of
OEI, the plans for the operations of the business of OEI, the business,
operations and financial condition of the Other Founding Companies and
any plans of OEI for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all those
questions have been answered to his satisfaction; and
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, OEI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of New
Jersey, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State and (ii) has
the corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on
its business as now conducted;
(b) the authorized Capital Stock of the Company is comprised of
50,000 shares of Company Common Stock, of which 26,243 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and no outstanding Derivative Securities of the Company
exist;
(c) the Company (i) has made, and there is now in effect, an
election with the IRS to be taxed as a Subchapter S corporation within
the meaning of Section 1361 of the Code, (ii) owns no assets the
disposition of which would cause the Company to have a net recognized
built-in gain within the meaning of Section 1374 of the Code, (iii) has
had no item of income that has not been taken into account by the
Company and that would be treated as a recognized built-in gain under
Section 1374(d)(5) of the Code, and (iv) will not be liable for any
federal, state, city or local Taxes as a result of the Merger (other
than Taxes, if any, for which the Company may be liable solely as a
result of the conversion from the cash method to the accrual method of
accounting for income tax purposes);
8
<PAGE>
(d) except to the extent modified or supplemented under the
provisions of paragraph (e) of this Section 4.01, the representations
and warranties contained in Article IV of the Uniform Provisions (the
text of which Article hereby is incorporated herein by this reference)
are true and correct, and the agreements set forth therein are agreed
to; and
(e) for purposes of the representation and warranty made in
Section 4.16, the term "PRESENT LIABILITIES" shall not be construed to
include any liability of the Company which may arise after the date of
this Agreement, but which may be based on a negligent act or omission by
the Company which occurred on or before the date of this Agreement, if
neither the Company nor any Stockholder has knowledge that the negligent
act or omission has occurred.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF OEI AND NEWCO
Section 5.01. BY OEI AND NEWCO. OEI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each Party will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this reference) to be
performed or observed by that Party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the Parties
will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the Business Corporation Act,
(A) the execution of a Certificate of Merger meeting the requirements of
the Business Corporation Act and providing that the Merger will become
9
<PAGE>
effective on the IPO Closing Date and (B) the filing of the Certificate
of Merger with the Secretary of State of the State of New Jersey), (ii)
verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05, and (iii) satisfy the document delivery
requirements to which the obligations of the Parties to effect the
Merger and the other transactions contemplated hereby are conditioned by
the provisions of this Article VII (all those actions collectively being
the "CLOSING"). The Closing will take place at the offices of Porter &
Hedges, L.L.P., 700 Louisiana, Houston, Texas at 10:00 a.m., Houston
time, or at such later time on the IPO Pricing Date as OEI shall specify
by written notice to any Responsible Officer. The actions taken at the
Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificate of Merger will become effective pursuant to Section 2.02,
and all transactions contemplated by this Agreement to be closed or
completed on or before the IPO Closing Date, including the surrender of
the Company Common Stock in exchange for the Merger Consideration will
be closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the
parties only pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in Sections 7.02(a) and 7.03. The obligations of the Stockholders
with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions:
(i) the Transferors' Agreement and each of the New Employment Agreements
then shall be in full force and effect; and (ii) all the conditions set
forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF OEI AND NEWCO. The
obligations of OEI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to OEI a
copy of the articles or certificate of incorporation, as amended to the
date of the Closing and certified by the Secretary of State of the State
of New Jersey as of a Current Date, of the Company; and (ii) all the
conditions set forth in Sections 7.02(a) and 7.04(a).
(d) CERTAIN CONDITIONS TO BE MET BY IPO CLOSING DATE. The
obligations of OEI and Newco with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of the
following conditions: (i) the Transferors' Agreement and each of the New
Employment Agreements then shall be in full force and effect; (ii) the
Lease Modification Agreements shall have been executed and delivered by
the lessor parties thereto; and (iii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
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<PAGE>
(e) INCORPORATION OF ARTICLE VII OF UNIFORM PROVISIONS. The text
of Article VII of the Uniform Provisions hereby is incorporated herein
by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each Party
(other than the Company) will comply with each covenant for which provision is
made in Article VIII of the Uniform Provisions (the text of which Article hereby
is incorporated herein by this reference) to be performed or observed by that
Party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder") and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, in any
business engaged in the Practice of Engineering in competition with the
Company, any Company Subsidiary or OEI or any Subsidiary of OEI (OEI and
its Subsidiaries collectively being called "OEI" for purposes of this
Article X) within any territory surrounding any office or facility (each
a "facility") in which any of the Company or the Company Subsidiaries
was engaged in business on the date hereof or immediately prior to the
Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
parish in which the facility is located, and (iv) the area located
within 100 miles of the facility, all of such locations being herein
collectively called the "TERRITORY");
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(b) call on any natural Person who is at that time employed by
the Company, any Company Subsidiary or OEI with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or OEI, provided that a Stockholder may call on and hire any
of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or OEI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or OEI within the Territory and (ii)
with the knowledge of the customer relationship; or
(d) call on any OEI Acquisition Candidate, with the knowledge of
that Person's status as an OEI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than OEI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 1% of a class of the outstanding Capital Stock of a
competing Entity if that class of Capital Stock is publicly traded.
Section 10.02. DAMAGES. Because of the difficulty of measuring economic
losses to OEI as a result of any breach by a Restricted Stockholder or any other
Stockholder of his covenants in Section 10.01, and because of the immediate and
irreparable damage that could be caused to OEI for which it would have no other
adequate remedy, each Restricted Stockholder (and, in the case of paragraphs (b)
and (d) of Section 10.01, each Stockholder) agrees that OEI may enforce the
provisions of Section 10.01 by injunctions and restraining orders against the
Restricted Stockholder or Stockholder, as the case may be, if he breaches any of
those provisions.
Section 10.03. REASONABLE RESTRAINT. The Parties each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholder or Stockholders, as the case may be, in light of the activities and
business of OEI on the date hereof, the current business plans of OEI and the
investment by each Stockholder in OEI as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in this Article
X are severable and separate. The unenforceability of any specific covenant in
this Article X is not intended by any Party to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction determines that the scope, time or territorial restrictions set
forth in Section 10.01 are unreasonable as applied to any Restricted Stockholder
or Stockholder, as the case may be, the Parties, including the Restricted
Stockholder or Stockholder in question, acknowledge their mutual intention and
agreement that those restrictions be enforced to the fullest extent the court
deems reasonable, and thereby shall be reformed to that extent as applied to
that Restricted Stockholder or Stockholder, as the case may be, and any other
Restricted Stockholder or Stockholder, as the case may be, similarly situated.
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Section 10.05. INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each Party to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder or Stockholder against
OEI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by OEI of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Restricted Stockholder and Stockholder by excluding from
that computation any time during which the Restricted Stockholder or Stockholder
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision of
this Agreement by any Party.
Section 10.06. MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated by this
Agreement.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each Party will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that Party.
Section 11.02. RESTRICTIONS ON TRANSFERS OF OEI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "RESTRICTED PERIOD"), no Stockholder
voluntarily will: (i) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint or otherwise dispose of (A) any shares of
OEI Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any such shares of OEI
Common Stock, in whole or in part, and OEI will have no obligation to,
and shall not, treat any such attempted transfer as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of OEI Common Stock or any interest therein, the intent or
effect of which is to reduce the risk of owning the shares of OEI Common
Stock acquired pursuant to Section 2.04 (including, for example engaging
in put, call, short-sale, straddle or similar market transactions);
PROVIDED, HOWEVER, that this Section 11.02 shall not restrict any
transfer of OEI Common Stock acquired by a Stockholder pursuant to
Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the OEI Common Stock delivered to
each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other
information as OEI may deem necessary or appropriate:
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EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE EXPIRATION OF THE
RESTRICTED PERIOD.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of OEI Common Stock to be
delivered to him pursuant to Section 2.04 (A), if any, have not been
and, except pursuant to the Registration Rights Agreement, if
applicable, will not be registered under the Securities Act and
therefore may not be resold by him without compliance with the
Securities Act and (B) will, as a result of their restrictions on
transferability which are imposed by this Agreement during the
Restricted Period, have a value materially less at the Effective Time
than the value of then freely tradeable shares of OEI Common Stock, and
(ii) covenants that none of the shares of OEI Common Stock issued to him
pursuant to Section 2.04 will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full
compliance with all the applicable provisions of the Securities Act and
the rules and regulations of the SEC and applicable state securities
laws and regulations. All certificates evidencing shares of OEI Common
Stock issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY ONLY BE SOLD OR
OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT ACT
AND OTHER APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing any shares of OEI Common Stock
issued to each Stockholder pursuant to Section 2.04 will bear any legend
required by (i) the securities or blue sky laws of the state in which
that Stockholder resides or (ii) the Underwriter in connection with any
agreement of that Stockholder with the Underwriter to the effect set
forth in Section 11.02(a).
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly and
severally represent and warrant to OEI that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify OEI
against
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all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its Parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the Parties, the successors
of OEI, and the heirs and legal representatives of the Stockholders (and, in the
case of any trust, the successor trustees of the trust). Neither this Agreement
nor any other Transaction Document is intended, or shall be construed, deemed or
interpreted, to confer on any Person not a party hereto or thereto any rights or
remedies hereunder or thereunder, except as provided in Section 6.05(b) or
11.14, in Article IX, or as otherwise provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement and
the documents delivered pursuant to it constitute the entire agreement and
understanding among the Parties and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, the amendment, modification,
supplement or waiver is in writing and signed by the Majority Stockholders, the
Company and OEI. The waiver of any of the terms and conditions of this Agreement
shall not be construed or interpreted as, or deemed to be, a waiver of any of
its other term or conditions.
Section 11.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) OEI will pay the fees, expenses and disbursements of
OEI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments to this Agreement
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by OEI and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the Company may
pay any fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date, up to a
maximum of $40,000 in the aggregate for all such fees, expenses and
disbursements incurred after January 16, 1998, and (c) the Stockholders will pay
from personal funds, and not from funds of the Company or any Company
Subsidiary, (i) all sales, use, transfer and other similar taxes and fees
(collectively, "TRANSFER TAXES") incurred in connection with the transactions
contemplated hereby, and (ii) the fees, expenses and disbursements in excess of
$40,000 in the aggregate of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement after January 13, 1998, and on or before the IPO Closing
Date. The Stockholders will file all necessary documentation and Returns with
respect to all Transfer Taxes. In addition, each Stockholder acknowledges that
he, and not the Company, OEI or the Surviving Corporation, will pay all Taxes
due upon receipt of the consideration payable to the Stockholder pursuant to
Article II.
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Section 11.08. NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the Party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Business Day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate Party or
Parties, at the address of such Party set forth below (or at such other address
as such party may designate by written notice to all other Parties in accordance
herewith):
(i) if to OEI or Newco, addressed to it at:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77009
Attn.: Michael L. Burrow,
Chief Executive Officer
Telecopy No.: (713) 880-6300
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 226-1331
(ii) if to the Stockholders, addressed to them at their
respective addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Paulus, Sokolowski and Sartor, Inc.
67A Mountain Boulevard Extension
Warren, New Jersey 07059
Attn: William Paulus, Jr.
Telecopy No.: (732) 356-3726
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with copies (which shall not constitute notice for purposes of
this Agreement) to:
Budd Larner Gross Rosenbaum Greenberg & Sade, P.C.
150 John F. Kennedy Parkway, CN 1000
Short Hills, New Jersey 07078-0999
Attn: Mark D. Larner or
Robert A. Loewenstein
Telecopy No.: (973) 379-7734
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF: PROVIDED, HOWEVER, THAT: (A) ARTICLE X
AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES WILL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF
NEW JERSEY WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF AND (B)
MATTERS PERTAINING SOLELY TO THE LEGALITY AND EFFECTUATION OF THE MERGER SHALL
BE GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any Party as a result of any breach or default hereunder by
any other Party shall impair any such right, power or remedy, nor shall it be
construed, deemed or interpreted as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the Parties as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. Except as otherwise provided in
Section 9.06, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive, but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within
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a particular range of prices or occur at all; (b) neither OEI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that OEI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to October 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to OEI or the
IPO. The Underwriter shall have no obligation to any of the Company or the
Stockholders with respect to any disclosure contained in the Registration
Statement.
Section 11.15. CONSENTS.
(a) The Stockholders, as the owners and holders of all the
Capital Stock of the Company, hereby consent to and approve the Merger
and the plan of merger contemplated by this Agreement pursuant to
Sections 14A:10-3 and 14A:5-6 of the Business Corporation Act.
(b) OEI hereby consents to and approves the Merger and the plan
of merger contemplated by this Agreement pursuant to Sections 14A:10-3
and 14A:5-6 of the Business Corporation Act.
Section 11.16. PS&S PC. The Company has delivered to OEI copies of (i)
the Services Agreement dated effective as of March 5, 1993, between the Company
and PS&S PC and (ii) the Shareholders Agreement dated April 9, 1998, among PS&S
PC and its shareholders and each such document is in full force and effect on
the date hereof.
Section 11.17. SUSPENSION AND TERMINATION OF SHAREHOLDERS AGREEMENT. The
outstanding shares of the Company Common Stock are subject to the Shareholders
Agreement which provides, INTER ALIA, options to purchase and to sell shares of
the Company Common Stock upon the occurrence of certain events specified
therein. The Company and the Stockholders agree that:
(a) at the Effective Time, the Shareholders Agreement shall be
terminated without any further action on the part of any party thereto;
(b) the execution and delivery of this Agreement by the Company
and the Stockholders shall not be affected by, or constitute a breach of
or default under, the Shareholders Agreement;
(c) if at the date hereof there has began to run, or if after the
date hereof and prior to the Effective Time there shall begin to run,
any period of time (herein called a "LIMITATION PERIOD") within which
any party bound by or entitled to the benefits of, or whose
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shares of the Company Common Stock are subject to, the Shareholders
Agreement must, under the terms of Sections 5, 8, 9, 10 or 11 of the
Shareholders Agreement, give any notice, offer such shares for sale,
accept any offer to purchase any such shares, purchase shares, make any
election or take any other action in order to preserve or maintain any
right or benefit of such party, then such Limitation Period shall cease
to run and shall be tolled as of the date of this Agreement, or, in the
case of any Limitation Period beginning after the date hereof, shall not
begin to run, unless and until such Limitation Period shall be resumed
and reinstated as provided in the following Section 11.17 (e);
(d) so long as any Limitation Period is tolled pursuant to
Section 11.17(c), no party to the Shareholders Agreement may exercise
any right or option such party would otherwise have but for the
provisions of this Section 11.17; and
(e) if this Agreement is terminated pursuant to Article XII, then
as of the close of business on the date this Agreement is so terminated,
the provisions of this Section 11.17 shall terminate and any Limitation
Period shall resume and be reinstated or shall commence, as the case may
be, ten days following such termination, and promptly thereafter, the
Company shall notify each of the parties to the Shareholders Agreement
that the provisions of this Section 11.17 have terminated.
By their execution and delivery of this Agreement, pursuant to Section 28 of the
Shareholders Agreement, the Company and the Stockholders (who hold 100% of the
shares of Capital Stock subject to the Shareholders Agreement) hereby amend the
Shareholders Agreement as set forth in this Section 11.17.
Section 11.18. ERRORS AND OMISSIONS INSURANCE. Until the third
anniversary of the IPO Closing Date, the Company will maintain professional
liability insurance coverage on a claims made basis covering prior acts with per
claim and aggregate limits of at least $7 million. Such per claim and aggregate
limits are inclusive of all primary and umbrella coverages for professional
liability.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of OEI and the Company;
(ii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by October 31, 1998, unless
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the failure of such transactions to be consummated results from
the willful failure of the Party (or in the case of the
Stockholders and the Company, any of them) seeking to terminate
this Agreement to perform or adhere to any agreement required
hereby to be performed or adhered to by that Party prior to or at
the Closing or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if a material breach or
default shall be made by the other Party (or in the case of the
Stockholders and the Company, any of them) in the observance or
in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by OEI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by OEI or the Company if the Underwriting Agreement
is terminated pursuant to its terms after the Closing and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 Business
Days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of New Jersey, but before the IPO
has been consummated, OEI will take all actions that Counsel for the
Company and the Stockholders advises OEI are required by the applicable
laws of the State of New Jersey to rescind the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any Party except (a) as provided in Section 11.07, (b) to the
extent that such liability is based on the breach of that Party of any of its or
his representations, warranties or covenants set forth in of this Agreement.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
OEI INTERNATIONAL, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, Chief Executive Officer
PS&S ACQUISITION, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, President
PAULUS, SOKOLOWSKI AND SARTOR, INC.
By: WILLIAM PAULUS, JR.
William Paulus, Jr. President
STOCKHOLDERS:
/s/ WILLIAM PAULUS, JR.
William Paulus, Jr.
/s/ LOIS PAULUS
Lois Paulus
/s/ ANTHONY J. SARTOR
Anthony J. Sartor
/s/ PHILIP A. FALCONE
Philip A. Falcone
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/s/ DAVID R. ANTES
David R. Antes
/s/ JAMES R. MEHLTRETTER
James R. Mehltretter
/s/ MARILYN LENNON
Marilyn Lennon
/s/ MICHAEL M. GENNARO
Michael M. Gennaro
/s/ JOSEPH LIFRIERI
Joseph Lifrieri
/s/ TODD R. HEACOCK
Todd R. Heacock
/s/ EMAD YOUSSEF
Emad Youssef
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ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
(2) The Founding Companies are:
Chemical & Industrial Engineering, Inc.
Gulsby Engineering, Inc.
Paulus, Sokolowski and Sartor, Inc.
Petrocon Engineering, Inc.
W-Industries, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
(2) The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William Paulus, Jr.
Gary J. Coury
Rick Berry
(3) The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President William Paulus, Jr.
Executive Vice President, Secretary Anthony Sartor
and Treasurer
Senior Vice President Philip A. Falcone
Senior Vice President Marilyn Lennon
Senior Vice President Michael M. Gennaro
Vice President David R. Antes
Vice President James R. Mehltretter
Vice President Joseph Lifrieri
Vice President Todd R. Heacock
Vice President Emad Youssef
Vice President Carol Oliva
Vice President Michael Brinker
Vice President Joseph Fleming
Vice President Michael Cohen
Vice President Gary J. Coury
Vice President Rick Berry
Vice President Thomas Farina
Assistant Secretary Robert W. Raiford
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
(2) The name and address of each Stockholder are as follows:
NAME ADDRESS
STOCKHOLDERS:
William Paulus, Jr. 4 Owens Drive
Warren, NJ 07059
Lois Paulus 4 Owens Drive
Warren, NJ 07059
Anthony J. Sartor 27 Allenby Lane
Scotch Plains, NJ 07076
Philip A. Falcone 764 Scotch Plains Ave.
Westfield, NJ 07090
David R. Antes 431 Cambridge Road
Ridgewood, NJ 07450
James R. Mehltretter 1044 Sylvia Lane
Tampa, Florida 33613
Marilyn Lennon 126 Ninth Avenue
Seaside Park, NJ 08752
Michael M. Gennaro 158 Colchester Road
New Providence, NJ 07974
Joseph Lifrieri 30 Clinton Avenue
New Providence, New Jersey 07974
Todd R. Heacock 4 Keats Road
Basking Ridge, New Jersey 07920
Emad Youssef 35 Harvard Circle
Princeton, New Jersey 08540
<PAGE>
(3) The aggregate Merger Consideration shall be comprised of (i) cash in
an amount equal to the difference between $4,521,905 and the amount, if any, by
which the amount of the 1998 AAA Distributions (as defined in Schedule 6.04)
exceeds 45% of the amount in the Accumulated Adjustment Account in respect of
earnings of the Company during the period commencing January 1, 1998, and ending
on the Closing Date (the "Cash Consideration") and (ii) 879,258 shares (the
"Merger Shares") of OEI Common Stock.
(4) Each of Joseph Lifrieri, Todd R. Heacock and Emad Youssef (the
"GROUP II STOCKHOLDERS") will receive an amount of cash equal to the product
obtained by multiplying (i) the Pro Rata Share of such Group II Stockholder
times (ii) the sum of (a) the Cash Consideration plus (b) the product obtained
by multiplying the number of Merger Shares by the IPO Price. Group II
Stockholders will not receive any of the Merger Shares.
(5) Each Stockholder who is not a Group II Stockholder (the "GROUP I
STOCKHOLDERS") will receive a portion of the Cash Consideration remaining after
payment of the cash to be paid to the Group II Stockholders pursuant to the
preceding paragraph and a portion of the Merger Shares equal to the amount of
such remaining Cash Consideration or the Merger Shares, as the case may be,
multiplied by a fraction the numerator of which is the Pro Rata Share of such
Group I Stockholder and the denominator of which is the aggregate Pro Rata
Shares of all the Group I Stockholders.
(6) Set forth below are the number of shares of pre-merger Company
Common Stock owned by each Stockholder and the Pro Rata Share of each
Stockholder:
SHARES OF PRE-MERGER PRO RATA
NAME COMPANY COMMON STOCK SHARES
---- -------------------- ------
William Paulus, Jr. 1 0.0038%
Lois Paulus 9,999 38.1016%
Anthony J. Sartor 10,000 38.1054%
Philip A. Falcone 3834 14.6096%
David R. Antes 709 2.7017%
James R. Mehltretter 300 1.1432%
Marilyn Lennon 600 2.2863%
Joseph Lifrieri 100 0.3811%
Michael M. Gennaro 500 1.9053%
Todd R. Heacock 100 0.3811%
Emad Youssef 100 0.3811%
TOTAL 26,243 100.0000%
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
(2) Each Stockholder who will receive share of OEI Common Stock in
connection with the Merger is an "accredited investor" as defined in Securities
Act Rule 501(a) except for the following:
James R. Mehltretter
Marilyn Lennon
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
(2) The following table sets forth the ownership of the Company's
Capital Stock:
NAME CLASS NUMBER OF SHARES OWNED
---- ----- ----------------------
STOCKHOLDERS:
William Paulus, Jr. Common 1
Lois Paulus Common 9,999
Anthony J. Sartor Common 10,000
Philip A. Falcone Common 3,834
David R. Antes Common 709
James R. Mehltretter Common 300
Marilyn Lennon Common 600
Michael M. Gennaro Common 500
Joseph Lifrieri Common 100
Todd R. Heacock Common 100
Emad Youssef Common 100
(3) No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
(2) The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $10,000:
1. PS&S PC has engaged in transactions with the Company of the
nature and to the extend described in FOOTNOTE 10 of the Initial
Financial Statements.
2. The Company has leased its office space in Warren, New Jersey
from the related party lessors identified in Schedule 4.11 under
the Lease Agreements described in Schedule 4.11. For each of the
last two years, the rentals paid under such Lease Agreements have
been:
1997 $1,626,449
1996 $1,592,100
3. The Company has leased equipment from PSF Leasing Company. Rental
paid during 1997 and 1996 were $231,597 and $228,930,
respectively. The Company has agreed to purchase the equipment
leased from PSF Leasing Company in exchange for the assumption by
the Company of indebtedness in the principal amount , as of
December 31, 1997, of approximately $370,000. Since December 31,
1997, such indebtedness has been reduced by regular monthly
payments of installments of principal and interest.
<PAGE>
4. Marcrisart Media Inc., a corporation owned by the wife of Anthony
J. Sartor, has provided advertising and promotional services to
the Company. Services by Marcrisart Media Inc. totaled $101,082,
$58,722 and $39, 898 in 1997, 1996 and 1995, respectively.
5. Willant Corporation, a construction company owned by Lois Paulus,
Anthony J. Sartor and the son of William Paulus, Jr., has
subleased approximately 425 square feet of office space from the
Company for monthly rental of approximately $657.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
(2) The following Related Party Agreements will be permitted to continue
in effect past the date of the Closing in accordance with their terms, subject
to the following provisions of this Schedule:
1. The Lease dated as of May 1, 1983, as amended, between the
Company and Mountain Boulevard Associates I, an Affiliate of one or more
of the Stockholders, pursuant to which the Company leases the first
floor, second floor and basement of the building located at 67A Mountain
Boulevard Extension, Warren, New Jersey.
2. The Lease Agreement dated January 12, 1981, as amended,
between the Company and Mountain Boulevard Associates II, an Affiliate
of one or more of the Stockholders, pursuant to which the Company leases
the entire building located at 67 Mountain Boulevard Extension, Warren,
New Jersey.
3. The Lease Agreement dated December 29, 1986, as amended,
between the Company and Mountain Boulevard Associates III, an Affiliate
of one or more of the Stockholders, pursuant to which the Company leases
the entire building located at 67B Mountain Boulevard Extension, Warren,
New Jersey.
4. The New Employment Agreements.
5. The sublease with Willant Corporation described in paragraph 5
of Schedule 3.07.
Each of the Lease Agreements referred to in paragraphs 1, 2 and 3
above will be amended, effective as of the IPO Closing Date, by one of
the Lease Modification Agreements to provide that the terms of such
Lease Agreement will expire ten years after the date of the Closing.
<PAGE>
SCHEDULE 6.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.03 are used
herein as therein defined.
(2) The Company may take the following actions between the date of the
captioned Agreement and the Effective Time:
(i) the Company may incur AAA Indebtedness;
(ii) the Company may purchase from PSF Leasing Co. the
equipment presently leased by the Company from PSF
Leasing Co. for a purchase price not to exceed the
indebtedness of PSF Leasing Co. incurred to purchase, and
secured by, such equipment, in exchange for the Company's
assumption of such indebtedness; and
(iii) the Company may engage in the transactions described in
paragraphs (iii) and (iv) of Schedule 6.04.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
(2) The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
(i) the Company may distribute to the Stockholders such
amounts as shall represent the excess of (x) the balance
in the Company's Accumulated Adjustment Account at
December 31, 1997 accumulated in respect of earnings of
the Company for all taxable periods ended on or before
that date over (y) all amounts distributed to the
Stockholders on or after January 1, 1998, and before the
date of the captioned Agreement, in respect of earnings
of the Company for all taxable periods ended on or
before December 31, 1997 (all amounts previously or
hereafter so distributed under this clause (i) being
referred to as the "1997 AAA DISTRIBUTIONS");
(ii) the Company may distribute to the Stockholders such
amounts as shall represent the excess of (i) all amounts
which accumulated in the Company's Accumulated
Adjustment Account after December 31, 1997 in respect of
earnings of the Company for all taxable periods
beginning on or after January 1, 1998 over (2) all
amounts distributed to the Stockholders on or after
January 1, 1998 and before the date of the captioned
Agreement in respect of earnings of the Company for all
taxable periods beginning on or after January 1, 1998
(all amounts previously or hereafter so distributed
under this clause (ii) being referred to as the "1998
AAA DISTRIBUTIONS");
(iii) prior to the Closing, the Company will redeem from each
Stockholder on a pro rata basis approximately 17% of the
shares of Company Common Stock owned by such Stockholder
in exchange for a pro rata interest (a) in life
insurance policies on the lives of the Stockholders and
(b) loans to shareholders which are secured by the cash
surrender values of the "split
<PAGE>
dollar" life insurance policies owned by the
Stockholders (or trusts established by them), and the
aggregate book value (as of December 31, 1997) of the
items in clauses (a) and (b) was $1,698,299 and (c)
Stockholder Notes in the aggregate principal amount (as
of December 31, 1997) of $379,926;
(iv) the Company may pay bonuses to Michael Gennaro
representing the forgiveness of a portion of Stockholder
Note issued by him to the Company in the amount of
$1,150; and
(v) the Company may deviate from the restrictions set forth
in clauses (l) and (m) of Section 6.04 with the consent
of OEI.
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
(2) The Company will make all arrangements and take all such actions as
are necessary and satisfactory to OEI to dispose, prior to the Effective Time,
of the following assets in the manner indicated below:
(a) Prior to the Closing, the Company shall be permitted to
transfer to the Stockholders (i) the life insurance policies owned by
the Company and insuring the lives of the Stockholders and (ii) the
loans to the Stockholders which are secured by the cash surrender values
of the "split dollar" life insurance policies owned by the Stockholders
(or trusts established by them) on the basis set forth in Schedule 6.04.
(b) Prior to the Closing, the Company may transfer the vehicles
identified below to the employees designated below in exchange for the
assumption by the employee of the lease or note referred to below:
NAME DESCRIPTION OF AUTO LEASE OR NOTE
Michael M. Gennaro 1997 Mercedes E420 Note to PNC Bank in the
approximate principal amount
of $32,000
Carol J. Oliva 1996 Cadillac El Dorado Note to PNC Bank in the
approximate principal amount
of $21,000
Emad Youssef 1995 Mercedes E420 Lease expiring December 2001
with lease payments of $788.81
per month
Michael Belikoff 1996 Acura 3.5RL Lease expiring December
1999 with lease payments of
$668 per month
(c) Prior to the Closing, the Company may make the transfers
contemplated by paragraphs (i), (ii), (iii) and (iv) of Schedule 6.04.
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
(2) At the Effective Time (and notwithstanding Section 8.05 to the
contrary), OEI will cause the following Stockholder Guarantees to be terminated:
(i) any Stockholder Guarantees of AAA Indebtedness;
(ii) any Stockholder Guarantees of indebtedness of PSF Leasing
Company in the principal amount (as of December 31, 1997)
of approximately $370,000 incurred pursuant to the Loan
Agreement dated July 31, 1997, between PSF Leasing
Company and Summit Bank which is to be assumed by the
Company as more fully described in paragraph 3 of
Schedule 3.07; and
(iii) any Stockholder Guarantees of indebtedness of the Company
incurred pursuant to the Amended and Restated Security
Agreement dated July 31, 1997, between the Company and
Summit Bank (which as of December 31, 1997 was in the
principal amount of approximately $950,000).
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
PS&S Acquisition, Inc.
Paulus, Sokolowski and Sartor, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
(2) Each of the Stockholders identified below is a Restricted
Stockholder and subject to all the restrictions set forth in Section 10.01 of
the captioned Agreement.
None
EXHIBIT 2.4
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF APRIL 10, 1998
BY AND AMONG
OEI INTERNATIONAL, INC.,
GEI ACQUISITION, INC.
GULSBY ENGINEERING, INC.
AND
ITS STOCKHOLDERS
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made as
of April 10, 1998, among OEI International, Inc., a Delaware corporation
("OEI"), GEI Acquisition, Inc., a Texas corporation and a wholly owned
subsidiary of OEI ("NEWCO"), Gulsby Engineering, Inc., a Texas corporation (the
"COMPANY"), and the persons listed on the signature pages of this Agreement
under the caption "STOCKHOLDERS" (collectively, the "STOCKHOLDERS," and each of
them, individually, a "STOCKHOLDER").
PRELIMINARY STATEMENTS
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "MERGER") on
the terms and subject to the conditions of this Agreement;
(ii) OEI, VIA mergers involving other OEI subsidiaries,
will acquire the stock of all or some of the entities other than
the Company identified in the accompanying Addendum I (each an
"OTHER FOUNDING COMPANY" and, collectively with the Company, the
"FOUNDING COMPANIES") under agreements similar to this Agreement
entered into among the Other Founding Companies, their
stockholders, OEI and other subsidiaries of OEI (collectively,
the "OTHER AGREEMENTS"); and
(iii) OEI will effect a public offering of shares of its
common stock.
The respective boards of directors of OEI, Newco and the Company have
approved and adopted this Agreement to effect a transaction involving a transfer
of the nature described in Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01:
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Addendum, Annexes and Exhibits, as each of
1
<PAGE>
them may be amended, modified or supplemented from time to time under
their provisions or the provisions of this Agreement.
"BUSINESS CORPORATION ACT" means the Texas Business Corporation
Act.
"CEILING AMOUNT" means at any time 75% of (i) $9,287,254 plus
(ii) the aggregate amount of Contingent Merger Consideration
(calculating the Contingent Stock Consideration at $12 per share) which
the Stockholders have had, or are entitled to have, disbursed to them at
such time.
"CLOSING" has the meaning specified in Section 7.01(a).
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by OEI for the Closing, in which there shall be included the
forms of certificates of officers, the opinions of counsel and certain
other documents to be delivered at the Closing as provided in Article
VII.
"COMPANY COMMON STOCK" means the common stock, par value $1.00
per share, of the Company.
"CONTINGENT CASH CONSIDERATION" has the meaning specified in
Section 2.07(a).
"CONTINGENT MERGER CONSIDERATION" has the meaning specified in
Section 2.07(a).
"CONTINGENT STOCK CONSIDERATION" has the meaning specified in
Section 2.07(a).
"COUNSEL FOR OEI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Dan McEvily,
Esq.
"CUMULATIVE POST-CLOSING EBITDA" has the meaning specified in
Section 2.08(d).
"CURRENT BALANCE SHEET" means the audited consolidated balance
sheet of the Company and the Company Subsidiaries at December 31, 1997,
which is included in the Initial Financial Statements.
"CURRENT BALANCE SHEET DATE" means December 31, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to OEI prior to
the execution and delivery of this Agreement, in which either (a)
exceptions are taken to each of certain of the representations
2
<PAGE>
and warranties made by the Company and the Stockholders in this
Agreement or (b) it is confirmed that no exception is taken to that
representation and warranty.
"EARNOUT PERIOD" has the meaning specified in Section 2.08(b).
"EARNOUT YEAR" has the meaning specified in Section 2.08(b).
"ESCROW AGENT" has the meaning specified in Section 2.07(a).
"ESCROW AGREEMENT" has the meaning specified in Section 2.07(a).
"GULSBY" means Jerry G. Gulsby.
"GULSBY ENTERPRISES" means Gulsby and Clara Gulsby doing business
as "GULSBY ENTERPRISES," the owners of the real property subject to the
Lease Agreement and the Right of First Refusal Agreement.
"INITIAL FINANCIAL STATEMENTS" means the audited consolidated
balance sheets of the Company and the Company Subsidiaries at December
31, 1997 and 1996 and the related audited consolidated statements of
income , stockholders' equity and cash flows for each of the Company's
three fiscal years in the three-year period ended December 31, 1997,
together with the related audit report of Arthur Andersen LLP.
"INITIAL MERGER CONSIDERATION" has the meaning specified in
Section 2.04.
"INTERIM DISTRIBUTION" has the meaning specified in Section
2.08(c).
"JUDGMENT RESERVE" means the amount equal to the sum of
$3,587,000.
"LEASE AGREEMENT" means the Lease Agreement to be entered into at
the Closing between the Company and Gulsby Enterprises in substantially
the form of Exhibit 1.01-A.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
"MERGER CONSIDERATION" means (i) when used in Section 6.07, the
Initial Merger Consideration and the Contingent Merger Consideration and
(ii) when used in Section 7.02(iii), the Initial Merger Consideration.
"NEW EMPLOYMENT AGREEMENT" means the Employment Agreement entered
into as of April 10, 1998, between the Company and Gulsby.
3
<PAGE>
"NEWCO" means GEI Acquisition, Inc., a Texas corporation.
"OEI" means OEI International, Inc., a Delaware corporation.
"OEI ACQUISITION CANDIDATE" means any Entity engaged in the
Practice of Engineering and which shall have been called on by any of
the Company, OEI or a Subsidiary of the Company or OEI in connection
with the possible acquisition by any of them of that Entity or with
respect to which any of them has made an acquisition analysis.
"PARTIES" means the parties to this Agreement.
"PENDING JUDGMENT" has the meaning specified in Section 2.12.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company Common
Stock owned by that Stockholder, as set forth in Schedule 2.04, and (b)
the denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders, as set forth in Schedule
2.04.
"RESPONSIBLE OFFICER" means Gulsby.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"RIGHT OF FIRST REFUSAL AGREEMENT" means the Right of First
Refusal Agreement to be entered into between the Company and Gulsby
Enterprises in substantially the form of Exhibit 1.01-B, pursuant to
which Gulsby Enterprises will grant to the Company a
right-of-first-refusal to lease or purchase, for the same consideration
and on the same terms as are offered by any proposed third-party lessee
or purchaser, the approximately 19.1747 acres of undeveloped land owned
by Gulsby Enterprises and which adjoins the Company's office and
manufacturing facility and is located north of Wilson Court Road.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDERS' BOOT" means the sum of (i) the aggregate amount of
indebtedness of the Stockholders to the Company to be assumed and paid
by OEI pursuant to Section 2.11 and (ii) the aggregate amount of
contract retainages transferred by the Company to the Stockholders in
kind (or in cash to the extent such retainages are collected prior to
the Closing) pursuant to the provisions of Schedule 6.11.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01(a).
4
<PAGE>
"THRESHOLD AMOUNT" means $410,000.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"TRANSFERORS' AGREEMENT" means the Transferors' Agreement and
Plan of Transfer entered into as of April 10, 1998, among OEI, the
Stockholders and the other Persons party thereto.
"TRUSTEES" means James Glenn Gulsby and Terri Lynette Gulsby
Robbins, in their capacity as trustees of the Trusts.
"TRUSTS" means each of Stockholders other than Gulsby
"UNIFORM PROVISIONS" means the Uniform Provisions for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
Section 1.02. DEFINITIONS IN UNIFORM PROVISIONS. Capitalized terms used
in this Agreement but not defined in this Section 1.01 have the meanings
assigned to them in the Preliminary Statements or in Article I of the Uniform
Provisions (the text of which is by this reference incorporated in this
Agreement), as the case may be.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. On the terms and subject to the
conditions of this Agreement, the Company will cause a Certificate of Merger to
be duly executed and delivered on or promptly after the date of the Closing to
the Secretary of State of the State of Texas.
Section 2.02. THE EFFECTIVE TIME. The effective time of the Merger (the
"EFFECTIVE TIME") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the certificate or articles of incorporation of the
Company will be amended to change its authorized capital stock to 1,000 shares,
par value $1.00 per share, of Common Stock, (d) the Company will be the
Surviving Corporation and, as such, will, all with the effect provided by the
Business Corporation Act, (i) possess all the properties and rights, and be
subject to all the restrictions and duties, of the Company and Newco and (ii) be
governed by the laws of the State of Texas, (e) the Charter Documents of the
Company then in effect (after giving effect to the amendment of the Company's
certificate or articles of incorporation specified in clause (c) of this
sentence) will become and thereafter remain (until
5
<PAGE>
changed in accordance with (i) applicable law, in the case of the certificate or
articles of incorporation or (ii) their terms, in the case of the bylaws) the
Charter Documents of the Surviving Corporation, (f) the initial board of
directors of the Surviving Corporation will be the Persons named in Schedule
2.03, who will hold the office of director of the Surviving Corporation subject
to the provisions of the applicable laws of the State of Texas and the Charter
Documents of the Surviving Corporation, and (g) the officers of the Surviving
Corporation immediately following the Merger will be as set forth in Schedule
2.03, and each of the Persons so designated in Schedule 2.03 will serve in each
office specified for that Person in Schedule 2.03, subject to the provisions of
the Charter Documents of the Surviving Corporation, until his or her successor
is duly elected to, and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of OEI Common Stock set forth or determined as
provided in Schedule 2.04 (the "INITIAL MERGER CONSIDERATION"), (ii)
cease to be outstanding and to exist, and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or by any Company Subsidiary will (i) cease to be
outstanding and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on such conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Initial Merger Consideration and the
additional cash, if any, owing with respect to those shares as provided in
Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock,
will, on surrender of his certificates to OEI (or any agent which may be
appointed by OEI for purposes of this Section 2.05), receive, and OEI
will pay and issue to each Stockholder, in each case subject to the
provisions of Section 2.06, the Initial Merger Consideration; and (ii)
until any certificate representing Company Common Stock has been
surrendered and replaced pursuant to this
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Section 2.05, that certificate will, for all purposes, be deemed to
evidence ownership of the number of whole shares of OEI Common Stock
included in the Initial Merger Consideration payable in respect of that
certificate pursuant to Section 2.04. All shares of OEI Common Stock
issuable in the Merger will be deemed for all purposes to have been
issued by OEI at the Effective Time. All cash included in the Initial
Merger Consideration shall be paid by OEI's company checks, certified or
official bank checks, or wire transfers, at OEI's option. In the case of
wire transfers, the transfers shall be to accounts designated by the
respective Stockholders at least five Business Days before the IPO
Closing Date.
(b) Each Stockholder will deliver to OEI (or any agent that may
be appointed by OEI for purposes of this Section 2.05), on or before the
IPO Closing Date, the certificates representing Company Common Stock
owned by the Stockholder, duly endorsed in blank by him, or accompanied
by stock powers duly executed by him in blank, and with all necessary
transfer tax and other revenue stamps, acquired at his expense, affixed
and canceled. In the event this Agreement is terminated pursuant to
Article XII prior to the Effective Time, OEI or its agent will return
all such certificates and other documents to the Stockholders. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the
stock powers accompanying, the certificates representing Company Common
Stock delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to OEI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of OEI Common Stock have
been issued in the Merger until the unsurrendered certificates are
surrendered as provided herein, but (i) on such surrender, OEI will
cause to be paid, to the Person in whose name the certificates
representing such shares of OEI Common Stock shall then be issued, the
amount of dividends or other distributions previously paid with respect
to such whole shares of OEI Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender,
and the amount of any cash payable to such Person for and in lieu of
fractional shares pursuant to Section 2.06 and (ii) at the appropriate
payment date or as soon as practicable thereafter, OEI will cause to be
paid to that Person the amount of dividends or other distributions with
a record date, or which have been accrued, subsequent to the Effective
Time, but which are not payable until a date subsequent to surrender,
which are payable with respect to such number of whole shares of OEI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends
or other distributions (or cash for and in lieu of fractional shares) on
surrender of outstanding certificates.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of OEI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of OEI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of OEI Common Stock
multiplied by $12.
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Section 2.07. CONTINGENT CONSIDERATION AND RELATED ESCROW.
(a) ESCROW. At the Effective Time, in addition to the Initial
Merger Consideration to be delivered to the Stockholders: (i) OEI shall
deposit with an escrow agent to be jointly selected by OEI and the
Stockholders (the "ESCROW AGENT"), 654,099 shares of OEI Common Stock
(the "CONTINGENT STOCK CONSIDERATION") and $3,363,939 in cash (the
"CONTINGENT CASH CONSIDERATION" and, together with the Contingent Stock
Consideration, the "CONTINGENT MERGER CONSIDERATION"); and (ii) OEI and
the Stockholders shall enter into an Escrow Agreement (the "ESCROW
AGREEMENT") with the Escrow Agent, which shall be in the form of Exhibit
2.07, with its blanks appropriately completed; provided, however, that
OEI may at any time on or before the date of Closing elect to substitute
for all or any part of the Contingent Stock Consideration cash in an
amount equal to $12 times the number of shares of OEI Common Stock for
which OEI elects to substitute cash.
(b) STOCKHOLDERS' RIGHTS. The Contingent Stock Consideration
shall: (i) be issued and outstanding shares of OEI Common Stock and
shall appear as such on the balance sheet of OEI; (ii) be entitled, PRO
RATA with all other holders of OEI Common Stock, to all dividends
declared with respect to the OEI Common Stock; and (iii) have voting
rights equal to the voting rights of all other issued and outstanding
shares of OEI Common Stock. Any cash dividends which may be declared and
paid by OEI in respect of the Contingent Stock Consideration shall be
paid by OEI to the Escrow Agent and shall become additional Contingent
Cash Consideration. All shares of OEI Common Stock payable in respect of
the Contingent Stock Consideration as a result of any stock split or
other non-cash distribution (including a stock dividend) shall be held
by the Escrow Agent and shall become additional Contingent Stock
Consideration. The Escrow Agent shall vote the Contingent Stock
Consideration during the time such shares are held in escrow pursuant to
the written instructions of the Stockholders, in accordance with their
respective Pro Rata Shares.
(c) INVESTMENTS, INTEREST AND DIVIDENDS. All cash from time to
time held in escrow shall be invested in bonds intended to be free of
federal income tax or in bond funds invested primarily in such bonds, as
mutually agreed by OEI and the Stockholders. The term "Contingent Cash
Consideration" shall include all cash existing at any time in escrow,
including interest, cash dividends and other cash proceeds paid on or
with respect to Contingent Cash Consideration or Contingent Stock
Consideration. The term "Contingent Stock Consideration" shall include
all shares of OEI Common Stock held of record at any time by the Escrow
Agent, including such shares issued as a result of any stock split or
other non-cash distribution (including a stock dividend.)
(d) ASSIGNMENT. The Stockholders may grant or assign to one or
more employees of the Company the right to purchase or receive all or
any part of the Contingent Merger Consideration upon its distribution
from escrow, subject, in the case of Contingent Stock Consideration, to
compliance with all applicable federal and state securities laws;
PROVIDED, HOWEVER, that any such employee will take any Contingent Stock
Consideration
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granted or assigned to him hereunder subject to the restrictions on
transfer contained in Section 11.02.
Section 2.08. DISBURSEMENT FROM ESCROW.
(a) INSTRUCTIONS TO ESCROW AGENT. OEI and the Stockholders agree
to provide the Escrow Agent, from time to time, with joint written
instructions to distribute the Contingent Merger Consideration in
accordance with the provisions set forth in this Section 2.08.
(b) EARN-OUT PERIOD. The Contingent Merger Consideration will be
distributed to the Stockholders or returned to OEI, in each case in
whole or in part, based on the Company's achievement of, or failure to
achieve, within the three-year period beginning January 1, 1998 (the
"EARNOUT PERIOD"), designated levels of Cumulative Post-Closing EBITDA
(as defined below). The Earnout Period shall be divided into three
successive one-year periods (each an "EARNOUT YEAR"), the first of which
shall begin on January 1, 1998, with each Earnout Year thereafter to
begin on the next succeeding anniversary of that day.
(c) INTERIM DISTRIBUTIONS. If at the end of any Earnout Year,
Cumulative Post-Closing EBITDA through the end of that Earnout Year
exceeds the product of (x) $3,833,015 times (y) the number of full
Earnout Years lapsed through the end of that Earnout Year, then there
shall be distributed to the Stockholders a portion of the Contingent
Merger Consideration (the "INTERIM DISTRIBUTION") determined by:
(i) subtracting (x) the product of (a) $3,833,015 times
(b) the number of full Earnout Years lapsed through the end of
the most recently ended Earnout Year, from (y) Cumulative
Post-Closing EBITDA for that portion of the Earnout Period ended
on the most recently completed Earnout Year;
(ii) multiplying $11,213,127 by a fraction the numerator
of which is the result of the calculation made under clause (i)
above and the denominator of which is $6,727,875; and
(iii) subtracting from that result the sum of (x) all
Contingent Cash Consideration previously distributed to the
Stockholders and (y) $12 multiplied by the number of shares of
Contingent Stock Consideration, if any, previously distributed to
the Stockholders;
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in which case:
(i) the amount of Contingent Cash Consideration
distributed to the Stockholders shall equal 30% (subject to
appropriate adjustment if OEI elects to substitute cash for any
Contingent Stock Consideration) of the Interim Distribution; and
(ii) the number of shares of Contingent Stock
Consideration distributed to the Stockholders shall be determined
by first (x) subtracting (a) the amount of the Contingent Cash
Consideration distributable to the Stockholders under clause (i)
above from (b) the amount of the Interim Distribution, and (y)
then dividing that result by $12.
Any Interim Distribution shall be payable and issuable to the
Stockholders PRO RATA in accordance with their respective Pro Rata
Shares.
(d) CUMULATIVE POST-CLOSING EBITDA. As used herein, the term
"CUMULATIVE POST-CLOSING EBITDA" means for any period beginning on
January 1, 1998, and ending on any specified date, consolidated earnings
(including engineering income) of the Company and the Subsidiary before
interest expense, foreign, federal and state income and franchise taxes
(to the extent based on or measured by income), and depreciation and
amortization expense, all determined in accordance with generally
accepted accounting principles, adjusted to:
(i) eliminate any charges to the Company's earnings in
respect of allocations of indirect corporate overhead expense
(but not expenses directly attributable to the Company or its
operations, such as charges for insurance) of OEI;
(ii) reflect a capital charge (computed at an annual rate
equal to the average rate OEI is then paying on outstanding
advances under its primary line of credit facility with a bank,
plus 1%) for all funds advanced to the Company by OEI (x) for
working capital purposes or (y) to fund capital expenditures of
the Company for the purpose of improving, expanding or adding to
(but not maintaining at its present level) the Company's
property, plant and equipment;
(iii) reflect a 1% charge for all funds advanced to the
Company under any bank credit facility guaranteed by OEI or in
respect of which OEI is otherwise contingently liable;
(iv) eliminate any charges to the Company's earnings
resulting from the Company being required to perform under any
guaranty of any third party obligation if the guaranty is
unrelated to the Company's business;
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(v) exclude non-operating income and losses, such as, by
way of example only, investment income and gains and losses from
dispositions of capital assets; and
(vi) exclude all other non-recurring or extraordinary
items of gain or loss.
Section 2.09. TERMINATION OF ESCROW.
(a) INSTRUCTIONS TO ESCROW AGENT. OEI and the Stockholders agree
to provide the Escrow Agent with joint written instructions to
distribute the Contingent Merger Consideration in accordance with the
provisions set forth in this Section 2.09.
(b) EARLY TERMINATION OF EARN-OUT. If before the expiration of
the Earnout Period:
(i) the Company's Cumulative Post-Closing EBITDA reaches
or exceeds an amount equal to $18,226,920 then all of the
previously undistributed Contingent Merger Consideration, plus
all previously undistributed interest and dividends earned on it
while in escrow, shall be distributed to the Stockholders, and
the escrow shall terminate. The distribution on any such
termination shall be payable and issuable to the Stockholders PRO
RATA in accordance with their respective Pro Rata Shares.
(ii) Gulsby voluntarily terminates his employment with
the Company or is discharged for "Cause" (as such term is defined
in the New Employment Agreement), then all Contingent Cash
Consideration and all Contingent Stock Consideration (including
all interest, dividends and other proceeds paid on or with
respect to amounts in escrow) which are then in escrow, shall be
distributed to OEI, and the escrow shall terminate. Neither the
death nor disability of Gulsby shall cause such an early
termination of the escrow.
(c) EXPIRATION OF EARNOUT PERIOD. If upon the expiration of the
Earnout Period, the Company's Cumulative Post-Closing EBITDA has not
reached or exceeded an amount equal to $18,226,920 then all previously
undistributed Contingent Cash Consideration and all Contingent Stock
Consideration shall be distributed to OEI, and the escrow shall
terminate.
Section 2.10. OEI COVENANTS DURING THE EARNOUT PERIOD. OEI agrees that
from the time of Closing through the first to occur of the expiration of the
Earnout Period or the termination of the escrow as provided in Section 2.09
above, OEI will not cause or permit the Company to:
(a) be liquidated or dissolved;
(b) sell all or substantially all of its assets;
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(c) relocate the Company's principal office and fabrication
facility from its present location;
(d) merge or consolidate with or into any corporation or other
business entity; or
(e) acquire another business entity or the assets or operations
of another business entity.
Except as specifically prohibited above in this Section 2.10, the
Company may at any time change or discontinue any of its present or future
assets or operations, or may close any of its present or future offices or
manufacturing facilities, or undertake new operations, or may take any and all
other steps which the Company's Board of Directors, in its judgment, shall deem
advisable and in the best interest of the Company, and if any such action
adversely affects Cumulative Post-Closing EBITDA, the Stockholders shall have no
claim or recourse by reason of such action.
Section 2.11. ASSUMPTION OF CERTAIN OBLIGATIONS. As additional
consideration for the shares of the Company Common Stock, effective as of the
Effective Time, OEI will assume the obligation of the Stockholders to pay the
outstanding balance as of December 31, 1997, of the loans from the Company to
the Stockholders in the aggregate amount of $3,120,571.
Section 2.12. PENDING JUDGMENT. If, prior to the IPO Closing Date, the
Company is released from all liability with respect to the judgment against the
Company in the cause reflected on the Current Balance Sheet and described in
footnote 9 to the Initial Financial Statements (the "Pending Judgment"), for
less than the amount of the Judgment Reserve, then the amount by which the
Judgment Reserve exceeds the amount paid to settle the Pending Judgment and to
obtain such release will be added to the cash portion of the Initial Merger
Consideration. If the Company is released from all liability in respect of the
Pending Judgment within three months after the date of the Closing for less than
the amount of the Judgment Reserve, then the amount by which the Judgment
Reserve exceeds the amount paid to settle the Pending Judgment and to obtain
such release will be paid to the Stockholders in accordance with their
respective Pro Rate Shares. If the Pending Judgment is not settled and released
within three months after the IPO Closing Date, the Company shall pay and obtain
the release of the Pending Judgment and there shall be no adjustment to the
Merger Consideration.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to OEI that all the following
representations and warranties in this Article III are true and correct:
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(a) (i) the Stockholder will be acquiring the shares of OEI
Common Stock to be issued to him pursuant to Section 2.04 solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of
those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of OEI Common Stock other than this Agreement, the
Transferors' Agreement and the Registration Rights Agreement; (iii)
unless otherwise specified on Schedule 3.01, the Stockholder is an
"accredited investor" as defined in Securities Act Rule 501 (a); (iv)
the Stockholder (A) is able to bear the economic risk of an investment
in the OEI Common Stock to be acquired by him pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the OEI Common Stock, (D) has had an adequate opportunity
to ask questions and receive answers from the officers of OEI concerning
any and all matters relating to the transactions contemplated by this
Agreement, including the background and experience of the current and
proposed officers and directors of OEI, the plans for the operations of
the business of OEI, the business, operations and financial condition of
the Other Founding Companies and any plans of OEI for additional
acquisitions, and (E) has asked all questions of the nature described in
preceding clause (D), and all those questions have been answered to his
satisfaction;
(b) the Trustees are the duly named and serving trustees of each
of the Trusts, the execution and delivery by the Trustees of this
Agreement are within their powers, and the performance by the Trusts of
this Agreement are within the powers and purposes of the Trusts under
the terms of all documents creating, evidencing or governing the Trusts,
true and correct copies of all of which have been delivered to OEI by
the Trusts, and neither the execution, delivery nor performance by the
Trusts of this Agreement will violate, constitute a breach of, or
conflict with any documents creating, evidencing or governing the
Trusts; and
(c) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, OEI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of Texas,
and the Company (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State and (ii) has the
corporate power and authority under those laws and its
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Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted;
(b) the authorized Capital Stock of the Company is comprised of
1,000,000 shares of Company Common Stock, of which 10,000 shares have
been issued and are now outstanding and no shares are held by the
Company as treasury shares, and no outstanding Derivative Securities of
the Company exist;
(c) each of the primary beneficiaries of each of The Gulsby
Children's Trusts and of each of The JGCG Generation-Skipping Trusts is
an adult child of Gulsby and each of the primary beneficiaries of The
Gulsby Grandchildren's Trusts is a minor child of one of the adult
children of Gulsby who is a primary beneficiary under The Gulsby
Children's Trusts and the JGCG Generation-Skipping Trusts and each such
minor child has the same principal residence as the adult child of
Gulsby who is a primary beneficiary under The Gulsby Children's Trusts
and the JGCG Generation-Skipping Trusts; and
(d) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth therein are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF OEI AND NEWCO
Section 5.01. BY OEI AND NEWCO. OEI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each Party will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this reference) to be
performed or observed by that Party.
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ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the Parties
will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the Business Corporation Act,
(A) the execution of a Certificate of Merger meeting the requirements of
the Business Corporation Act and providing that the Merger will become
effective on the IPO Closing Date and (B) the filing of the Certificate
of Merger with the Secretary of State of the State of Texas), (ii)
verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Initial Merger
Consideration pursuant to Section 2.05, and (iii) satisfy the document
delivery requirements to which the obligations of the Parties to effect
the Merger and the other transactions contemplated hereby are
conditioned by the provisions of this Article VII (all those actions
collectively being the "CLOSING"). The Closing will take place at the
offices of Porter & Hedges, L.L.P., 700 Louisiana, Houston, Texas at
10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as OEI shall specify by written notice to Gulsby. The actions taken at
the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Initial Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificate of Merger will become effective pursuant to Section 2.02,
and all transactions contemplated by this Agreement to be closed or
completed on or before the IPO Closing Date, including the surrender of
the Company Common Stock in exchange for the Initial Merger
Consideration will be closed or completed, as the case may be. During
the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in Sections 7.02(a) and 7.03. The obligations of the Stockholders
with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions:
(i) each of the Transferors' Agreement, the New Employment Agreement and
the Escrow Agreement then shall be in full force and effect; and (ii)
all the conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF OEI AND NEWCO. The
obligations of OEI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to OEI a
copy of the articles or certificate of incorporation, as amended to the
date of the Closing
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and certified by the Secretary of State of the State of Texas as of a
Current Date, of the Company; and (ii) all the conditions set forth in
Sections 7.02(a) and 7.04(a).
(d) CERTAIN CONDITIONS TO BE MET BY IPO CLOSING DATE. The
obligations of OEI and Newco with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of the
following conditions: (i) each of the Transferors' Agreement, the New
Employment Agreement, the Escrow Agreement, the Lease Agreement and the
Right of First Refusal Agreement then shall be in full force and effect;
and (ii) all the conditions set forth in Sections 7.02(b) and 7.04(b).
(e) INCORPORATION OF ARTICLE VII OF UNIFORM PROVISIONS. The text
of Article VII of the Uniform Provisions hereby is incorporated herein
by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each Party
(other than the Company) will comply with each covenant for which provision is
made in Article VIII of the Uniform Provisions (the text of which Article hereby
is incorporated herein by this reference) to be performed or observed by that
Party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder") and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, any business
engaged in the Practice of Engineering in competition with the Company,
any Company Subsidiary or OEI or any Subsidiary of OEI (OEI and its
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Subsidiaries collectively being called "OEI" for purposes of this
Article X) within any territory surrounding any office or facility (each
a "facility") in which any of the Company or the Company Subsidiaries
was engaged in business on the date hereof or immediately prior to the
Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
parish in which the facility is located, and (iv) the area located
within 100 miles of the facility, all of such locations being herein
collectively called the "TERRITORY");
(b) call on any natural Person who is at that time employed by
the Company, any Company Subsidiary or OEI with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or OEI, provided that a Stockholder may call on and hire any
of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or OEI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or OEI within the Territory and (ii)
with the knowledge of the customer relationship; or
(d) call on any OEI Acquisition Candidate, with the knowledge of
that Person's status as an OEI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than OEI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 1% of a class of the outstanding Capital Stock of a
competing Entity if that class of Capital Stock is publicly traded.
Section 10.02. DAMAGES. Because of the difficulty of measuring economic
losses to OEI as a result of any breach by a Restricted Stockholder or any other
Stockholder of his covenants in Section 10.01, and because of the immediate and
irreparable damage that could be caused to OEI for which it would have no other
adequate remedy, each Restricted Stockholder (and, in the case of paragraphs (b)
and (d) of Section 10.01, each Stockholder) agrees that OEI may enforce the
provisions of Section 10.01 by injunctions and restraining orders against the
Restricted Stockholder or Stockholder, as the case may be, if he breaches any of
those provisions.
Section 10.03. REASONABLE RESTRAINT. The Parties each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholder or Stockholders, as the case may be, in light of the activities and
business of OEI on the date hereof, the current business plans of OEI and the
investment by each Stockholder in OEI as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in this Article
X are severable and separate. The unenforceability of any specific covenant in
this Article X is not intended by any Party to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of
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competent jurisdiction determines that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Restricted Stockholder or Stockholder, as the case may be, the Parties,
including the Restricted Stockholder or Stockholder in question, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Restricted Stockholder or Stockholder, as the case may
be, and any other Restricted Stockholder or Stockholder, as the case may be,
similarly situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each Party to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder or Stockholder against
OEI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by OEI of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Restricted Stockholder and Stockholder by excluding from
that computation any time during which the Restricted Stockholder or Stockholder
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision of
this Agreement by any Party.
Section 10.06. MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated by this
Agreement.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each Party will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that Party.
Section 11.02. RESTRICTIONS ON TRANSFERS OF OEI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "RESTRICTED PERIOD"), no Stockholder
voluntarily will: (i) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint or otherwise dispose of (A) any shares of
OEI Common Stock (including the Contingent Stock Consideration) received
by any Stockholder in the Merger or (B) any interest in (including any
option to buy or sell) any such shares of OEI Common Stock, in whole or
in part, and OEI will have no obligation to, and shall not, treat any
such attempted transfer as effective for any purpose; or (ii) engage in
any transaction, whether or not with respect to any shares of OEI Common
Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of OEI Common Stock acquired
pursuant to Section 2.04 (including, for example engaging in put,
18
<PAGE>
call, short-sale, straddle or similar market transactions); PROVIDED,
HOWEVER, that this Section 11.02 shall not restrict (x) any transfer of
OEI Common Stock acquired by a Stockholder pursuant to Section 2.04 to
any of that Stockholder's Related Persons who agree in writing to be
bound by the provisions of Section 11.01 and this Section 11.02 or (y)
any transfer pursuant to Section 2.07(d) of Contingent Stock
Consideration to an employee of the Company who agrees in writing to be
bound by the provisions of Section 11.01 and this Section 11.02. The
certificates evidencing the OEI Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in
the form set forth below and containing such other information as OEI
may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE EXPIRATION OF THE
RESTRICTED PERIOD.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of OEI Common Stock to be
delivered to him pursuant to Section 2.04 (A) have not been and, except
pursuant to the Registration Rights Agreement, if applicable, will not
be registered under the Securities Act and therefore may not be resold
by him without compliance with the Securities Act and (B) will, as a
result of their restrictions on transferability which are imposed by
this Agreement during the Restricted Period, have a value materially
less at the Effective Time than the value of then freely tradeable
shares of OEI Common Stock, and (ii) covenants that none of the shares
of OEI Common Stock issued to him pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the
SEC and applicable state securities laws and regulations. All
certificates evidencing shares of OEI Common Stock issued pursuant to
Section 2.04 will bear the following legend in addition to the legend
prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY ONLY BE SOLD OR
OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT ACT
AND OTHER APPLICABLE SECURITIES LAWS.
19
<PAGE>
In addition, certificates evidencing shares of OEI Common Stock issued
to each Stockholder pursuant to Section 2.04 will bear any legend
required by (i) the securities or blue sky laws of the state in which
that Stockholder resides or (ii) the Underwriter in connection with any
agreement of that Stockholder with the Underwriter to the effect set
forth in Section 11.02(a).
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly and
severally represent and warrant to OEI that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify OEI
against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its Parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the Parties, the successors
of OEI, and the heirs and legal representatives of the Stockholders (and, in the
case of any trust, the successor trustees of the trust). Neither this Agreement
nor any other Transaction Document is intended, or shall be construed, deemed or
interpreted, to confer on any Person not a party hereto or thereto any rights or
remedies hereunder or thereunder, except as provided in Section 6.05(b) or
11.14, in Article IX, or as otherwise provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement and
the documents delivered pursuant to it constitute the entire agreement and
understanding among the Parties and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, the amendment, modification,
supplement or waiver is in writing and signed by the Majority Stockholders, the
Company and OEI. The waiver of any of the terms and conditions of this Agreement
shall not be construed or interpreted as, or deemed to be, a waiver of any of
its other term or conditions.
Section 11.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) OEI will pay the fees, expenses and disbursements of
OEI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments to this Agreement
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by OEI and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the Company may
pay any fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date, up to a
maximum of $40,000 in the aggregate, and (c) the Stockholders will pay from
personal funds,
20
<PAGE>
and not from funds of the Company or any Company Subsidiary, (i) all sales, use,
transfer and other similar taxes and fees (collectively, "TRANSFER TAXES")
incurred in connection with the transactions contemplated hereby, and (ii) the
fees, expenses and disbursements in excess of $40,000 in the aggregate of
Counsel for the Company and the Stockholders incurred in connection with the
subject matter of this Agreement and the Registration Statement on or before the
IPO Closing Date. The Stockholders will file all necessary documentation and
Returns with respect to all Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company, OEI or the Surviving Corporation,
will pay all Taxes due upon receipt of the consideration payable to the
Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the Party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Business Day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate Party or
Parties, at the address of such Party set forth below (or at such other address
as such party may designate by written notice to all other Parties in accordance
herewith):
(i) if to OEI or Newco, addressed to it at:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77009
Attn.: Michael L. Burrow,
Chief Executive Officer
Telecopy No.: (713) 880-6300
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 226-1331
(ii) if to the Stockholders, addressed to them at their
respective addresses set forth in Schedule 2.04; and
21
<PAGE>
(iii) if to the Company, addressed to it at:
1250 Indiana Street
P.O. Box 549
Humble, Texas 77396
Attn: Jerry G. Gulsby
Telecopy No.: (713) 446-5445
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Dan McEvily, Esq.
2121 Fountain View
Houston, Texas 77057
Telecopy No.: (713) 627-8484
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF: PROVIDED, HOWEVER, THAT: (A) ARTICLE X
AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES WILL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF
TEXAS WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF AND (B) MATTERS
PERTAINING SOLELY TO THE LEGALITY AND EFFECTUATION OF THE MERGER SHALL BE
GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any Party as a result of any breach or default hereunder by
any other Party shall impair any such right, power or remedy, nor shall it be
construed, deemed or interpreted as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the Parties as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
22
<PAGE>
Section 11.13. REMEDIES CUMULATIVE. Except as otherwise provided in
Section 9.06, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive, but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither OEI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that OEI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to October 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to OEI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
Section 11.15. CONSENTS.
(a) The Stockholders, as the owners and holders of all the
Capital Stock of the Company, hereby consent to and approve the Merger
and the plan of merger contemplated by this Agreement pursuant to
Sections 5.03 and 9.10 of the Business Corporation Act.
(b) OEI hereby consents to and approves the Merger and the plan
of merger contemplated by this Agreement pursuant to Sections 5.03 and
9.10 of the Business Corporation Act.
Section 11.16. BOARD OF DIRECTORS. So long as Gulsby is employed by the
Company, OEI agrees that he shall be entitled to serve as a director of the
Company.
Section 11.17. REAL ESTATE MATTERS. At the Closing, Gulsby Enterprises
and the Company will enter into the Lease Agreement and the Right of First
Refusal Agreement.
23
<PAGE>
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of OEI and the
Company;
(ii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by October 31, 1998, unless the failure
of such transactions to be consummated results from the willful
failure of the Party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be
performed or adhered to by that Party prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if a material breach or
default shall be made by the other Party (or in the case of the
Stockholders and the Company, any of them) in the observance or
in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by OEI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by OEI or the Company if the Underwriting Agreement
is terminated pursuant to its terms after the Closing and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 Business
Days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of Texas, but before the IPO has
been consummated, OEI will take all actions that Counsel for the Company
and the Stockholders advises OEI are required by the applicable laws of
the State of Texas to rescind the Merger.
24
<PAGE>
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any Party except (a) as provided in Section 11.07, (b) to the
extent that such liability is based on the breach of that Party of any of its or
his representations, warranties or covenants set forth in of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
OEI INTERNATIONAL, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, Chief Executive Officer
GEI ACQUISITION, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, President
GULSBY ENGINEERING, INC.
By: /s/ JERRY G. GULSBY
Jerry G. Gulsby, President
STOCKHOLDERS:
/s/ JERRY G. GULSBY
Jerry G. Gulsby
25
<PAGE>
THE GULSBY CHILDREN'S TRUSTS
created under Irrevocable Trust Agreement dated
December 29, 1997:
Keven Lee Gulsby 1997 Trust; Bradley Dwayne
Gulsby 1997 Trust; Terri Lynette Gulsby Robbins
1997 Trust; and James Glenn Gulsby 1997 Trust.
By: /s/ TERRI LYNETTE GULSBY ROBBINS
Terri Lynette Gulsby Robbins
By: /s/ JAMES GLENN GULSBY
James Glenn Gulsby
Co-Trustees
THE GULSBY CHILDREN'S TRUSTS
created under Irrevocable Trust Agreement dated
December 29, 1997:
James Hampton Gulsby 1997 Trust; Audrey Paige
Gulsby 1997 Trust; John Tyler Gulsby 1997
Trust; Bradley Wyatt Gulsby 1997 Trust; William
Cole Robbins 1997 Trust; Chelsea Lynette
Robbins 1997 Trust; and Alexandra Elizabeth
Gulsby 1997 Trust.
By: /s/ TERRI LYNETTE GULSBY ROBBINS
Terri Lynette Gulsby Robbins
By: /s/ JAMES GLENN GULSBY
James Glenn Gulsby
Co-Trustees
26
<PAGE>
THE JGCG GENERATION-SKIPPING TRUSTS created
under Irrevocable Trust Agreement dated
December 29, 1997 for:
Keven Lee Gulsby; Bradley Dwayne Gulsby; Terri
Lynette Gulsby Robbins; and James Glenn Gulsby.
By: /s/ TERRI LYNETTE GULSBY ROBBINS
Terri Lynette Gulsby Robbins
By: /s/ JAMES GLENN GULSBY
James Glenn Gulsby
Co-Trustees
The undersigned has executed this Agreement in the space provided below
to reflect her agreement to execute and deliver the Lease Agreement and the
Right of First Refusal Agreement as contemplated by Section 11.17. The
undersigned acknowledges that, but for her agreement as herein set forth, OEI
would not execute and deliver this Agreement, and this undertaking by her is
made to induce OEI to enter into this Agreement.
/s/ CLARA GULSBY
Clara Gulsby
27
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
(2) The Founding Companies are:
Chemical & Industrial Engineering, Inc.
Gulsby Engineering, Inc.
Paulus, Sokolowski and Sortor, Inc.
Petrocon Engineering, Inc.
W-Industries, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
(2) The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
Jerry G. Gulsby
Gary J. Coury
Rick Berry
(3) The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
Chairman and Chief Executive Officer Jerry G. Gulsby
President James G. Gulsby
Vice President Gary J. Coury
Vice President Rick Berry
Secretary and Treasurer Clara Gulsby
Assistant Secretary Robert W. Raiford
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
(2) The name and address of each Stockholder are as follows:
NAME ADDRESS
Jerry G. Gulsby 3002 Royal Circle
Kingwood, Texas 77339
The Gulsby Children's Trusts P.O. Box 549
Humble, Texas 77347
The Gulsby Grandchildren's Trusts P.O. Box 549
Humble, Texas 77347
The JGCG Generation-Skipping Trusts P.O. Box 549
Humble, Texas 77347
(3) Subject to the provisions of Section 2.12, the aggregate Initial
Merger Consideration shall be comprised of (i) $2,786,170 cash (the "CASH
CONSIDERATION"), and (ii) 541,757 shares of OEI Common Stock (the "MERGER
SHARES").
<PAGE>
(4) All of the Cash Consideration will be allocated and paid to Mr.
Gulsby. In addition, Mr. Gulsby will be allocated a number of the Merger Shares
equal to (i) his Pro Rata Share multiplied times the sum of (x) the amount of
the Cash Consideration divided by $12 plus (y) the number of Merger Shares minus
(ii) the amount in clause (x). The balance of the Merger Shares will be
allocated among the Stockholders other than Mr. Gulsby proportionately based
upon their respective Pro Rata Shares. The Pro Rata Shares of the Stockholders
are as follows:
SHARES OF PRE-MERGER PRO RATA
NAME COMPANY COMMON STOCK SHARE
Stockholders:
Jerry G. Gulsby 7,100 71.00%
The Gulsby Children's Trusts 300 3.00%
The Gulsby Grandchildren's Trusts 500 5.00%
The JGCG Generation-Skipping Trusts 2,100 21.00%
--------- -----------
TOTAL 10,000 100.00%
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
(2) Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a) except for the following:
The Gulsby Children's Trusts created under Irrevocable
Trust Agreement dated December 29, 1997:
Keven Lee Gulsby 1997 Trust
Bradley Dwayne Gulsby 1997 Trust
Terri Lynette Gulsby Robbins 1997 Trust
James Glenn Gulsby 1997 Trust
The Gulsby Grandchildren's Trusts created under
Irrevocable Trust Agreement dated December 29, 1997:
James Hampton Gulsby 1997 Trust
Audrey Paige Gulsby 1997 Trust
John Tyler Gulsby 1997 Trust
Bradley Wyatt Gulsby 1997 Trust
William Cole Robbins 1997 Trust
Chelsea Lynette Robbins 1997 Trust
Alexandra Elizabeth Gulsby 1997 Trust
The JGCG Generation-Skipping Trusts created under
Irrevocable Trust Agreement dated December 29, 1997 for:
Keven Lee Gulsby
Bradley Dwayne Gulsby
Terri Lynette Gulsby Robbins
James Glenn Gulsby
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
(2) The following table sets forth the ownership of the Company's
Capital Stock:
NUMBER OF
NAME CLASS SHARES OWNED
---- ----- ------------
Jerry G. Gulsby Common 7,100
The Gulsby Children's Trusts Common 300
The Gulsby Grandchildren's Trusts Common 500
The JGCG Generation-Skipping Trusts Common 2,100
(3) No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
(2) The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $10,000:
None
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
(2) The following Related Party Agreements will be permitted to continue
in effect past the date of the Closing in accordance with their terms, subject
to the following provisions of this Schedule:
New Employment Agreement
Lease Agreement
Right of First Refusal Agreement
<PAGE>
SCHEDULE 6.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.03 are used
herein as therein defined.
None
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
(2) The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
(2) The Company will make all arrangements and take all such actions as
are necessary and satisfactory to OEI to dispose, prior to the Effective Time,
of the following assets in the manner indicated below:
Concurrently with the Closing, the Company may transfer to the
Stockholders, in kind (or in cash to the extent such retainings
are collected prior to the Closing) and as taxable boot to the
Stockholders, all or any part of the contract retainages
reflected on the books of the Company on December 29, 1997, and
owed by Chemdesign, Inc. and UMC Petroleum Corporation,
respectively.
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
(2) At or within 10 days following the Effective Time, OEI will cause
the following Stockholder Guarantees to be terminated:
Guarantees by Gulsby of working capital loans from Sterling Bank
to the Company made pursuant to the Credit Loan Agreement dated
March 6, 1998 among Sterling Bank, the Company and Gulsby.
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
GEI Acquisition, Inc.
Gulsby Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
(2) Each of the Stockholders (other than Gulsby) is a Restricted
Stockholder and subject to all the restrictions set forth in Section 10.01 of
the captioned Agreement.
EXHIBIT 2.5
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF APRIL 10, 1998
BY AND AMONG
OEI INTERNATIONAL, INC.,
W-I ACQUISITION, INC.
W-INDUSTRIES, INC.
AND
ITS STOCKHOLDERS
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made as
of April 10, 1998, among OEI International, Inc., a Delaware corporation
("OEI"), W-I Acquisition, Inc., a Texas corporation and a wholly owned
subsidiary of OEI ("NEWCO"), W-Industries, Inc., a Texas corporation (the
"COMPANY"), and the persons listed on the signature pages of this Agreement
under the caption "STOCKHOLDERS" (collectively, the "STOCKHOLDERS," and each of
them, individually, a "STOCKHOLDER").
PRELIMINARY STATEMENTS
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "MERGER") on
the terms and subject to the conditions of this Agreement;
(ii) OEI, VIA mergers involving other OEI subsidiaries,
will acquire the stock of all or some of the entities other than
the Company identified in the accompanying Addendum I (each an
"OTHER FOUNDING COMPANY" and, collectively with the Company, the
"FOUNDING COMPANIES") under agreements similar to this Agreement
entered into among the Other Founding Companies, their
stockholders, OEI and other subsidiaries of OEI (collectively,
the "OTHER AGREEMENTS"); and
(iii) OEI will effect a public offering of shares of its
common stock.
The respective boards of directors of OEI, Newco and the Company have
approved and adopted this Agreement to effect a transaction involving a transfer
of the nature described in Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01:
"1998 AAA DISTRIBUTIONS" means distributions before the Closing
of amounts which shall have accumulated in the Company's Accumulated
Adjustment Account for all taxable periods beginning on or after January
1, 1998, and ending on or before the date of Closing.
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<PAGE>
"ACCUMULATED ADJUSTMENT ACCOUNT" means the accumulated adjustment
account maintained by the Company under Section 1368(e)(1) of the Code
and representing the undistributed retained earnings of the Company on
which the Stockholders have paid U.S.federal income taxes.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Addendum, Annexes and Exhibits, as each of them may be amended, modified
or supplemented from time to time under their provisions or the
provisions of this Agreement.
"BUSINESS CORPORATION ACT" means the Texas Business Corporation
Act.
"BUY-SELL AGREEMENT" means the Agreement dated February 21, 1984,
among the Company and the Stockholders.
"CEILING AMOUNT" means $12,254,500.
"CLOSING" has the meaning specified in Section 7.01(a).
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by OEI for the Closing, in which there shall be included the
forms of certificates of officers, the opinions of counsel and certain
other documents to be delivered at the Closing as provided in Article
VII.
"COMPANY COMMON STOCK" means the common stock, par value $1 per
share, of the Company.
"COUNSEL FOR OEI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Albert M.
McCaig, Jr.
"CURRENT BALANCE SHEET" means the audited balance sheet of the
Company at December 31, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means December 31, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to OEI prior to
the execution and delivery of this Agreement, in which either (a)
exceptions are taken to each of certain of the representations and
warranties made by the Company and the Stockholders in this Agreement or
(b) it is confirmed that no exception is taken to that representation
and warranty.
2
<PAGE>
"INITIAL FINANCIAL STATEMENTS" means the audited balance sheets
of the Company at December 31, 1997 and 1996 and the related audited
statements of income, stockholders' equity and cash flows for each of
the Company's three fiscal years in the three-year period ended December
31, 1997, together with the related audit report of Arthur Andersen LLP.
"LIMITATION PERIOD" has the meaning specified in Section
11.16(c).
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENTS" means the Employment Agreements
entered into as of April 10, 1998, between the Company and John W.
White, Kenneth W. Oliver, Kenneth W. Castlebury and Tommy L. Lynn,
respectively.
"NEWCO" means W-I Acquisition, Inc., a Texas corporation.
"OEI" means OEI International, Inc., a Delaware corporation.
"OEI ACQUISITION CANDIDATE" means any Entity engaged in the
Practice of Engineering and which shall have been called on by any of
the Company, OEI or a Subsidiary of the Company or OEI in connection
with the possible acquisition by any of them of that Entity or with
respect to which any of them has made an acquisition analysis.
"PARTIES" means the parties to this Agreement.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company Common
Stock owned by that Stockholder, as set forth in Schedule 2.04, and (b)
the denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders, as set forth in Schedule
2.04.
"RESPONSIBLE OFFICER" means either of Kenneth W. Castlebury or
Tommy L. Lynn.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement dated
February 21, 1984, among the Company and the Stockholders.
3
<PAGE>
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01(a).
"THRESHOLD AMOUNT" means $326,800.
"TRANSFERORS' AGREEMENT" means the Transferors' Agreement and
Plan of Transfer entered into as of April 10, 1998, among OEI, the
Stockholders and the other Persons party thereto.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
Section 1.02 DEFINITIONS IN UNIFORM PROVISIONS. Capitalized terms used
in this Agreement but not defined in this Section 1.01 have the meanings
assigned to them in the Preliminary Statements or in Article I of the Uniform
Provisions (the text of which is by this reference incorporated in this
Agreement), as the case may be.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01 CERTIFICATE OF MERGER. On the terms and subject to the
conditions of this Agreement, the Company will cause a Certificate of Merger to
be duly executed and delivered on or promptly after the date of the Closing to
the Secretary of State of the State of Texas.
Section 2.02 THE EFFECTIVE TIME. The effective time of the Merger (the
"EFFECTIVE TIME") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the certificate or articles of incorporation of the
Company will be amended to change its authorized capital stock to 1,000 shares,
par value $1.00 per share, of Common Stock, and the bylaws of the Company will
be amended to delete Section 6.05 therefrom, (d) the Company will be the
Surviving Corporation and, as such, will, all with the effect provided by the
Business Corporation Act, (i) possess all the properties and rights, and be
subject to all the restrictions and duties, of the Company and Newco and (ii) be
governed by the laws of the State of Texas, (e) the Charter Documents of the
Company then in effect (after giving effect to the amendment of the Company's
certificate or articles of
4
<PAGE>
incorporation and bylaws specified in clause (c) of this sentence) will become
and thereafter remain (until changed in accordance with (i) applicable law, in
the case of the certificate or articles of incorporation or (ii) their terms, in
the case of the bylaws) the Charter Documents of the Surviving Corporation, (f)
the initial board of directors of the Surviving Corporation will be the Persons
named in Schedule 2.03, who will hold the office of director of the Surviving
Corporation subject to the provisions of the applicable laws of the State of
Texas and the Charter Documents of the Surviving Corporation, and (g) the
officers of the Surviving Corporation immediately following the Merger will be
as set forth in Schedule 2.03, and each of the Persons so designated in Schedule
2.03 will serve in each office specified for that Person in Schedule 2.03,
subject to the provisions of the Charter Documents of the Surviving Corporation,
until his or her successor is duly elected to, and, if necessary, qualified for,
that office.
Section 2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of OEI Common Stock set forth or determined as
provided in Schedule 2.04 (the "MERGER CONSIDERATION"), (ii) cease to be
outstanding and to exist, and (iii) be canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or by any Company Subsidiary will (i) cease to be
outstanding and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on such conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.05 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock,
will, on surrender of his certificates to OEI (or any agent which may be
appointed by OEI for purposes of this Section 2.05), receive, and OEI
will pay and issue to each Stockholder, in each case subject to the
provisions of Section 2.06, the Merger Consideration; and (ii) until any
certificate
5
<PAGE>
representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes,
be deemed to evidence ownership of the number of whole shares of OEI
Common Stock included in the Merger Consideration payable in respect of
that certificate pursuant to Section 2.04. All shares of OEI Common
Stock issuable in the Merger will be deemed for all purposes to have
been issued by OEI at the Effective Time. All cash included in the
Merger Consideration shall be paid by OEI's company checks, certified or
official bank checks, or wire transfers, at OEI's option. In the case of
wire transfers, the transfers shall be to accounts designated by the
respective Stockholders at least five Business Days before the IPO
Closing Date.
(b) Each Stockholder will deliver to OEI (or any agent that may
be appointed by OEI for purposes of this Section 2.05), on or before the
IPO Closing Date, the certificates representing Company Common Stock
owned by the Stockholder, duly endorsed in blank by him, or accompanied
by stock powers duly executed by him in blank, and with all necessary
transfer tax and other revenue stamps, acquired at his expense, affixed
and canceled. In the event this Agreement is terminated pursuant to
Article XII prior to the Effective Time, OEI or its agent will return
all such certificates and other documents to the Stockholders. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the
stock powers accompanying, the certificates representing Company Common
Stock delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to OEI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of OEI Common Stock have
been issued in the Merger until the unsurrendered certificates are
surrendered as provided herein, but (i) on such surrender, OEI will
cause to be paid, to the Person in whose name the certificates
representing such shares of OEI Common Stock shall then be issued, the
amount of dividends or other distributions previously paid with respect
to such whole shares of OEI Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender,
and the amount of any cash payable to such Person for and in lieu of
fractional shares pursuant to Section 2.06 and (ii) at the appropriate
payment date or as soon as practicable thereafter, OEI will cause to be
paid to that Person the amount of dividends or other distributions with
a record date, or which have been accrued, subsequent to the Effective
Time, but which are not payable until a date subsequent to surrender,
which are payable with respect to such number of whole shares of OEI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends
or other distributions (or cash for and in lieu of fractional shares) on
surrender of outstanding certificates.
Section 2.06 FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of OEI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of OEI Common
Stock but for this Section 2.06 will instead be entitled to
6
<PAGE>
receive a cash payment for and in lieu thereof in the amount (rounded to the
nearest whole cent) equal to that Person's fractional interest in a share of OEI
Common Stock multiplied by $12.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01 BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to OEI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of OEI
Common Stock to be issued to him pursuant to Section 2.04 solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of
those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of OEI Common Stock other than this Agreement, the
Transferors' Agreement and the Registration Rights Agreement; (iii)
unless otherwise specified on Schedule 3.01, the Stockholder is an
"accredited investor" as defined in Securities Act Rule 501 (a); (iv)
the Stockholder (A) is able to bear the economic risk of an investment
in the OEI Common Stock to be acquired by him pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the OEI Common Stock, (D) has had an adequate opportunity
to ask questions and receive answers from the officers of OEI concerning
any and all matters relating to the transactions contemplated by this
Agreement, including the background and experience of the current and
proposed officers and directors of OEI, the plans for the operations of
the business of OEI, the business, operations and financial condition of
the Other Founding Companies and any plans of OEI for additional
acquisitions, and (E) has asked all questions of the nature described in
preceding clause (D), and all those questions have been answered to his
satisfaction; and
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
7
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01 BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, OEI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of Texas,
and the Company (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State and (ii) has the
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its
business as now conducted;
(b) the authorized Capital Stock of the Company is comprised of
100,000 shares of Company Common Stock, of which 12,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and no outstanding Derivative Securities of the Company
exist;
(c) the Company (i) has made, and there is now in effect, an
election with the IRS to be taxed as a Subchapter S corporation within
the meaning of Section 1361 of the Code, (ii) at all times since January
20, 1984, the date of the Company's election to be treated as an S
corporation, has qualified as an S corporation within the meaning of
Section 1361(a) of the Code, (iii) owns no assets the disposition of
which would cause the Company to have a net recognized built-in gain
within the meaning of Section 1374 of the Code, (iv) has had no item of
income that has not been taken into account by the Company and that
would be treated as a recognized built-in gain under Section 1374(d)(5)
of the Code, and (v) will not be liable for any federal, state, city or
local Taxes as a result of the Merger; and
(d) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth therein are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF OEI AND NEWCO
Section 5.01 BY OEI AND NEWCO. OEI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger,
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<PAGE>
and (d) the representations and warranties contained in Article V of the Uniform
Provisions (the text of which Article hereby is incorporated herein by this
reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each Party will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this reference) to be
performed or observed by that Party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the Parties
will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the Business Corporation Act,
(A) the execution of a Certificate of Merger meeting the requirements of
the Business Corporation Act and providing that the Merger will become
effective on the IPO Closing Date and (B) the filing of the Certificate
of Merger with the Secretary of State of the State of Texas), (ii)
verify the existence and ownership of the certificates evidencing the
Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05, and (iii) satisfy the document delivery
requirements to which the obligations of the Parties to effect the
Merger and the other transactions contemplated hereby are conditioned by
the provisions of this Article VII (all those actions collectively being
the "CLOSING"). The Closing will take place at the offices of Porter &
Hedges, L.L.P., 700 Louisiana, Houston, Texas at 10:00 a.m., Houston
time, or at such later time on the IPO Pricing Date as OEI shall specify
by written notice to John W. White. The actions taken at the Closing
will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section
2.05. Instead, on the IPO Closing Date, the Certificate of Merger will
become effective pursuant to Section 2.02, and all transactions
contemplated by this Agreement to be closed or completed on or before
the IPO Closing Date, including the surrender of the Company Common
Stock in exchange for the Merger Consideration will be closed or
completed, as the case may be. During the period from the Closing to the
IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in
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Sections 7.02(a) and 7.03. The obligations of the Stockholders with
respect to the actions to be taken on the IPO Closing Date are subject
to the satisfaction on that date of the following conditions: (i) the
Transferors' Agreement and each of the New Employment Agreements then
shall be in full force and effect; and (ii) all the conditions set forth
in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF OEI AND NEWCO. The
obligations of OEI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to OEI a
copy of the articles or certificate of incorporation, as amended to the
date of the Closing and certified by the Secretary of State of the State
of Texas as of a Current Date, of the Company; and (ii) all the
conditions set forth in Sections 7.02(a) and 7.04(a).
(d) CERTAIN CONDITIONS TO BE MET BY IPO CLOSING DATE. The
obligations of OEI and Newco with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of the
following conditions: (i) the New Employment Agreements then shall be in
full force and effect; and (ii) all the conditions set forth in Sections
7.02(b) and 7.04(b).
(e) INCORPORATION OF ARTICLE VII OF UNIFORM PROVISIONS. The text
of Article VII of the Uniform Provisions hereby is incorporated herein
by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01 OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each Party
(other than the Company) will comply with each covenant for which provision is
made in Article VIII of the Uniform Provisions (the text of which Article hereby
is incorporated herein by this reference) to be performed or observed by that
Party.
ARTICLE IX
INDEMNIFICATION
Section 9.01 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of Article
IX of the Uniform Provisions hereby is incorporated herein by this reference.
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ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder") and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, in any
business engaged in the Practice of Engineering in competition with the
Company, any Company Subsidiary or OEI or any Subsidiary of OEI (OEI and
its Subsidiaries collectively being called "OEI" for purposes of this
Article X) within any territory surrounding any office or facility (each
a "facility") in which any of the Company or the Company Subsidiaries
was engaged in business on the date hereof or immediately prior to the
Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
parish in which the facility is located, and (iv) the area located
within 100 miles of the facility, all of such locations being herein
collectively called the "TERRITORY");
(b) call on any natural Person who is at that time employed by
the Company, any Company Subsidiary or OEI with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or OEI, provided that a Stockholder may call on and hire any
of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or OEI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or OEI within the Territory and (ii)
with the knowledge of the customer relationship; or
(d) call on any OEI Acquisition Candidate, with the knowledge of
that Person's status as an OEI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than OEI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 1% of a class of the outstanding Capital Stock of a
competing Entity if that class of Capital Stock is publicly traded.
Section 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to OEI as a result of any breach by a Restricted Stockholder or
any other Stockholder of his covenants in
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<PAGE>
Section 10.01, and because of the immediate and irreparable damage that could be
caused to OEI for which it would have no other adequate remedy, each Restricted
Stockholder (and, in the case of paragraphs (b) and (d) of Section 10.1, each
Stockholder) agrees that OEI may enforce the provisions of Section 10.01 by
injunctions and restraining orders against the Restricted Stockholder or
Stockholder, as the case may be, if he breaches any of those provisions.
Section 10.03. REASONABLE RESTRAINT. The Parties each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholder or Stockholders, as the case may be, in light of the activities and
business of OEI on the date hereof, the current business plans of OEI and the
investment by each Stockholder in OEI as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in this Article
X are severable and separate. The unenforceability of any specific covenant in
this Article X is not intended by any Party to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction determines that the scope, time or territorial restrictions set
forth in Section 10.01 are unreasonable as applied to any Restricted Stockholder
or Stockholder, as the case may be, the Parties, including the Restricted
Stockholder or Stockholder in question, acknowledge their mutual intention and
agreement that those restrictions be enforced to the fullest extent the court
deems reasonable, and thereby shall be reformed to that extent as applied to
that Restricted Stockholder or Stockholder, as the case may be, and any other
Restricted Stockholder or Stockholder, as the case may be, similarly situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each Party to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder or Stockholder against
OEI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by OEI of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Restricted Stockholder and Stockholder by excluding from
that computation any time during which the Restricted Stockholder or Stockholder
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision of
this Agreement by any Party.
Section 10.06. MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated by this
Agreement.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each Party will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that Party.
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<PAGE>
Section 11.02. RESTRICTIONS ON TRANSFERS OF OEI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "RESTRICTED PERIOD"), no Stockholder
voluntarily will: (i) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint or otherwise dispose of (A) any shares of
OEI Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any such shares of OEI
Common Stock, in whole or in part, and OEI will have no obligation to,
and shall not, treat any such attempted transfer as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of OEI Common Stock or any interest therein, the intent or
effect of which is to reduce the risk of owning the shares of OEI Common
Stock acquired pursuant to Section 2.04 (including, for example engaging
in put, call, short-sale, straddle or similar market transactions);
PROVIDED, HOWEVER, that this Section 11.02 shall not restrict any
transfer of OEI Common Stock acquired by a Stockholder pursuant to
Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the OEI Common Stock delivered to
each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other
information as OEI may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE EXPIRATION OF THE
RESTRICTED PERIOD.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of OEI Common Stock to be
delivered to him pursuant to Section 2.04 (A) have not been and, except
pursuant to the Registration Rights Agreement, if applicable, will not
be registered under the Securities Act and therefore may not be resold
by him without compliance with the Securities Act and (B) will, as a
result of their restrictions on transferability which are imposed by
this Agreement during the Restricted Period, have a value materially
less at the Effective Time than the value of then freely tradeable
shares of OEI Common Stock, and (ii) covenants that none of the shares
of OEI Common Stock issued to him pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with
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<PAGE>
all the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of OEI Common Stock
issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY ONLY BE SOLD OR
OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT ACT
AND OTHER APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing shares of OEI Common Stock issued
to each Stockholder pursuant to Section 2.04 will bear any legend
required by (i) the securities or blue sky laws of the state in which
that Stockholder resides or (ii) the Underwriter in connection with any
agreement of that Stockholder with the Underwriter to the effect set
forth in Section 11.02(a).
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly and
severally represent and warrant to OEI that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify OEI
against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its Parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the Parties, the successors
of OEI, and the heirs and legal representatives of the Stockholders (and, in the
case of any trust, the successor trustees of the trust). Neither this Agreement
nor any other Transaction Document is intended, or shall be construed, deemed or
interpreted, to confer on any Person not a party hereto or thereto any rights or
remedies hereunder or thereunder, except as provided in Section 6.05(b) or
11.14, in Article IX, or as otherwise provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement and
the documents delivered pursuant to it constitute the entire agreement and
understanding among the Parties and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, the amendment, modification,
supplement or waiver is in writing and signed by the Majority Stockholders, the
Company and OEI. The waiver of any of the terms and conditions of this Agreement
shall not be construed or interpreted as, or deemed to be, a waiver of any of
its other term or conditions.
Section 11.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
14
<PAGE>
Section 11.07. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) OEI will pay the fees, expenses and disbursements of
OEI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments to this Agreement
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by OEI and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the Company may
pay any fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date, up to a
maximum of $40,000 in the aggregate, and (c) the Stockholders will pay from
personal funds, and not from funds of the Company or any Company Subsidiary, (i)
all sales, use, transfer and other similar taxes and fees (collectively,
"TRANSFER TAXES") incurred in connection with the transactions contemplated
hereby, and (ii) the fees, expenses and disbursements in excess of $40,000 in
the aggregate of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company, OEI or the
Surviving Corporation, will pay all Taxes due upon receipt of the consideration
payable to the Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the Party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Business Day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate Party or
Parties, at the address of such Party set forth below (or at such other address
as such party may designate by written notice to all other Parties in accordance
herewith):
(i) if to OEI or Newco, addressed to it at:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77009
Attn.: Michael L. Burrow,
Chief Executive Officer
Telecopy No.: (713) 880-6300
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 226-1331
15
<PAGE>
(ii) if to the Stockholders, addressed to them at their
respective addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
W-Industries, Inc.
11500 Charter Road
Houston, Texas 77041
Attn: Tommy L. Lynn
Telecopy No.: (713) 466-8671
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Albert M. McCaig, Jr.
1210 Saunders
Waller, Texas 77484
Telecopy No.: (409) 372-5581
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF: PROVIDED, HOWEVER, THAT: (a) ARTICLE X
AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES WILL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF
TEXAS WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF AND (b) MATTERS
PERTAINING SOLELY TO THE LEGALITY AND EFFECTUATION OF THE MERGER SHALL BE
GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any Party as a result of any breach or default hereunder by
any other Party shall impair any such right, power or remedy, nor shall it be
construed, deemed or interpreted as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the Parties as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
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<PAGE>
Section 11.13. REMEDIES CUMULATIVE. Except as otherwise provided in
Section 9.06, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive, but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither OEI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that OEI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to October 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to OEI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
Section 11.15. CONSENTS.
(a) The Stockholders, as the owners and holders of all the
Capital Stock of the Company, hereby consent to and approve the Merger
and the plan of merger contemplated by this Agreement pursuant to
Sections 5.03 and 9.10 of the Business Corporation Act.
(b) OEI hereby consents to and approves the Merger and the plan
of merger contemplated by this Agreement pursuant to Sections 5.03 and
9.10 of the Business Corporation Act.
Section 11.16. SUSPENSION AND TERMINATION OF SHAREHOLDERS' AGREEMENT.
The outstanding shares of the Company Common Stock are subject to Section 6.05
of the Company's bylaws and to the Shareholders' Agreement which provide, INTER
ALIA, options to purchase and to sell shares of the Company Common Stock upon
the occurrence of certain events specified therein and to the Buy-Sell Agreement
which obligates the Company to buy, and the Stockholders to sell, shares of the
Company Common Stock upon the death of a Stockholder and restricts the ability
of the Stockholders to transfer shares of the Company Common Stock. The Company
and the Stockholders agree that:
(a) at the Effective Time, (i) the bylaws of the Company shall be
amended as set forth in Section 2.03(c) and (ii) the Shareholders'
Agreement and the Buy-Sell Agreement shall be terminated without any
further action on the part of any party thereto;
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(b) the execution and delivery of this Agreement by the Company
and the Stockholders shall not be affected by, or constitute a breach of
or default under, Section 6.05 of the bylaws of the Company, the
Shareholders Agreement or the Buy-Sell Agreement;
(c) if at the date hereof there has began to run, or if after the
date hereof and prior to the Effective Time there shall begin to run,
any period of time (herein called a "LIMITATION PERIOD") within which
any party bound by or entitled to the benefits of, or whose shares of
the Common Stock are subject to, Section 6.05 of the bylaws of the
Company, the Shareholders' Agreement or the Buy-Sell Agreement must,
under the terms thereof, give any notice, offer such shares for sale,
accept any offer to purchase any such shares, purchase shares, make any
election or take any other action in order to preserve or maintain any
right or benefit of such party, then such Limitation Period shall cease
to run and shall be tolled as of the date of this Agreement, or, in the
case of any Limitation Period beginning after the date hereof, shall not
begin to run, unless and until such Limitation Period shall be resumed
and reinstated as provided in the following Section 11.16(e);
(d) so long as any Limitation Period is tolled pursuant to
Section 11.16(c), neither the Company nor the Stockholders may exercise
any right or option such party would otherwise have under Section 6.05
of the Company's bylaws, the Shareholders' Agreement or the Buy-Sell
Agreement but for the provisions of this Section 11.16; and
(e) if this Agreement is terminated pursuant to Article XII, then
as of the close of business on the date this Agreement is so terminated,
the provisions of this Section 11.16 shall terminate and any Limitation
Period shall resume and be reinstated or shall commence, as the case may
be, ten days following such termination, and promptly thereafter, the
Company shall notify each of the parties to the Stockholders that the
provisions of this Section 11.16 have terminated.
By their execution and delivery of this Agreement, (i) the directors of the
Company hereby amend the provisions of Article Six of the bylaws of the Company
to conform to the provisions of this Section 11.16, and the Stockholders hereby
ratify, confirm and approve such action by the directors of the Company and (ii)
the Company and the Stockholders hereby amend the Shareholders Agreement and the
Buy-Sell Agreement as set forth in this Section 11.16.
Section 11.17. INDEBTEDNESS TO STOCKHOLDERS. In the event that, during
the period commencing December 31, 1997, and ending at the Effective Time, the
Company does not repay advances made from time to time by the Stockholders in
the aggregate amount of $5,438,546, then, promptly after the Effective Time, OEI
will cause the Company to repay those advances.
18
<PAGE>
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of OEI and the
Company;
(ii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by October 31, 1998, unless the failure
of such transactions to be consummated results from the willful
failure of the Party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be
performed or adhered to by that Party prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if a material breach or
default shall be made by the other Party (or in the case of the
Stockholders and the Company, any of them) in the observance or
in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by OEI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by OEI or the Company if the Underwriting Agreement
is terminated pursuant to its terms after the Closing and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 Business
Days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of Texas, but before the IPO has
been consummated, OEI will take all actions that Counsel for the Company
and the Stockholders advises OEI are required by the applicable laws of
the State of Texas to rescind the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any Party except (a) as
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provided in Section 11.07, (b) to the extent that such liability is based on the
breach of that Party of any of its or his representations, warranties or
covenants set forth in of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
OEI INTERNATIONAL, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, Chief Executive Officer
W-I ACQUISITION, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow, President
W-INDUSTRIES, INC.
By: /s/ JOHN W. WHITE
John W. White, President
STOCKHOLDERS:
/s/ JOHN W. WHITE
John W. White
/s/ WALTER R. WOOTEN
Walter R. Wooten
/s/ KENNETH W. OLIVER
Kenneth W. Oliver
/s/ KENNETH W. CASTLEBURY
Kenneth W. Castlebury
/s/ TOMMY L. LYNN
Tommy L. Lynn
20
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
(2) The Founding Companies are:
Chemical & Industrial Engineering, Inc.
Gulsby Engineering, Inc.
Paulus, Sokolowski and Sortor, Inc.
Petrocon Engineering, Inc.
W-Industries, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
(2) The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
Tommy L. Lynn
Gary J. Coury
Rick Berry
(3) The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President John W. White
Vice President Kenneth W. Oliver
Vice President Tommy L. Lynn
Vice President, Secretary
and Treasurer Kenneth W. Castlebury
Vice President Gary J. Coury
Vice President Rick Berry
Assistant Secretary Robert W. Raiford
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
(2) The name and address of each Stockholder are as follows:
NAME ADDRESS
---- -------
Stockholders:
Walter R. Wooten Rt. 2 Box 374C
Waller, Texas 77484
John W. White 8831 Kennet Valley
Spring, Texas 77379
Kenneth W. Castlebury 17811 Tall Cypress
Spring, Texas 77388
Tommy L. Lynn 17215 Silver Thorne
Spring, Texas 77379
Kenneth W. Oliver 15719 Cascading Brookway
Cypress, Texas 77429
(3) The aggregate Merger Consideration shall be comprised of (i) cash in
an amount equal to the difference between $4,901,814 and the amount, if any, by
which the amount of the 1998 AAA Distributions exceeds 40% of the amount in the
Accumulated Adjustment Account in respect of earnings of the Company during the
period commencing January 1, 1998, and ending on the IPO Closing Date and (ii)
953,129 shares of OEI Common Stock which shall be allocated to the Stockholders
PRO RATA in accordance with their respective Pro Rata Shares as follows:
<PAGE>
SHARES OF PRE-MERGER PRO RATA
NAME COMPANY COMMON STOCK SHARE
---- -------------------- -----
Stockholders:
Walter R. Wooten 4,200 35.000%
John W. White 4,200 35.000%
Kenneth W. Castlebury 1,200 10.000%
Tommy L. Lynn 1,200 10.000%
Kenneth W. Oliver 1,200 10.000%
------ -------
TOTAL 12,000 100.000%
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
(2) Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
(2) The following table sets forth the ownership of the Company's
Capital Stock:
NAME CLASS NUMBER OF SHARES OWNED
- ---- ----- ----------------------
Walter R. Wooten Common 4,200
John W. White Common 4,200
Kenneth W. Castlebury Common 1,200
Tommy L. Lynn Common 1,200
Kenneth W. Oliver Common 1,200
(3) No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
(2) The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $10,000:
None
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
(2) The following Related Party Agreements will be permitted to continue
in effect past the date of the Closing in accordance with their terms, subject
to the following provisions of this Schedule:
The New Employment Agreements
<PAGE>
SCHEDULE 6.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.03 are used
herein as therein defined.
(2) The Company may deviate from the restrictions in Section 6.03 with
the consent in writing of OEI.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
(2) The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
The Company will be permitted to distribute to the Stockholders
before the IPO Closing Date the previously undistributed portion
of the balance in the Company's Accumulated Adjustment Account as
of the IPO Closing Date attributable to earnings of the Company
for all taxable periods ended on or before that date. In
accordance with the provisions of Schedule 2.04, the Cash
Consideration shall be reduced by an amount by which (i) 1998 AAA
Distributions exceed (ii) an amount equal to 40% of the amounts
accumulated in the Accumulated Adjustment Account in respect of
earnings of the Company for the period beginning on January 1,
1998 and ending on the IPO Closing Date.
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
(2) The Company will make all arrangements and take all such actions as
are necessary and satisfactory to OEI to dispose, prior to the Effective Time,
of the following assets in the manner indicated below:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
(2) At or within 10 days following the Effective Time, OEI will cause
the following Stockholder Guarantees to be terminated:
None
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
W-I Acquisition, Inc.
W-Industries, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
(2) Each of the Stockholders identified below is a Restricted
Stockholder and subject to all the restrictions set forth in Section 10.01 of
the captioned Agreement.
Walter R. Wooten
EXHIBIT 2.6
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF APRIL 10, 1998
BY AND AMONG
OEI INTERNATIONAL, INC.
C&I ACQUISITION, INC.
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
AND
CERTAIN OF ITS
STOCKHOLDERS
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made as
of April 10, 1998, among OEI INTERNATIONAL, INC., a Delaware corporation
("OEI"), C&I ACQUISITION, INC., a Kentucky corporation and a wholly owned
subsidiary of OEI ("NEWCO"), CHEMICAL & INDUSTRIAL ENGINEERING, INC., a Kentucky
corporation (the "COMPANY"), and the persons executing this Agreement on the
signature pages under the caption "STOCKHOLDERS" (collectively, the
"STOCKHOLDERS," and each of them, individually, a "STOCKHOLDER").
PRELIMINARY STATEMENTS
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "MERGER") on
the terms and subject to the conditions of this Agreement;
(ii) OEI, VIA mergers involving other OEI subsidiaries,
will acquire the stock of all or some of the entities other than
the Company identified in the accompanying Addendum I (each an
"OTHER FOUNDING COMPANY" and, collectively with the Company, the
"FOUNDING COMPANIES") under agreements similar to this Agreement
entered into among the Other Founding Companies, their
stockholders, OEI and other subsidiaries of OEI (collectively,
the "OTHER AGREEMENTS"); and
(iii) OEI will effect a public offering of shares of its
common stock.
The respective boards of directors of OEI, Newco and the Company have
approved and adopted this Agreement to effect a transaction involving a transfer
of the nature described in Section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01:
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Addendum, Annexes and Exhibits, as each of
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<PAGE>
them may be amended, modified or supplemented from time to time under
their provisions or the provisions of this Agreement.
"BUSINESS CORPORATION ACT" means the Kentucky Business
Corporation Act.
"CEILING AMOUNT" means $7,200,000.
"CLOSING" has the meaning specified in Section 7.01(a).
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by OEI for the Closing, in which there shall be included the
forms of certificates of officers, the opinions of counsel and certain
other documents to be delivered at the Closing as provided in Article
VII.
"COMPANY COMMON STOCK" means the common stock, no par value, of
the Company.
"COUNSEL FOR OEI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Borowitz &
Goldsmith, PLC.
"CURRENT BALANCE SHEET" means the audited balance sheet of the
Company at December 31, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means December 31, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed, for
identification purposes only, by an officer of the Company and delivered
to OEI prior to the execution and delivery of this Agreement, in which
either (a) exceptions are taken to each of certain of the
representations and warranties made by the Company and the Stockholders
in this Agreement or (b) it is confirmed that no exception is taken to
that representation and warranty.
"INITIAL FINANCIAL STATEMENTS" means the audited balance sheets
of the Company at December 31, 1997 and 1996 and the related audited
statements of income, stockholders' equity and cash flows for each of
the Company's three fiscal years in the three-year period ended December
31, 1997, together with the related audit report of Arthur Andersen LLP.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more
2
<PAGE>
than two-thirds of the total number of shares of Company Common Stock
outstanding at the date of this Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENTS" means the Employment Agreements dated
as of April 10, 1998, but to be effective as of the Closing, between the
Company and James W. Kerr and Jamie Ghazi, respectively.
"NEWCO" means C&I Acquisition, Inc., a Kentucky corporation.
"OEI" means OEI International, Inc., a Delaware corporation.
"OEI ACQUISITION CANDIDATE" means any Entity engaged in the
Practice of Engineering and which shall have been called on by any of
the Company, OEI or a Subsidiary of the Company or OEI in connection
with the possible acquisition by any of them of that Entity or with
respect to which any of them has made an acquisition analysis.
"OTHER STOCKHOLDERS" means all Persons, other than the
Stockholders, who own shares of Company Common Stock.
"PARTIES" means the parties to this Agreement.
"PRO RATA SHARE" means for each Stockholder and each Other
Stockholder the fraction expressed as a percentage, (a) the numerator of
which is the number of shares of outstanding Company Common Stock owned
by that Stockholder or Other Stockholder immediately prior to the
Effective Time, and (b) the denominator of which is the total number of
shares of outstanding Company Common Stock owned by all Stockholders and
all Other Stockholders immediately prior to the Effective Time.
"RESPONSIBLE OFFICER" means either of James W. Kerr or Jamie
Ghazi.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDER PRO RATA SHARE" means for each Stockholder the
fraction expressed as a percentage, (a) the numerator of which is the
number of shares of outstanding Company Common Stock owned by that
Stockholder immediately prior to the Effective Time, and (b) the
denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders immediately prior to the
Effective Time.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
3
<PAGE>
"TERRITORY" has the meaning specified in Section 10.01(a).
"THRESHOLD AMOUNT" means $192,000.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"TRANSFERORS' AGREEMENT" means the Transferors' Agreement and
Plan of Transfer entered into as of April 10, 1998, among OEI, the
Stockholders and the other Persons party thereto.
"UNIFORM PROVISIONS" means the Uniform Provisions for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
Section 1.02. DEFINITIONS IN UNIFORM PROVISIONS. Capitalized terms used
in this Agreement but not defined in this Section 1.01 have the meanings
assigned to them in the Preliminary Statements or in Article I of the Uniform
Provisions (the text of which is by this reference incorporated in this
Agreement), as the case may be.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. On the terms and subject to the
conditions of this Agreement, the Company will cause a Certificate of Merger to
be duly executed and delivered on or promptly after the date of the Closing to
the Secretary of State of the Commonwealth of Kentucky.
Section 2.02. THE EFFECTIVE TIME. The effective time of the Merger (the
"EFFECTIVE TIME") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the certificate or articles of incorporation of the
Company will be amended to change its authorized capital stock to 1,000 shares,
par value $1.00 per share, of Common Stock, (d) the Company will be the
Surviving Corporation and, as such, will, all with the effect provided by the
Business Corporation Act, (i) possess all the properties and rights, and be
subject to all the restrictions and duties, of the Company and Newco and (ii) be
governed by the laws of the Commonwealth of Kentucky, (e) the Charter Documents
of the Company then in effect (after giving effect to the amendment of the
Company's certificate or articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law, in the case of the certificate or articles of
incorporation or (ii) their terms, in the case of the bylaws) the Charter
Documents of
4
<PAGE>
the Surviving Corporation, (f) the initial board of directors of the Surviving
Corporation will be the Persons named in Schedule 2.03, who will hold the office
of director of the Surviving Corporation subject to the provisions of the
applicable laws of the Commonwealth of Kentucky and the Charter Documents of the
Surviving Corporation, and (g) the officers of the Surviving Corporation
immediately following the Merger will be as set forth in Schedule 2.03, and each
of the Persons so designated in Schedule 2.03 will serve in each office
specified for that Person in Schedule 2.03, subject to the provisions of the
Charter Documents of the Surviving Corporation, until his or her successor is
duly elected to, and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(a) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of OEI Common Stock, or the amount of cash only, set
forth or determined as provided in Schedule 2.04 (the "MERGER
CONSIDERATION"), (ii) cease to be outstanding and to exist, and (iii) be
canceled and retired;
(b) each share of Company Common Stock held in the treasury of
the Company or by any Company Subsidiary will (i) cease to be
outstanding and to exist and (ii) be canceled and retired; and
(c) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on such conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder and each
Other Stockholder, as the holder of certificates representing shares of
Company Common Stock, will, on surrender of his certificates to OEI (or
any agent which may be appointed by OEI for purposes of this Section
2.05), receive, and OEI will pay and issue to each Stockholder and each
Other Stockholder, in each case subject to the provisions of Section
2.06, the Merger Consideration; and (ii) until any certificate
representing Company Common Stock has been surrendered and replaced
pursuant to this Section 2.05, that certificate will, for all purposes,
be deemed to evidence ownership of the number of whole shares of OEI
Common
5
<PAGE>
Stock included in the Merger Consideration payable in respect of that
certificate pursuant to Section 2.04 and the amount of cash payable in
respect of that certificate pursuant to Section 2.04. All shares of OEI
Common Stock issuable in the Merger will be deemed for all purposes to
have been issued by OEI at the Effective Time. All cash included in the
Merger Consideration shall be paid by OEI's company checks, certified or
official bank checks, or wire transfers, at OEI's option. In the case of
wire transfers, the transfers shall be to accounts designated by the
respective Stockholders or Other Stockholders, as the case may be, at
least five Business Days before the IPO Closing Date.
(b) Each Stockholder will deliver to OEI (or any agent that may
be appointed by OEI for purposes of this Section 2.05), on or before the
IPO Closing Date, the certificates representing Company Common Stock
owned by the Stockholder duly endorsed in blank by him, or accompanied
by stock powers duly executed by him in blank, and with all necessary
transfer tax and other revenue stamps, acquired at his expense, affixed
and canceled. In the event this Agreement is terminated pursuant to
Article XII prior to the Effective Time, OEI or its agent will return
all such certificates and other documents to the Stockholders. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the
stock powers accompanying, the certificates representing Company Common
Stock delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to OEI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of OEI Common Stock have
been issued in the Merger until the unsurrendered certificates are
surrendered as provided herein, but (i) on such surrender, OEI will
cause to be paid, to the Person in whose name the certificates
representing such shares of OEI Common Stock shall then be issued, the
amount of dividends or other distributions previously paid with respect
to such whole shares of OEI Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender,
and the amount of any cash payable to such Person for and in lieu of
fractional shares pursuant to Section 2.06 and (ii) at the appropriate
payment date or as soon as practicable thereafter, OEI will cause to be
paid to that Person the amount of dividends or other distributions with
a record date, or which have been accrued, subsequent to the Effective
Time, but which are not payable until a date subsequent to surrender,
which are payable with respect to such number of whole shares of OEI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends
or other distributions (or cash for and in lieu of fractional shares) on
surrender of outstanding certificates.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of OEI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of OEI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of OEI Common Stock
multiplied by $12.
6
<PAGE>
Section 2.07. SPECIAL MEETING. The Company hereby agrees to call a
special meeting of the holders of the Company Common Stock to be held to vote
upon the Merger. The Company will use its best efforts to hold such meeting no
later than 15 days after the date of this Agreement. The Board of Directors of
the Company will recommend approval of the Merger. The notice of such special
meeting shall state that any holder of Company Common Stock who is an Other
Stockholder is or may be entitled to assert dissenters' rights under Subtitle 13
of the Business Corporation Act, and the Company shall provide to each Other
Stockholder entitled to vote at the special meeting of copy of such Subtitle. By
execution of this Agreement, each of the Stockholders hereby waives its right to
assert dissenter's rights under Subtitle 13 of the Business Corporation Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to OEI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of OEI
Common Stock to be issued to him pursuant to Section 2.04 solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of
those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of OEI Common Stock other than this Agreement, the
Transferors' Agreement and the Registration Rights Agreement; (iii)
unless otherwise specified on Schedule 3.01, the Stockholder is an
"accredited investor" as defined in Securities Act Rule 501 (a); (iv)
the Stockholder (A) is able to bear the economic risk of an investment
in the OEI Common Stock to be acquired by him pursuant to this
Agreement, (B) can afford to sustain a total loss of that investment,
(C) has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the proposed
investment in the OEI Common Stock, (D) has had an adequate opportunity
to ask questions and receive answers from the officers of OEI concerning
any and all matters relating to the transactions contemplated by this
Agreement, including the background and experience of the current and
proposed officers and directors of OEI, the plans for the operations of
the business of OEI, the business, operations and financial condition of
the Other Founding Companies and any plans of OEI for additional
acquisitions, and (E) has asked all questions of the nature described in
preceding clause (D), and all those questions have been answered to his
satisfaction; and
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
7
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, OEI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the Commonwealth of
Kentucky, and the Company (i) is a corporation duly organized and
validly existing under the laws of that Commonwealth and (ii) has the
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its
business as now conducted;
(b) the authorized Capital Stock of the Company is comprised of
300,000 shares of Company Common Stock, 200,000 of which are voting
shares and 100,000 of which are nonvoting shares, of which 26,540 voting
shares and 13,384 nonvoting shares have been issued and are now
outstanding and no shares are held by the Company as treasury shares,
and no outstanding Derivative Securities of the Company exist;
(c) the Stockholders own, in the aggregate, 87.92% of the issued
and outstanding shares of the voting Company Common Stock and 99.8% of
the issued and outstanding shares of the nonvoting Company Common Stock;
(d) Section 4.01(d) of the Disclosure Statement accurately sets
forth (i) the name and state of residence of each person to whom the
Company has issued or sold shares of Company Common Stock, or from whom
shares of Company Common Stock have been redeemed by the Company, during
the period commencing on January 1, 1995, and ending on the date hereof,
(ii) the date such shares were issued, sold or redeemed, the number of
shares involved in each such transaction, (iii) the price at which such
shares were bought or sold in each such transaction and (iv) certain
other information with respect to such transactions; and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth therein are agreed to. References to "Stockholder" or
"Stockholders" shall mean "Stockholder or Other Stockholder" or
"Stockholders or Other Stockholders," as the case may be, in Sections
4.16, 4.18(a), 4.19(a), 4.26(a), 4.30(f) and 4.30(g) of the Uniform
Provisions and in the definition of the term "Related Person" in Section
1.02 of the Uniform Provisions. The reference to "Stockholders" shall
mean "Stockholders and Other Stockholders" in Section 4.30(d) of the
Uniform Provisions.
8
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF OEI AND NEWCO
Section 5.01. BY OEI AND NEWCO. OEI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized and validly existing under the laws of the
Commonwealth of Kentucky, (b) no Derivative Securities of Newco are outstanding,
(c) Newco has been organized for the sole purpose of participating in the Merger
and has not, and will not, engage in any activities other than those necessary
to effectuate the Merger, and (d) the representations and warranties contained
in Article V of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct. The reference to
the term "the Stockholders" in Section 5.10 of the Uniform Provision shall be
deemed to be a reference to "the Stockholders and the Other Stockholders."
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each Party will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this reference) to be
performed or observed by that Party. References to "Stockholder" or
"Stockholders" shall mean "Stockholder or Other Stockholder" or "Stockholders or
Other Stockholders," as the case may be, in Section 6.04(f) of the Uniform
Provisions and the second and fourth times either such term is used in Section
6.08 of the Uniform Provisions.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the Parties
will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the Business Corporation Act,
(A) the execution of a Certificate of Merger meeting the requirements of
the Business Corporation Act and providing that the Merger will become
effective on the IPO Closing Date and (B) the filing of the Certificate
of Merger with the Secretary of State of the Commonwealth of Kentucky),
(ii) verify the existence and ownership of the certificates evidencing
the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05, and (iii) satisfy the document delivery
requirements to which the obligations of the Parties to effect the
Merger and the other transactions contemplated hereby are conditioned by
the provisions of this Article VII (all those actions collectively being
the "CLOSING"). The Closing will take place at the offices
9
<PAGE>
of Porter & Hedges, L.L.P., 700 Louisiana, Houston, Texas at 10:00 a.m.,
Houston time, or at such later time on the IPO Pricing Date as OEI shall
specify by written notice to either Responsible Officer. The actions
taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing
Date, the Certificate of Merger will become effective pursuant to
Section 2.02, and all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger
Consideration will be closed or completed, as the case may be. During
the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in Sections 7.02(a) and 7.03. The obligations of the Stockholders
with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions:
(i) the Transferors' Agreement and each of the New Employment Agreements
then shall be in full force and effect; (ii) at the special meeting of
the holders of the Company Common Stock to be held pursuant to Section
2.07 of this Agreement, the holders of at least a majority of the
outstanding shares of voting Company Common Stock, and of at least a
majority of the outstanding shares of non-voting Company Common Stock,
shall have approved the Merger and the plan of merger described in this
Agreement; and (iii) all the conditions set forth in Sections 7.02(b)
and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF OEI AND NEWCO. The
obligations of OEI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to OEI a
copy of the articles or certificate of incorporation, as amended to the
date of the Closing and certified by the Secretary of State of the
Commonwealth of Kentucky as of a Current Date, of the Company; (ii) at
the special meeting of the holders of the Company Common Stock to be
held pursuant to Section 2.07 of this Agreement, the holders of at least
a majority of the outstanding shares of voting Company Common Stock, and
of at least a majority of the outstanding shares of non-voting Company
Common Stock, shall have approved the Merger and the plan of merger
described in this Agreement; and (iii) all the conditions set forth in
Sections 7.02(a) and 7.04(a).
(d) CERTAIN CONDITIONS TO BE MET BY IPO CLOSING DATE. The
obligations of OEI and Newco with respect to the actions to be taken on
the IPO Closing Date are subject to the satisfaction on that date of the
following conditions: (i) the Transferors' Agreement and each of the New
Employment Agreements then shall be in full force and effect; and (ii)
all the conditions set forth in Sections 7.02(b) and 7.04(b).
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(e) INCORPORATION OF ARTICLE VII OF UNIFORM PROVISIONS. The text
of Article VII of the Uniform Provisions hereby is incorporated herein
by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each
Party(other than the Company) will comply with each covenant for which provision
is made in Article VIII of the Uniform Provisions (the text of which Article
hereby is incorporated herein by this reference) to be performed or observed by
that Party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference. For purposes of Section 9.07(a), the term "Stockholder Pro Rata
Share" shall be substituted for the term "Pro Rata Share." For purposes of
Section 9.07(b), the Ceiling Amount shall be 91.92% of the amount determined as
the Ceiling Amount for other purposes in this Agreement and the Uniform
Provisions.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder") and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, any business
engaged in the Practice of Engineering in competition with the Company,
any Company Subsidiary or OEI or any Subsidiary of OEI (OEI and its
Subsidiaries collectively being called "OEI" for purposes of this
Article X) within any territory surrounding any office or facility (each
a "facility") in which any of the Company or the Company Subsidiaries
was engaged in business on the date hereof or immediately prior to the
Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
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parish in which the facility is located, and (iv) the area located
within 100 miles of the facility, all of such locations being herein
collectively called the "TERRITORY");
(b) call on any natural Person who is at that time employed by
the Company, any Company Subsidiary or OEI with the purpose or intent of
attracting that person from the employ of the Company, any Company
Subsidiary or OEI, provided that a Stockholder may call on and hire any
of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or OEI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or OEI within the Territory and (ii)
with the knowledge of the customer relationship; or
(d) call on any OEI Acquisition Candidate, with the knowledge of
that Person's status as an OEI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than OEI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 1% of a class of the outstanding Capital Stock of a
competing Entity if that class of Capital Stock is publicly traded.
Section 10.02. DAMAGES. Because of the difficulty of measuring economic
losses to OEI as a result of any breach by a Restricted Stockholder or any other
Stockholder of his covenants in Section 10.01, and because of the immediate and
irreparable damage that could be caused to OEI for which it would have no other
adequate remedy, each Restricted Stockholder (and, in the case of paragraphs (b)
and (d) of Section 10.01, each Stockholder) agrees that OEI may enforce the
provisions of Section 10.01 by injunctions and restraining orders against the
Restricted Stockholder or Stockholder, as the case may be, if he breaches any of
those provisions.
Section 10.03. REASONABLE RESTRAINT. The Parties each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholder or Stockholders, as the case may be, in light of the activities and
business of OEI on the date hereof, the current business plans of OEI and the
investment by each Stockholder in OEI as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in this Article
X are severable and separate. The unenforceability of any specific covenant in
this Article X is not intended by any Party to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction determines that the scope, time or territorial restrictions set
forth in Section 10.01 are unreasonable as applied to any Restricted Stockholder
or Stockholder, as the case may be, the Parties, including the Restricted
Stockholder or Stockholder in question, acknowledge their mutual intention and
agreement that those restrictions be enforced to the fullest extent the court
deems reasonable, and thereby shall be reformed to that extent as applied to
that Restricted
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Stockholder or Stockholder, as the case may be, and any other Restricted
Stockholder or Stockholder, as the case may be, similarly situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each Party to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder or Stockholder against
OEI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by OEI of any covenant in this Article X. It is
specifically agreed that the period specified in Section 10.01 shall be computed
in the case of each Restricted Stockholder and Stockholder by excluding from
that computation any time during which the Restricted Stockholder or Stockholder
is in violation of any provision of Section 10.01. The covenants contained in
this Article X shall not be affected by any breach of any other provision of
this Agreement by any Party.
Section 10.06. MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated by this
Agreement.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each Party will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that Party.
Section 11.02. RESTRICTIONS ON TRANSFERS OF OEI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "RESTRICTED PERIOD"), no Stockholder
voluntarily will: (i) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint or otherwise dispose of (A) any shares of
OEI Common Stock received by any Stockholder in the Merger or (B) any
interest in (including any option to buy or sell) any such shares of OEI
Common Stock, in whole or in part, and OEI will have no obligation to,
and shall not, treat any such attempted transfer as effective for any
purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of OEI Common Stock or any interest therein, the intent or
effect of which is to reduce the risk of owning the shares of OEI Common
Stock acquired pursuant to Section 2.04 (including, for example engaging
in put, call, short-sale, straddle or similar market transactions);
PROVIDED, HOWEVER, that this Section 11.02 shall not restrict any
transfer of OEI Common Stock acquired by a Stockholder pursuant to
Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the OEI Common Stock delivered to
each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set
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forth below and containing such other information as OEI may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE EXPIRATION OF THE
RESTRICTED PERIOD.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of OEI Common Stock to be
delivered to him pursuant to Section 2.04 (A) have not been and, except
pursuant to the Registration Rights Agreement, if applicable, will not
be registered under the Securities Act and therefore may not be resold
by him without compliance with the Securities Act and (B) will, as a
result of their restrictions on transferability which are imposed by
this Agreement during the Restricted Period, have a value materially
less at the Effective Time than the value of then freely tradeable
shares of OEI Common Stock, and (ii) covenants that none of the shares
of OEI Common Stock issued to him pursuant to Section 2.04 will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the
SEC and applicable state securities laws and regulations. All
certificates evidencing shares of OEI Common Stock issued pursuant to
Section 2.04 will bear the following legend in addition to the legend
prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY ONLY BE SOLD OR
OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT ACT
AND OTHER APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing shares of OEI Common Stock issued
to each Stockholder pursuant to Section 2.04 will bear any legend
required by (i) the securities or blue sky laws of the state in which
that Stockholder resides or (ii) the Underwriter in connection with any
agreement of that Stockholder with the Underwriter to the effect set
forth in Section 11.02(a).
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly and
severally represent and warrant to OEI that the Company has not directly or
indirectly employed or become obligated to pay
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any broker or similar agent in connection with the transactions contemplated
hereby and agree, without regard to the Threshold Amount limitations set forth
in Article IX, to indemnify OEI against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its Parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the Parties, the successors
of OEI, and the heirs and legal representatives of the Stockholders (and, in the
case of any trust, the successor trustees of the trust). Neither this Agreement
nor any other Transaction Document is intended, or shall be construed, deemed or
interpreted, to confer on any Person not a party hereto or thereto any rights or
remedies hereunder or thereunder, except as provided in Section 6.05(b) or
11.14, in Article IX, or as otherwise provided expressly herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement and
the documents delivered pursuant to it constitute the entire agreement and
understanding among the Parties and supersede all prior agreements and
understandings, both written and oral, relating to the subject matter of this
Agreement. This Agreement may be amended, modified or supplemented, and any
right hereunder may be waived, if, but only if, the amendment, modification,
supplement or waiver is in writing and signed by the Majority Stockholders, the
Company and OEI. The waiver of any of the terms and conditions of this Agreement
shall not be construed or interpreted as, or deemed to be, a waiver of any of
its other term or conditions.
Section 11.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) OEI will pay the fees, expenses and disbursements of
OEI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments to this Agreement
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by OEI and Newco under this Agreement,
including the costs of preparing the Registration Statement, (b) the Company may
pay any fees, expenses and disbursements of Counsel for the Company and the
Stockholders incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date, up to a
maximum of $40,000 in the aggregate, and (c) the Stockholders will pay from
personal funds, and not from funds of the Company or any Company Subsidiary, (i)
all sales, use, transfer and other similar taxes and fees (collectively,
"TRANSFER TAXES") incurred in connection with the transactions contemplated
hereby, and (ii) the fees, expenses and disbursements in excess of $40,000 in
the aggregate of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date. The undertaking of Stockholders to
pay amounts referred to in clause (c) of the preceding sentence shall not
preclude the Stockholders from recovering a portion of such amounts from Other
Stockholders who agree to pay a portion thereof, but failure of any Other
Stockholder to do so will not affect the
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obligations of the Stockholders to pay such amounts which, as among OEI, the
Company and the Stockholders, shall be absolute. The Stockholders will file all
necessary documentation and Returns with respect to all Transfer Taxes. In
addition, each Stockholder acknowledges that he, and not the Company, OEI or the
Surviving Corporation, will pay all Taxes due upon receipt of the consideration
payable to the Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the Party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Business Day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate Party or
Parties, at the address of such Party set forth below (or at such other address
as such party may designate by written notice to all other Parties in accordance
herewith):
(i) if to OEI or Newco, addressed to it at:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77009
Attn.: Michael L. Burrow,
Chief Executive Officer
Telecopy No.: (713) 880-6300
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 226-1331
(ii) if to the Stockholders, addressed to them at their
respective addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Chemical & Industrial Engineering, Inc.
1930 Bishop Lane, Suite 800
Louisville, Kentucky 40218-1925
Attn: James W. Kerr
Telecopy No.: (502) 451-9574
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with copies (which shall not constitute notice for purposes of
this Agreement) to:
Borowitz & Goldsmith, PLC
1825 Meidinger Tower
Louisville, KY 40202
Attn: Kevin Ryan
Telecopy No.: (502) 584-7386
and to:
Stites & Harbison
400 West Market Street
Louisville, Kentucky 40202
Attn: Alex P. (Mike) Herrington, Jr.
Telecopy No.: (502) 587-6391
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF: PROVIDED, HOWEVER, THAT: (A) ARTICLE X
AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES WILL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
COMMONWEALTH OF KENTUCKY WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE LEGALITY AND EFFECTUATION OF
THE MERGER SHALL BE GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any Party as a result of any breach or default hereunder by
any other Party shall impair any such right, power or remedy, nor shall it be
construed, deemed or interpreted as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be construed, deemed or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the Parties as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
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Section 11.13. REMEDIES CUMULATIVE. Except as otherwise provided in
Section 9.06, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive, but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither OEI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that OEI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to October 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to OEI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
SECTION 11.15. APPOINTMENT OF PROXIES. EACH STOCKHOLDER HEREBY
IRREVOCABLY APPOINTS, CONSTITUTES AND NOMINATES EACH OF MICHAEL L. BURROW AND
GARY J. COURY AND EACH OF THEM ACTING SEPARATELY, THE TRUE AND LAWFUL ATTORNEY
AND PROXY FOR THE STOCKHOLDER, WITH FULL POWER OF SUBSTITUTION, IN THE NAME,
PLACE AND STEAD OF THE STOCKHOLDER, TO VOTE, AT THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD PURSUANT TO SECTION 2.07 OF THIS AGREEMENT, AND ANY
ADJOURNMENT OR POSTPONEMENT OF SUCH SPECIAL MEETING, ALL SHARES OF COMPANY
COMMON STOCK WHICH ARE REGISTERED IN THE NAME OF THE STOCKHOLDER ON THE STOCK
TRANSFER RECORDS OF THE COMPANY, IN FAVOR OF THE MERGER AND THE PLAN OF MERGER
DESCRIBED IN THIS AGREEMENT. EACH STOCKHOLDER IS GRANTING THE PROXY AND THE
POWERS AND AUTHORITIES GRANTED IN THIS SECTION 11.15 IN CONSIDERATION OF OEI'S
AND NEWCO'S EXECUTION OF THIS AGREEMENT AND THEIR AGREEMENT TO CONSUMMATE THE
MERGER AND PAY THE MERGER CONSIDERATION, AND IN CONSIDERATION OF EACH OTHER
STOCKHOLDERS' EXECUTION OF THIS AGREEMENT. EACH STOCKHOLDER ACKNOWLEDGES AND
AGREES THAT THE PROXY GRANTED BY THE STOCKHOLDER UNDER THIS SECTION 11.15 IS
IRREVOCABLE AND IS COUPLED WITH AN INTEREST IN THAT (I) OEI AND NEWCO ARE
UNWILLING TO EXECUTE AND DELIVER THIS AGREEMENT UNLESS EACH STOCKHOLDER GRANTS
THE PROXY, (II) THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY AND WILL
BENEFIT BOTH THE COMPANY AND ALL STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW,
AND (III) ALL OF THE OTHER STOCKHOLDERS WISH TO BE ASSURED THAT THE MERGER WILL
BE APPROVED. ALL PREVIOUS PROXIES TO VOTE SHARES OF COMPANY COMMON STOCK OWNED
BY A STOCKHOLDER ARE HEREBY REVOKED BY THAT STOCKHOLDER.
Section 11.16. BY-LAW AMENDMENT. Prior to the date hereof, the bylaws of
the Company have been amended, and the Company has delivered a true and correct
copy of such amendment to OEI. By execution and delivery of this Agreement, each
of the Stockholders (i) ratifies, approves
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and consents to the amendment to the bylaws contemplated by this Section 11.16
and (ii) agrees that he or she has no right to require the redemption of any of
the shares of Company Common Stock owned by such Stockholder pursuant to the
bylaws of the Company (as they now exist or as they heretofore existed).
Section 11.17. WAIVER OF RIGHT OF REDEMPTION. Each of the Stockholders
is a party to a Stock Subscription Agreement between such Stockholder and the
Company pursuant to which, INTER ALIA, the Company has agreed to redeem such
Stockholder's shares of Company Common Stock upon the occurrence of certain
events enumerated therein. True and correct copies of all such Stock
Subscription Agreement have been provided to OEI. The Company and each
Stockholder agree that:
(a) at the Effective Time, the Stock Subscription Agreement
between the Company and such Stockholder shall be terminated without any
further action on the part of any party thereto;
(b) the execution and delivery of this Agreement by the Company
and the Stockholders shall not be affected by, or constitute a breach of
or default under, such Stock Subscription Agreement;
(c) if an Event of Termination (as such term is defined in such
Stock Subscription Agreement) occurs at any time after the date hereof
and prior to the Effective Time, the right and obligation of such
Stockholder to be redeemed, and the right and obligation of the Company
to redeem such Stockholder, pursuant to such Stock Subscription
Agreement or pursuant to any other agreement or understanding, shall be
tolled as of the date of this Agreement, and shall not begin to run,
unless and until such right and obligation shall be reinstated as
provided in Section 11.17 (e);
(d) so long as the rights and obligations of the Company and such
Stockholder are tolled pursuant to Section 11.17(c), neither party to
such Stock Subscription Agreement may exercise any right or option such
party would otherwise have but for the provisions of this Section 11.17;
and
(e) if this Agreement is terminated pursuant to Article XII, then
(i) as of the close of business on the date this Agreement is so
terminated, the provisions of this Section 11.17 shall terminate and the
rights and obligations of the Company and such Stockholder with respect
to the redemption of such Stockholder's shares of Company Common Stock
shall be reinstated or shall commence, as the case may be, ten days
following such termination, and (ii) promptly thereafter, the Company
shall notify each of the Stockholders that the provisions of this
Section 11.17 have terminated.
Section 11.18. CERTAIN EMPLOYEE BENEFITS. During the three fiscal years
commencing January 1, 1998, employee benefit policies applicable to employees of
the Company will include, at a minimum, (i) the accrual of a discretionary bonus
pool for the Company's employees consisting of and payable from fifteen percent
of the Company's income before interest, income taxes and
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allocations of indirect corporate overhead expense (but not expenses directly
attributable to the Company or its operations, such as charges for insurance) of
OEI, contingent on the Company achieving a minimum income before interest,
income taxes, allocation of indirect corporate overhead expense (but not
expenses directly attributable to the Company or its operations, such as charges
for insurance) of OEI and bonuses payable, of 6% of revenues (which does not
include reimbursable costs of materials and equipment to the extent described
under the caption "Revenue Recognition" in Note 1 to the Initial Financial
Statements), and (ii) 50% matching by the Company of the first 6% of employee
compensation contributed by employees to the Company's 401(k) plan, contingent
on the net income of the Company being greater than zero for the immediately
preceding month and year to date. Bonuses will be paid pursuant to the Company's
Discretionary Bonus Plan (Personnel Policy No. IV-7) as it may be modified from
time to time. Equivalent bonus and 401(k) plans that satisfy the minimum
requirements of (i) and (ii) above will be permitted substitutes.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of OEI and the
Company;
(ii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by October 31, 1998, unless the failure
of such transactions to be consummated results from the willful
failure of the Party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be
performed or adhered to by that Party prior to or at the Closing
or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the
one hand, or by OEI, on the other hand, if a material breach or
default shall be made by the other Party (or in the case of the
Stockholders and the Company, any of them) in the observance or
in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by OEI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by OEI or the Company if the Underwriting Agreement
is terminated pursuant to its terms after the Closing and prior
to the consummation of the IPO; or
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(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 Business
Days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the Commonwealth of Kentucky, but before the
IPO has been consummated, OEI will take all actions that Counsel for the
Company and the Stockholders advises OEI are required by the applicable
laws of the Commonwealth of Kentucky to rescind the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any Party except (a) as provided in Section 11.07, (b) to the
extent that such liability is based on the breach of that Party of any of its or
his representations, warranties or covenants set forth in of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
OEI INTERNATIONAL, INC.
By:/s/Michael L. Burrow
Michael L. Burrow, Chief Executive Officer
C&I ACQUISITION, INC.
By:/s/Michael L. Burrow
Michael L. Burrow, President
CHEMICAL & INDUSTRIAL ENGINEERING, INC.
By:/s/James W. Kerr
James W. Kerr, President
STOCKHOLDERS:
/s/ Esteban B. Achico
Esteban B. Achico
21
<PAGE>
/s/C. Thomas Ash
C. Thomas Ash
/s/Kenneth L. Becker
Kenneth L. Becker
/s/Ashoke K. Chakravorty
Ashoke K. Chakravorty
/s/Michael Gregg Fowler
Michael Gregg Fowler
/s/Thomas M. Gerstle
Thomas M. Gerstle
/s/Jamie Ghazi
Jamie Ghazi
/s/William L. Griffin
William L. Griffin
/s/William S. Haberman
William S. Haberman
/s/Shirley A. Hartley
Shirley A. Hartley
/s/Carolyn S. Hartstern
Carolyn S. Hartstern
/s/Stephen C. Hartstern
Stephen C. Hartstern
22
<PAGE>
/s/Ronald L. Hoyland
Ronald L. Hoyland
/s/James W. Kerr
James W. Kerr
/s/Joy G. Kerr
Joy G. Kerr
/s/Michael W. Lambert
Michael W. Lambert
/s/John P. Liello
John P. Liello
/s/James P. Marks, Jr.
James P. Marks, Jr.
/s/Kenneth A. Marks
Kenneth A. Marks
/s/C. Scott Middleton
C. Scott Middleton
/s/Gary L. Pullen
Gary L. Pullen
/s/Sharon M. Raque
Sharon M. Raque
/s/Rodger E. Tyree
Rodger E. Tyree
23
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
(2) The Founding Companies are:
Chemical & Industrial Engineering, Inc.
Gulsby Engineering, Inc.
Paulus, Sokolowski and Sartor, Inc.
Petrocon Engineering, Inc.
W-Industries, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
(2) The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
James W. Kerr
Gary J. Coury
Rick Berry
(3) The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President James W. Kerr
Vice President Jamie Ghazi
Vice President Gary J. Coury
Vice President Rick Berry
Vice President, Secretary
and Treasurer Stephen C. Hartstern
Assistant Secretary Shirley A. Hartley
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
(2) The name and address of each Stockholder are as follows:
NAME ADDRESS
---- -------
Stockholders:
Esteban B. Achico 811 Exmoor Avenue, Louisville, Kentucky 40223
C. Thomas Ash 16808 Aiken Road, Louisville, Kentucky 40245
Kenneth L. Becker 2924 Beaumont Road, Louisville, Kentucky 40205
Ashoke K. Chakravorty 8707 Wooded Glen Road, Louisville, Kentucky 40220
Michael Gregg Fowler 401 Hidden Oak Way, Louisville, Kentucky 40222
Thomas M. Gerstle 8300 Easton Lane, Louisville, Kentucky 40242
Jamie Ghazi 5507 Timber Ridge Drive, Prospect, Kentucky 40059
William L. Griffin 308 Central Avenue, Pewee Valley, Kentucky 40056
William S. Haberman 3101 Pomeroy Drive, Louisville, Kentucky 40220
Shirley A. Hartley 12204 Crosswinds Drive, Louisville, Kentucky 40243
Stephen C. and Carolyn S.
Hartstern 3208 Cabinwood Drive, Louisville, Kentucky 40220
Ronald L. Hoyland 12 Cypress Drive, Jeffersonville, Indiana 47130
James W. and Joy G. Kerr 2405 Running Brook Trail, Fisherville, Kentucky 40023
Michael W. Lambert 814 Skylark Drive, Louisville, Kentucky 40223
John P. Liello 1224 Holsworth Lane, Louisville, Kentucky 40222
James P. Marks, Jr. 1301 Fisherville Road, Fisherville, Kentucky 40023
Kenneth A. Marks 1700 Echo Trail, Louisville, Kentucky 40245
C. Scott Middleton 3709 Utica Pike, Jeffersonville, Indiana 47130
Gary L. Pullen 9613 Chapel Hill Road, Louisville, Kentucky 40229
Sharon M. Raque 907 Lodge Hill Road, Louisville, Kentucky 40223
Rodger E. Tyree 32 Narwood Drive, Jeffersontown, Kentucky 40299
(3) The aggregate Merger Consideration shall be comprised of (i)
$2,879,981 cash minus the amount paid or payable by the Company to redeem shares
of Company Common Stock which
<PAGE>
are redeemed after the date hereof from Other Stockholders as more fully
described in paragraph (4) of Schedule 6.04 (the "Cash Consideration") and (ii)
559,995 shares (the "Merger Shares") of OEI Common Stock.
(4) Each Other Stockholder will receive an amount of cash equal to the
product obtained by multiplying (i) the Pro Rata Share of such Other Stockholder
times (ii) the sum of (a) the Cash Consideration plus (b) the product obtained
by multiplying the Merger Shares times the IPO Price. Other Stockholders will
not receive any of the Merger Shares.
(5) Each Stockholder will receive his Stockholder Pro Rata Share of the
Cash Consideration remaining after payment of the cash to be paid to the Other
Stockholders pursuant to the preceding paragraph and his Stockholder Pro Rata
Share of the Merger Shares.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
(2) Each Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a) except for the following:
NAME
----------------------------------------
Kenneth L. Becker
Ashoke K. Chakravorty
Michael Gregg Fowler
Thomas M. Gerstle
Shirley A. Hartley
Michael W. Lambert
John P. Liello
Kenneth A. Marks
C. Scott Middleton
Gary L. Pullen
Sharon M. Raque
Rodger E. Tyree
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
(2) The following table sets forth the ownership of the Company's
Capital Stock:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VOTING NON-VOTING TOTAL
NAME CLASS SHARES SHARES SHARES
- --------------------------------- ------------- --------------- ------------- ---------------
STOCKHOLDERS:
Esteban B. Achico Common 1,000 607 1,607
C. Thomas Ash Common 1,500 2,836 4,336
Kenneth L. Becker Common 593 0 593
Ashoke K. Chakravorty Common 787 0 787
Michael Gregg Fowler Common 686 0 686
Thomas M. Gerstle Common 1,000 500 1,500
Jamie Ghazi Common 1,500 2,916 4,416
William L. Griffin Common 1,500 13 1,513
William S. Haberman Common 1,500 1,214 2,714
Shirley A. Hartley Common 500 26 526
Carolyn S. Hartstern Common 0 125 125
Stephen C. Hartstern Common 1,500 1,788 3,288
Ronald L. Hoyland Common 1,500 383 1,883
James W. Kerr Common 1,500 1,331 2,831
Joy G. Kerr Common 510 0 510
Michael W. Lambert Common 1,341 0 1,341
John P. Liello Common 1,000 325 1,325
James P. Marks, Jr. Common 1,000 1,174 2,174
<PAGE>
VOTING NON-VOTING TOTAL
NAME CLASS SHARES SHARES SHARES
- --------------------------------- ------------- --------------- ------------- ---------------
Kenneth A. Marks Common 578 0 578
C. Scott Middleton Common 1,500 124 1,624
Gary L. Pullen Common 954 0 954
Sharon M. Raque Common 695 0 695
Rodger E. Tyree Common 691 0 691
- --------------------------------- ---------------- -------------- ------------- ---------------
STOCKHOLDERS SUBTOTAL: 23,335 13,362 36,697
- --------------------------------- ---------------- -------------- ------------- ---------------
OTHER STOCKHOLDERS:
Ken Calebs Common 0 17 17
Derrick Calvin Common 216 0 216
Dana Chidester Common 16 0 16
Arthur Craker Common 49 0 49
Steve Defler Common 18 0 18
David Derryberry Common 66 0 66
Teressa Dillon Common 4 0 4
Leroy Engelmeyer Common 26 0 26
Cindy Erickson Common 27 0 27
Fernando Esparza Common 18 0 18
Sue Farrington Common 344 0 344
Ralph Fiesta Common 26 0 26
Gene Gower Common 13 0 13
Judy Gunn Common 130 0 130
Karen Hayes Common 1 0 1
Rich Heite Common 41 0 41
Karen Hood Common 4 0 4
Marty Huffman Common 366 0 366
Brian Jones Common 8 0 8
Maggie Kassebaum Common 20 0 20
Judy LeClaire Common 24 0 24
Patricia Lyons Common 37 0 37
Robert MacConnie Common 20 0 20
Darryl McCroskey Common 79 0 79
David Mann Common 100 0 100
<PAGE>
VOTING NON-VOTING TOTAL
NAME CLASS SHARES SHARES SHARES
- --------------------------------- ------------- --------------- ------------- ---------------
Patricia Mason Common 13 0 13
Robert Maurer Common 189 0 189
Doris Miles Common 0 5 5
Marsha Miller Common 1 0 1
Charles O'Bryan Common 68 0 68
Hoss Oshrieh Common 154 0 154
Himansu Pal Common 20 0 20
Lavon Riegel Common 78 0 78
Ron Rountree Common 215 0 215
Harriet Schalk Common 112 0 112
Brian Shelley Common 1 0 1
Bridget Shewman Common 1 0 1
Mike Singh Common 39 0 39
Mike Spear Common 105 0 105
Gary Thompson Common 5 0 5
Robert Tylicki Common 142 0 142
Dave Vahlsing Common 192 0 192
Becky Wilson Common 186 0 186
Deanne Wise Common 21 0 21
Kathy Wittry Common 5 0 5
David Woods Common 5 0 5
- --------------------------------- ------------- ----------------- ------------- ---------------
OTHER STOCKHOLDERS SUBTOTAL 3,205 22 3,227
================================= ============= ================= ============= ===============
GRAND TOTAL 26,540 13,384 39,924
================================= ============= ================= ============= ===============
</TABLE>
(3) No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
(2) The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $10,000:
None
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
(2) The following Related Party Agreements will be permitted to continue
in effect past the date of the Closing in accordance with their terms, subject
to the following provisions of this Schedule:
The New Employment Agreements
<PAGE>
SCHEDULE 6.03
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.03 are used
herein as therein defined.
(2) The Company may deviate from the restrictions in Section 6.03 with
the consent in writing of OEI (which consent shall not be unreasonably
withheld).
(3) The Company shall not be required to comply with obligations under
debt and lease instruments and other agreements relating to or affecting its
assets, properties or rights unless such obligations are material.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
(2) The Company may adjust, in the ordinary course of business, present
salaries of employees who are not officers and directors.
(3) The Company may pay normal merit bonuses to employees in amounts
consistent with the Company's past practices, policies and agreements.
(4) To the extent the Company is obligated to do so pursuant to
contractual obligations between the Company and any Other Stockholder in
existence on the date hereof and accurately disclosed to OEI prior to the date
hereof, the Company may redeem shares of the Common Stock from Other
Stockholders.
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
(2) The Company will make all arrangements and take all such actions as
are necessary and satisfactory to OEI to dispose, prior to the Effective Time,
of the following assets in the manner indicated below:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
(2) At or within 10 days following the Effective Time, OEI will cause
the following Stockholder and Other Stockholder Guarantees to be terminated:
None
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of April 10, 1998
among
OEI International, Inc.
C&I Acquisition, Inc.
Chemical & Industrial Engineering, Inc.
and
the Stockholders Named Therein
(1) Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
(2) Each of the Stockholders identified below is a Restricted
Stockholder and subject to all the restrictions set forth in Section 10.01 of
the captioned Agreement:
C. Thomas Ash
William S. Haberman
Stephen C. Hartstern
James P. Marks, Jr.
EXHIBIT 10.1
OEI INTERNATIONAL, INC.
1998 INCENTIVE PLAN
(AS EFFECTIVE APRIL 8, 1998)
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE,
COVERAGE AND BENEFITS......................................1
1.1 Purpose....................................................1
1.2 Definitions................................................2
(a) Appreciation........................................2
(b) Authorized Officer..................................2
(c) Board...............................................2
(d) Cause...............................................2
(e) Change in Control...................................2
(f) Code................................................2
(g) Committee...........................................3
(h) Common Stock........................................3
(i) Company.............................................3
(j) Consultant..........................................3
(k) Covered Employee....................................3
(l) Deferred Stock......................................4
(m) Disability..........................................4
(n) Employee............................................4
(o) Employment..........................................4
(p) Exchange Act........................................5
(q) Fair Market Value...................................5
(r) Grantee.............................................5
(s) Incentive Award.....................................5
(t) Incentive Agreement.................................5
(u) Incentive Stock Option..............................6
(v) Independent SAR.....................................6
(w) Insider.............................................6
(x) Nonstatutory Stock Option...........................6
(y) Option Price........................................6
(z) Other Stock-Based Award.............................6
(aa) Outside Director....................................6
(bb) Parent..............................................6
(cc) Performance-Based Exception.........................6
(dd) Performance Period..................................6
(ee) Performance Share or Performance Unit...............6
(ff) Plan................................................7
i
<PAGE>
(gg) Publicly Held Corporation...........................7
(hh) Restricted Stock....................................7
(ii) Restricted Stock Award..............................7
(jj) Restriction Period..................................7
(kk) Retirement..........................................7
(ll) Share...............................................7
(mm) Share Pool..........................................7
(nn) Spread..............................................7
(oo) Stock Appreciation Right or SAR.....................7
(pp) Stock Option or Option..............................7
(qq) Subsidiary..........................................8
(rr) Supplemental Payment................................8
(ss) Tandem SAR..........................................8
1.3 Plan Administration........................................8
(a) Authority of the Committee..........................8
(b) Meetings............................................8
(c) Decisions Binding...................................8
(d) Modification of Outstanding Incentive Awards........9
(e) Delegation of Authority.............................9
(f) Expenses of Committee...............................9
(g) Surrender of Previous Incentive Awards..............9
(h) Indemnification....................................10
1.4 Shares of Common Stock Available for Incentive Awards.....10
1.5 Share Pool Adjustments for Awards and Payouts.............11
1.6 Common Stock Available. .................................12
1.7 Participation.............................................12
(a) Eligibility........................................12
(b) Incentive Stock Option Eligibility.................12
1.8 Types of Incentive Awards.................................13
SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS...............13
2.1 Grant of Stock Options....................................13
2.2 Stock Option Terms........................................13
(a) Written Agreement..................................13
(b) Number of Shares...................................14
(c) Exercise Price.....................................14
(d) Term...............................................14
(e) Exercise...........................................14
(f) $100,000 Annual Limit on Incentive Stock Options...14
2.3 Stock Option Exercises....................................15
ii
<PAGE>
(a) Method of Exercise and Payment.....................15
(b) Restrictions on Share Transferability..............16
(c) Notification of Disqualifying Disposition of
Shares from Incentive Stock Options................16
(d) Proceeds of Option Exercise........................16
2.4 Stock Appreciation Rights in Tandem with
Nonstatutory Stock Options................................17
(a) Grant..............................................17
(b) General Provisions.................................17
(c) Exercise...........................................17
(d) Settlement.........................................17
2.5 Stock Appreciation Rights Independent of Nonstatutory
Stock Options.............................................17
(a) Grant..............................................17
(b) General Provisions.................................18
(c) Exercise...........................................18
(d) Settlement.........................................18
2.6 Reload Options............................................18
2.7 Supplemental Payment on Exercise of Nonstatutory Stock
Options or Stock Appreciation Rights......................18
SECTION 3. RESTRICTED STOCK..........................................19
3.1 Award of Restricted Stock.................................19
(a) Grant..............................................19
(b) Immediate Transfer Without Immediate Delivery of
Restricted Stock...................................19
3.2 Restrictions..............................................20
(a) Forfeiture of Restricted Stock.....................20
(b) Issuance of Certificates...........................20
(c) Removal of Restrictions............................21
3.3 Delivery of Shares of Common Stock........................21
3.4 Supplemental Payment on Vesting of Restricted Stock.......21
SECTION 4. PERFORMANCE UNITS AND PERFORMANCE SHARES..................22
4.1 Performance Based Awards..................................22
(a) Grant..............................................22
(b) Performance Criteria...............................22
(c) Modification.......................................22
(d) Payment............................................22
(e) Special Rule for Covered Employees.................23
iii
<PAGE>
4.2 Supplemental Payment on Vesting of Performance
Units or Performance Shares...............................23
SECTION 5. OTHER STOCK-BASED AWARDS..................................23
5.1 Grant of Other Stock-Based Awards.........................23
5.2 Other Stock-Based Award Terms.............................24
(a) Written Agreement..................................24
(b) Purchase Price.....................................24
(c) Performance Criteria and Other Terms...............24
(d) Payment............................................24
(e) Dividends..........................................24
SECTION 6. PROVISIONS RELATING TO PLAN PARTICIPATION.................25
6.1 Plan Conditions...........................................25
(a) Incentive Agreement................................25
(b) No Right to Employment.............................25
(c) Securities Requirements............................25
6.2 Transferability...........................................26
(a) Non-Transferable Awards and Options................26
(b) Ability to Exercise Rights.........................26
6.3 Rights as a Stockholder...................................27
(a) No Stockholder Rights..............................27
(b) Representation of Ownership........................27
6.4 Listing and Registration of Shares of Common Stock........27
6.5 Change in Stock and Adjustments...........................27
(a) Changes in Law or Circumstances....................27
(b) Exercise of Corporate Powers.......................28
(c) Recapitalization of the Company....................28
(d) Reorganization of the Company......................28
(e) Issue of Common Stock by the Company...............29
(f) Acquisition of the Company.........................29
(g) Assumption of Outstanding Incentive Awards
under the Plan..................................29
(h) Assumption of Incentive Awards by a Successor......30
6.6 Termination of Employment, Death, Disability
and Retirement..................................31
(a) Termination of Employment..........................31
(b) Termination of Employment for Cause................31
(c) Retirement.........................................31
(d) Disability or Death................................31
(e) Continuation.......................................32
6.7 Change in Control.........................................32
iv
<PAGE>
6.8 Exchange of Incentive Awards..............................34
6.9 Financing.................................................35
SECTION 7. GENERAL...................................................35
7.1 Effective Date and Grant Period...........................35
7.2 Funding and Liability of Company..........................35
7.3 Withholding Taxes.........................................36
(a) Tax Withholding....................................36
(b) Share Withholding..................................36
(c) Incentive Stock Options............................36
(d) Loans..............................................36
7.4 No Guarantee of Tax Consequences..........................36
7.5 Designation of Beneficiary by Participant.................37
7.6 Deferrals.................................................37
7.7 Amendment and Termination.................................38
7.8 Requirements of Law.......................................38
7.9 Rule 16b-3 Securities Law Compliance......................38
7.10 Compliance with Code Section 162(m).......................39
7.11 Successors................................................39
7.12 Miscellaneous Provisions..................................39
7.13 Severability..............................................40
7.14 Gender, Tense and Headings................................40
7.15 Governing Law.............................................40
v
<PAGE>
OEI INTERNATIONAL, INC.
1998 INCENTIVE PLAN
SECTION 1.
GENERAL PROVISIONS RELATING TO
PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1 PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of OEI International, Inc. (the "Company") and its Subsidiaries and to
increase stockholder value by: (a) encouraging the commitment of selected key
Employees, Consultants and Outside Directors, (b) motivating superior
performance of key Employees, Consultants and Outside Directors by means of
long-term performance related incentives, (c) encouraging and providing key
Employees, Consultants and Outside Directors with a program for obtaining
ownership interests in the Company which link and align their personal interests
to those of the Company's stockholders, (d) attracting and retaining key
Employees, Consultants and Outside Directors by providing competitive incentive
compensation opportunities, and (e) enabling key Employees, Consultants and
Outside Directors to share in the long-term growth and success of the Company.
The Plan provides for payment of various forms of incentive compensation
and it is not intended to be a plan that is subject to the Employee Retirement
Income Security Act of 1974, as amended (ERISA). The Plan shall be interpreted,
construed and administered consistent with its status as a plan that is not
subject to ERISA.
Subject to approval by the Company's stockholders pursuant to SECTION
7.1, the Plan shall become effective as of April 8, 1998 (the "EFFECTIVE DATE").
The Plan shall commence on the Effective Date, and shall remain in effect,
subject to the right of the Board to amend or terminate the Plan at any time
pursuant to SECTION 7.7, until all Shares subject to the Plan have been
purchased or acquired according to its provisions. However, in no event may an
Incentive Award be granted under the Plan after the expiration of ten (10) years
from the Effective Date. Any Incentive Award granted prior to the Effective Date
shall be subject to the subsequent receipt of stockholder approval of the Plan
pursuant to SECTION 7.1.
Unexercised and outstanding stock options that were previously granted
by companies that were acquired by, consolidated with, or merged into the
Company may be assumed and continued under this Plan, or such options may be
canceled and substitute options may be granted under this
1
<PAGE>
Plan, in accordance with the terms and conditions of the Plan and the substitute
Incentive Agreement.
1.2 DEFINITIONS
The following terms shall have the meanings set forth below:
(a) APPRECIATION. The difference between the option exercise
price per share of the Nonstatutory Stock Option to which a Tandem SAR
relates and the Fair Market Value of a share of Common Stock on the date
of exercise of the Tandem SAR.
(b) AUTHORIZED OFFICER. The Chairman of the Board or the Chief
Executive Officer of the Company or any other senior officer of the
Company to whom either of them delegate the authority to execute any
Incentive Agreement for and on behalf of the Company. No officer or
director shall be an Authorized Officer with respect to any Incentive
Agreement for himself.
(c) BOARD. The Board of Directors of the Company.
(d) CAUSE. When used in connection with the termination of a
Grantee's Employment, shall mean the termination of the Grantee's
Employment by the Company by reason of (i) the conviction of the Grantee
by a court of competent jurisdiction as to which no further appeal can
be taken of a crime involving moral turpitude or a felony; (ii) the
proven commission by the Grantee of an act of fraud upon the Company;
(iii) the willful and proven misappropriation of any funds or property
of the Company by the Grantee; (iv) the willful, continued and
unreasonable failure by the Grantee to perform the material duties
assigned to him; (v) the knowing engagement by the Grantee in any
direct, material conflict of interest with the Company without
compliance with the Company's conflict of interest policy, if any, then
in effect; or (vi) the knowing engagement by the Grantee, without the
written approval of the Board, in any activity which competes with the
business of the Company or which would result in a material injury to
the business, reputation or goodwill of the Company.
(e) CHANGE IN CONTROL. Any of the events described in and subject
to SECTION 6.7.
(f) CODE. The Internal Revenue Code of 1986, as amended, and the
regulations and other authority promulgated thereunder by the
appropriate governmental authority. References herein to any provision
of the Code shall refer to any successor provision thereto.
A:\165889.7
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(g) COMMITTEE. A committee appointed by the Board consisting of
not less than two directors as appointed by the Board to administer the
Plan. However, if the Company is a Publicly Held Corporation, the Plan
shall be administered by a committee appointed by the Board consisting
of not less than two directors who fulfill the "non-employee director"
requirements of Rule 16b-3 under the Exchange Act and the "outside
director" requirements of Section 162(m) of the Code. In either case,
the Committee may be the Compensation Committee of the Board, or any
subcommittee of the Compensation Committee, provided that the members of
the Committee satisfy the requirements of the previous provisions of
this paragraph. The Board shall have the power to fill vacancies on the
Committee arising by resignation, death, removal or otherwise. The
Board, in its sole discretion, may bifurcate the powers and duties of
the Committee among one or more separate committees, or retain all
powers and duties of the Committee in a single Committee. The members of
the Committee shall serve at the discretion of the Board.
Notwithstanding the preceding paragraph, the term "Committee" as
used in the Plan with respect to any Incentive Award for an Outside
Director shall refer to the Board. In the case of an Incentive Award for
an Outside Director, the Board shall have all the powers and
responsibilities of the Committee hereunder as to such Incentive Award,
and any actions as to such Incentive Award may be acted upon only by the
Board (unless it otherwise designates in its discretion). When the Board
exercises its authority to act in the capacity as the Committee
hereunder with respect to an Incentive Award for an Outside Director, it
shall so designate with respect to any action that it undertakes in its
capacity as the Committee.
(h) COMMON STOCK. The common stock of the Company, $.001 par
value per share, and any class of common stock into which such common
shares may hereafter be converted, reclassified or recapitalized.
(i) COMPANY. OEI International, Inc., a corporation organized
under the laws of the State of Delaware, and any successor in interest
thereto.
(j) CONSULTANT. An independent agent, consultant, attorney, an
individual who has agreed to become an Employee, or any other individual
who is not an Outside Director or employee of the Company (or any Parent
or Subsidiary) and who, in the opinion of the Committee, is in a
position to contribute materially to the growth or financial success of
the Company (or any Parent or Subsidiary).
(k) COVERED EMPLOYEE. Only if the Company is a Publicly Held
Corporation, a named executive officer who is one of the group of
covered employees as defined in Section 162(m) of the Code and Treasury
Regulation ss. 1.162-27(c) (or its successor).
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(l) DEFERRED STOCK. Shares of Common Stock to be issued or
transferred to a Grantee under an Other Stock-Based Award granted
pursuant to SECTION 5 at the end of a specified deferral period, as set
forth in the Incentive Agreement pertaining thereto.
(m) DISABILITY. As determined by the Committee in its discretion
exercised in good faith, a physical or mental condition of the Employee
that would entitle him to payment of disability income payments under
the Company's long term disability insurance policy or plan for
employees, as then effective, if any; or in the event that the Grantee
is not covered, for whatever reason, under the Company's long-term
disability insurance policy or plan, "Disability" means a permanent and
total disability as defined in Section 22(e)(3) of the Code. A
determination of Disability may be made by a physician selected or
approved by the Committee and, in this respect, the Grantee shall submit
to an examination by such physician upon request.
(n) EMPLOYEE. Any employee of the Company (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code who, in
the opinion of the Committee, is one of a select group of executive
officers, other officers, or other key personnel of the Company (or any
Parent or Subsidiary), who is in a position to contribute materially to
the growth and development and to the financial success of the Company
(or any Parent or Subsidiary), including, without limitation, officers
who are members of the Board.
(o) EMPLOYMENT. Employment by the Company (or any Parent or
Subsidiary), or by any corporation issuing or assuming an Incentive
Award in any transaction described in Section 424(a) of the Code, or by
a parent corporation or a subsidiary corporation of such corporation
issuing or assuming such Incentive Award, as the parent-subsidiary
relationship shall be determined at the time of the corporate action
described in Section 424(a) of the Code. In this regard, neither the
transfer of a Grantee from Employment by the Company to Employment by
any Parent or Subsidiary, nor the transfer of a Grantee from Employment
by any Parent or Subsidiary to Employment by the Company, shall be
deemed to be a termination of Employment of the Grantee. Moreover, the
Employment of a Grantee shall not be deemed to have been terminated
because of an approved leave of absence from active Employment on
account of temporary illness, authorized vacation or granted for reasons
of professional advancement, education, health, or government service,
or during military leave for any period (if the Grantee returns to
active Employment within 90 days after the termination of military
leave), or during any period required to be treated as a leave of
absence by virtue of any applicable statute, Company personnel policy or
agreement. Whether an authorized leave of absence shall constitute
termination of Employment hereunder shall be determined by the Committee
in its discretion.
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Unless otherwise provided in the Incentive Agreement, the term
"Employment" for purposes of the Plan will also include compensatory
services performed by a Consultant for the Company (or any Parent or
Subsidiary) as well as membership on the Board by an Outside Director.
(p) EXCHANGE ACT. The Securities Exchange Act of 1934, as
amended.
(q) FAIR MARKET VALUE. If the Company is not a Publicly Held
Corporation at the time a determination of the Fair Market Value of the
Common Stock is required to be made hereunder, the determination of Fair
Market Value for purposes of the Plan shall be made by the Committee in
its discretion exercised in good faith. In this respect, the Committee
may rely on such financial data, valuations or experts as it deems
advisable under the circumstances.
If the Company is a Publicly Held Corporation, the Fair Market
Value of one share of Common Stock on the date in question is deemed to
be (i) the closing sales price on the immediately preceding business day
of a share of Common Stock as reported on the principal securities
exchange on which Shares are then listed or admitted to trading, or (ii)
if not so reported, the average of the closing bid and asked prices for
a Share on the immediately preceding business day as quoted on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), or (iii) if not quoted on NASDAQ, the average of the closing
bid and asked prices for a Share as quoted by the National Quotation
Bureau's "Pink Sheets" or the National Association of Securities
Dealers' OTC Bulletin Board System. If there was no public trade of
Common Stock on the date in question, Fair Market Value shall be
determined by reference to the last preceding date on which such a trade
was so reported.
(r) GRANTEE. Any Employee, Consultant or Outside Director who is
granted an Incentive Award under the Plan.
(s) INCENTIVE AWARD. A grant of an award under the Plan to a
Grantee, including any Nonstatutory Stock Option, Incentive Stock
Option, Reload Option, Stock Appreciation Right, Restricted Stock Award,
Performance Unit, Performance Share, or Other Stock-Based Award, as well
as any Supplemental Payment.
(t) INCENTIVE AGREEMENT. The written agreement entered into
between the Company and the Grantee setting forth the terms and
conditions pursuant to which an Incentive Award is granted under the
Plan, as such agreement is further defined in SECTION 6.1(A).
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(u) INCENTIVE STOCK OPTION. A Stock Option granted by the
Committee to an Employee under SECTION 2 which is designated by the
Committee as an Incentive Stock Option and intended to qualify as an
Incentive Stock Option under Section 422 of the Code.
(v) INDEPENDENT SAR. A Stock Appreciation Right described in
SECTION 2.5.
(w) INSIDER. To the extent that the Company is a Publicly Held
Corporation, an individual who is, on the relevant date, an officer,
director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
(x) NONSTATUTORY STOCK OPTION. A Stock Option granted by the
Committee to a Grantee under SECTION 2 which is not designated by the
Committee as an Incentive Stock Option.
(y) OPTION PRICE. The exercise price at which a Share may be
purchased by the Grantee of a Stock Option.
(z) OTHER STOCK-BASED AWARD. An award granted by the Committee to
a Grantee under SECTION 5.1 that is valued in whole or in part by
reference to, or is otherwise based upon, Common Stock.
(aa) OUTSIDE DIRECTOR. A member of the Board who is not, at the
time of grant of an Incentive Award, an employee of the Company or any
Parent or Subsidiary.
(bb) PARENT. Any corporation (whether now or hereafter existing)
which constitutes a "parent" of the Company, as defined in Section
424(e) of the Code.
(cc) PERFORMANCE-BASED EXCEPTION. To the extent that the Company
is a Publicly Held Corporation, the performance-based exception from the
tax deductibility limitations of Section 162(m) of the Code, as
prescribed in Code ss. 162(m) and Treasury Regulation ss. 1.162-27(e)
(or its successor).
(dd) PERFORMANCE PERIOD. A period of time determined by the
Committee over which performance is measured for the purpose of
determining a Grantee's right to and the payment value of any
Performance Unit, Performance Share or Other Stock-Based Award.
(ee) PERFORMANCE SHARE OR PERFORMANCE UNIT. An Incentive Award
representing a contingent right to receive cash or shares of Common
Stock (which may be Restricted Stock) at the end of a Performance Period
and which, in the case of Performance
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Shares, is denominated in Common Stock, and, in the case of Performance
Units, is denominated in cash values.
(ff) PLAN. The OEI International, Inc. 1998 Incentive Plan as set
forth herein and as it may be amended from time to time.
(gg) PUBLICLY HELD CORPORATION. A corporation issuing any class
of common equity securities required to be registered under Section 12
of the Exchange Act.
(hh) RESTRICTED STOCK. Shares of Common Stock issued or
transferred to a Grantee pursuant to SECTION 3.
(ii) RESTRICTED STOCK AWARD. An authorization by the Committee to
issue or transfer Restricted Stock to a Grantee.
(jj) RESTRICTION PERIOD. The period of time determined by the
Committee and set forth in the Incentive Agreement during which the
transfer of Restricted Stock by the Grantee is restricted.
(kk) RETIREMENT. The voluntary termination of Employment from the
Company or any Parent or Subsidiary constituting retirement for age on
any date after the Employee attains the normal retirement age of 65
years, or such other age as may be designated by the Committee in the
Employee's Incentive Agreement.
(ll) SHARE. A share of the Common Stock of the Company.
(mm) SHARE POOL. The number of shares authorized for issuance
under SECTION 1.4, as adjusted for awards and payouts under SECTION 1.5
and as adjusted for changes in corporate capitalization under SECTION
6.5.
(nn) SPREAD. The difference between the exercise price per Share
specified in any Independent SAR grant and the Fair Market Value of a
Share on the date of exercise of the Independent SAR.
(oo) STOCK APPRECIATION RIGHT OR SAR. A Tandem SAR described in
SECTION 2.4 or an Independent SAR described in SECTION 2.5.
(pp) STOCK OPTION OR OPTION. Pursuant to SECTION 2, (i) an
Incentive Stock Option granted to an Employee, or (ii) a Nonstatutory
Stock Option granted to an Employee, Consultant or Outside Director,
whereunder such option the Grantee has the right to purchase
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Shares of Common Stock. In accordance with Section 422 of the Code, no
Consultant or Outside Director shall be granted an Incentive Stock
Option.
(qq) SUBSIDIARY. Any corporation (whether now or hereafter
existing) which constitutes a "subsidiary" of the Company, as defined in
Section 424(f) of the Code.
(rr) SUPPLEMENTAL PAYMENT. Any amount, as described in SECTIONS
2.7, 3.5, 4.2 AND/OR 5.2, dedicated to payment of income taxes that are
payable by the Grantee on an Incentive Award.
(ss) TANDEM SAR. A Stock Appreciation Right that is granted in
connection with a related Stock Option pursuant to SECTION 2.4, the
exercise of which shall require forfeiture of the right to purchase a
Share under the related Stock Option (and when a Share is purchased
under the Stock Option, the Tandem SAR shall similarly be canceled).
1.3 PLAN ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. Except as may be limited by law
and subject to the provisions herein, the Committee shall have full
power to (i) select Grantees who shall participate in the Plan; (ii)
determine the sizes, duration and types of Incentive Awards; (iii)
determine the terms and conditions of Incentive Awards and Incentive
Agreements; (iv) determine whether any Shares subject to Incentive
Awards will be subject to any restrictions on transfer; (v) construe and
interpret the Plan and any Incentive Agreement or other agreement
entered into under the Plan; and (vi) establish, amend, or waive rules
for the Plan's administration. Further, the Committee shall make all
other determinations which may be necessary or advisable for the
administration of the Plan.
(b) MEETINGS. The Committee shall designate a chairman from among
its members who shall preside at all of its meetings, and shall
designate a secretary, without regard to whether that person is a member
of the Committee, who shall keep the minutes of the proceedings and all
records, documents, and data pertaining to its administration of the
Plan. Meetings shall be held at such times and places as shall be
determined by the Committee and the Committee may hold telephonic
meetings. The Committee may take any action otherwise proper under the
Plan by the affirmative vote, taken with or without a meeting, of a
majority of its members. The Committee may authorize any one or more of
their members or any officer of the Company to execute and deliver
documents on behalf of the Committee.
(c) DECISIONS BINDING. All determinations and decisions made by
the Committee shall be made in its discretion pursuant to the provisions
of the Plan, and shall be final,
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conclusive and binding on all persons including the Company, its
shareholders, Employees, Grantees, and their estates and beneficiaries.
The Committee's decisions and determinations with respect to any
Incentive Award need not be uniform and may be made selectively among
Incentive Awards and Grantees, whether or not such Incentive Awards are
similar or such Grantees are similarly situated.
(d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to the
stockholder approval requirements of SECTION 7.7 if applicable, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Incentive Award, accelerate the vesting or
exercisability of an Incentive Award, eliminate or make less restrictive
any restrictions contained in an Incentive Award, waive any restriction
or other provisions of an Incentive Award, or otherwise amend or modify
an Incentive Award in any manner that is either (i) not adverse to the
Grantee to whom such Incentive Award was granted or (ii) consented to by
such Grantee. The Committee may grant an Incentive Award to an
individual who it expects to become an Employee within the next six
months, with such Incentive Award being subject to such individual
actually becoming an Employee within such time period, and subject to
such other terms and conditions as may be established by the Committee
in its discretion.
(e) DELEGATION OF AUTHORITY. The Committee may delegate to the
Chief Executive Officer and to other senior officers of the Company its
duties under this Plan pursuant to such conditions or limitations as the
Committee may establish from time to time, except that, if the Company
is a Publicly Held Corporation, the Committee may not delegate to any
person the authority to (i) grant Incentive Awards, or (ii) take any
action which would contravene the requirements of Rule 16b-3 under the
Exchange Act or the Performance-Based Exception under Section 162(m) of
the Code.
(f) EXPENSES OF COMMITTEE. The Committee may employ legal
counsel, including, without limitation, independent legal counsel and
counsel regularly employed by the Company, and other agents as the
Committee may deem appropriate for the administration of the Plan. The
Committee may rely upon any opinion or computation received from any
such counsel or agent. All expenses incurred by the Committee in
interpreting and administering the Plan, including, without limitation,
meeting expenses and professional fees, shall be paid by the Company.
(g) SURRENDER OF PREVIOUS INCENTIVE AWARDS. The Committee may, in
its absolute discretion, grant Incentive Awards to Grantees on the
condition that such Grantees surrender to the Committee for cancellation
such other Incentive Awards (including, without limitation, Incentive
Awards with higher exercise prices) as the Committee directs. Incentive
Awards granted on the condition precedent of surrender of outstanding
Incentive Awards
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shall not count against the limits set forth in SECTION 1.4 until such
time as such previous Incentive Awards are surrendered and cancelled.
(h) INDEMNIFICATION. Each person who is or was a member of the
Committee, or of the Board, shall be indemnified by the Company against
and from any damage, loss, liability, cost and expense that may be
imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be
a party or in which he may be involved by reason of any action taken or
failure to act under the Plan, except for any such act or omission
constituting willful misconduct or gross negligence. Such person shall
be indemnified by the Company for all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of
any judgment in any such action, suit, or proceeding against him,
provided he shall give the Company an opportunity, at its own expense,
to handle and defend the same before he undertakes to handle and defend
it on his own behalf. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Articles of Incorporation or
Bylaws, as a matter of law, or otherwise, or any power that the Company
may have to indemnify them or hold them harmless.
1.4 SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS
Subject to adjustment under SECTION 6.5, there shall be available for
Incentive Awards under the Plan granted wholly or partly in Common Stock
(including rights or Options that may be exercised for or settled in Common
Stock) an aggregate of the greater of (a) Two Million (2,000,000) Shares of
Common Stock or (b) ten percent (10%) of the number of Shares issued and
outstanding on the last day of each fiscal quarter of the Company. No more than
1,000,000 Shares shall be available for Incentive Awards granted to Outside
Directors. No more than 2,000,000 Shares of Common Stock shall be available for
Incentive Awards of Incentive Stock Options.
The number of Shares of Common Stock that are the subject of Incentive
Awards under the Plan, which are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some
of the Shares covered by an Incentive Award are not issued to a Grantee or are
exchanged for Incentive Awards that do not involve Common Stock, shall again
immediately become available for Incentive Awards hereunder. The Committee may
from time to time adopt and observe such procedures concerning the counting of
Shares against the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
Shares are available for issuance pursuant to Incentive Awards.
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If the Company is a Publicly Held Corporation, then unless and until the
Committee determines that a particular Incentive Award granted to a Covered
Employee is not intended to comply with the Performance-Based Exception, the
following rules shall apply to grants of Incentive Awards to Covered Employees:
(a) Subject to adjustment as provided in SECTION 6.5, the maximum
aggregate number of Shares of Common Stock (including Stock Options,
SARs, Restricted Stock, Performance Units and Performance Shares paid
out in Shares, or Other Stock-Based Awards paid out in Shares) that may
be granted or that may vest, as applicable, in any calendar year
pursuant to any Incentive Award held by any individual Covered Employee
shall be one million (1,000,000) Shares.
(b) The maximum aggregate cash payout (including SARs,
Performance Units and Performance Shares paid out in cash, or Other
Stock-Based Awards paid out in cash) with respect to Incentive Awards
granted in any calendar year which may be made to any Covered Employee
shall be Five Million Dollars ($5,000,000).
(c) With respect to any Stock Option or Stock Appreciation Right
granted to a Covered Employee that is canceled or repriced, the number
of Shares subject to such Stock Option or Stock Appreciation Right shall
continue to count against the maximum number of Shares that may be the
subject of Stock Options or Stock Appreciation Rights granted to such
Covered Employee hereunder and, in this regard, such maximum number
shall be determined in accordance with Section 162(m) of the Code.
(d) The limitations of subsections (a), (b) and (c) above shall
be construed and administered so as to comply with the Performance-Based
Exception.
1.5 SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS.
The following Incentive Awards and payouts shall reduce, on a one Share
for one Share basis, the number of Shares authorized for issuance under the
Share Pool:
(a) Stock Option;
(b) SAR (except a Tandem SAR);
(c) Restricted Stock;
(d) A payout of a Performance Share in Shares;
(e) A payout of a Performance Unit in Shares; and
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(f) A payout of an Other Stock-Based Award in Shares.
The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:
(a) A Payout of an SAR, Tandem SAR, Restricted Stock Award, or
Other Stock-Based Award in the form of cash;
(b) A cancellation, termination, expiration, forfeiture, or lapse
for any reason (with the exception of the termination of a Tandem SAR
upon exercise of the related Stock Option, or the termination of a
related Stock Option upon exercise of the corresponding Tandem SAR) of
any Shares subject to an Incentive Award; and
(c) Payment of an Option Price with previously acquired Shares or
by withholding Shares which otherwise would be acquired on exercise
(i.e., the Share Pool shall be increased by the number of Shares turned
in or withheld as payment of the Option Price).
1.6 COMMON STOCK AVAILABLE.
The Common Stock available for issuance or transfer under the Plan shall
be made available from Shares now or hereafter (i) held in the treasury of the
Company, (ii) authorized but unissued shares, or (iii) shares to be purchased or
acquired by the Company. No fractional shares shall be issued under the Plan;
payment for fractional shares shall be made in cash.
1.7 PARTICIPATION
(a) ELIGIBILITY. The Committee shall from time to time designate
those Employees, Consultants and/or Outside Directors, if any, to be
granted Incentive Awards under the Plan, the type of Incentive Awards
granted, the number of Shares, Stock Options, rights or units, as the
case may be, which shall be granted to each such person, and any other
terms or conditions relating to the Incentive Awards as it may deem
appropriate to the extent consistent with the provisions of the Plan. A
Grantee who has been granted an Incentive Award may, if otherwise
eligible, be granted additional Incentive Awards at any time.
(b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant or Outside
Director shall be eligible for the grant of any Incentive Stock Option.
In addition, no Employee shall be eligible for the grant of any
Incentive Stock Option who owns or would own immediately before the
grant of such Incentive Stock Option, directly or indirectly, stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, or any Parent or
Subsidiary. This restriction does not apply if, at the time such
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Incentive Stock Option is granted, the Incentive Stock Option exercise
price is at least one hundred and ten percent (110%) of the Fair Market
Value on the date of grant and the Incentive Stock Option by its terms
is not exercisable after the expiration of five (5) years from the date
of grant. For the purpose of the immediately preceding sentence, the
attribution rules of Section 424(d) of the Code shall apply for the
purpose of determining an Employee's percentage ownership in the Company
or any Parent or Subsidiary. This paragraph shall be construed
consistent with the requirements of Section 422 of the Code.
1.8 TYPES OF INCENTIVE AWARDS
The types of Incentive Awards under the Plan are Stock Options, Stock
Appreciation Rights and Supplemental Payments as described in SECTION 2,
Restricted Stock and Supplemental Payments as described in SECTION 3,
Performance Units, Performance Shares and Supplemental Payments as described in
SECTION 4, Other Stock-Based Awards and Supplemental Payments as described in
SECTION 5, or any combination of the foregoing.
SECTION 2.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 GRANT OF STOCK OPTIONS
The Committee is authorized to grant (a) Nonstatutory Stock Options to
Employees, Consultants and/or Outside Directors and (b) Incentive Stock Options
to Employees only, in accordance with the terms and conditions of the Plan, and
with such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall determine in its discretion. Successive grants may be made
to the same Grantee whether or not any Stock Option previously granted to such
person remains unexercised.
2.2 STOCK OPTION TERMS
(a) WRITTEN AGREEMENT. Each grant of an Stock Option shall be
evidenced by a written Incentive Agreement. Among its other provisions,
each Incentive Agreement shall set forth the extent to which the Grantee
shall have the right to exercise the Stock Option following termination
of the Grantee's Employment. Such provisions shall be determined in the
discretion of the Committee, shall be included in the Grantee's
Incentive Agreement, need not be uniform among all Stock Options issued
pursuant to the Plan.
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(b) NUMBER OF SHARES. Each Stock Option shall specify the number
of Shares of Common Stock to which it pertains.
(c) EXERCISE PRICE. The exercise price per Share of Common Stock
under each Stock Option shall be determined by the Committee; provided,
however, that in the case of an Incentive Stock Option, such exercise
price shall not be less than 100% of the Fair Market Value per Share on
the date the Incentive Stock Option is granted. To the extent that the
Company is a Publicly Held Corporation and the Stock Option is intended
to qualify for the Performance-Based Exception, the exercise price shall
not be less than 100% of the Fair Market Value per Share on the date the
Stock Option is granted. Each Stock Option shall specify the method of
exercise which shall be consistent with the requirements of SECTION
2.3(A).
(d) TERM. In the Incentive Agreement, the Committee shall fix the
term of each Stock Option which shall be not more than ten (10) years
from the date of grant. In the event no term is fixed, such term shall
be ten (10) years from the date of grant.
(e) EXERCISE. The Committee shall determine the time or times at
which a Stock Option may be exercised in whole or in part. Each Stock
Option may specify the required period of continuous Employment and/or
the performance objectives to be achieved before the Stock Option or
portion thereof will become exercisable. Each Stock Option, the exercise
of which, or the timing of the exercise of which, is dependent, in whole
or in part, on the achievement of designated performance objectives, may
specify a minimum level of achievement in respect of the specified
performance objectives below which no Stock Options will be exercisable
and a method for determining the number of Stock Options that will be
exercisable if performance is at or above such minimum but short of full
achievement of the performance objectives. All such terms and conditions
shall be set forth in the Incentive Agreement.
(f) $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS.
Notwithstanding any contrary provision in the Plan, to the extent that
the aggregate Fair Market Value (determined as of the time the Incentive
Stock Option is granted) of the Shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by any
Grantee during any single calendar year (under the Plan and any other
stock option plans of the Company and its Subsidiaries or Parent)
exceeds the sum of $100,000, such Incentive Stock Option shall be
treated as a Nonstatutory Stock Option to the extent in excess of the
$100,000 limit, and not an Incentive Stock Option, but all other terms
and provisions of such Stock Option shall remain unchanged. This
paragraph shall be applied by taking Incentive Stock Options into
account in the order in which they are granted and shall be construed in
accordance with Section 422(d) of the Code. In the absence of such
regulations or other
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authority, or if such regulations or other authority require or permit a
designation of the Options which shall cease to constitute Incentive
Stock Options, then Incentive Stock Options, only to the extent of such
excess and in the order in which they were granted, shall automatically
be deemed to be Nonstatutory Stock Options but all other terms and
conditions of such Incentive Stock Options, and the corresponding
Incentive Agreement, shall remain unchanged.
2.3 STOCK OPTION EXERCISES
(a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be
exercised by the delivery of a signed written notice of exercise to the
Company as of a date set by the Company in advance of the effective date
of the proposed exercise. The notice shall set forth the number of
Shares with respect to which the Option is to be exercised, accompanied
by full payment for the Shares.
The Option Price upon exercise of any Stock Option shall be
payable to the Company in full either: (i) in cash or its equivalent, or
(ii) subject to prior approval by the Committee in its discretion, by
tendering previously acquired Shares having an aggregate Fair Market
Value at the time of exercise equal to the total Option Price (provided
that the Shares which are tendered must have been held for at least six
(6) months prior to their tender to satisfy the Option Price), or (iii)
subject to prior approval by the Committee in its discretion, by
withholding Shares which otherwise would be acquired on exercise having
an aggregate Fair Market Value at the time of exercise equal to the
total Option Price, or (iv) subject to prior approval by the Committee
in its discretion, by a combination of (i), (ii), and (iii) above. Any
payment in Shares of Common Stock shall be effected by the delivery of
such Shares to the Secretary of the Company, duly endorsed in blank or
accompanied by stock powers duly executed in blank, together with any
other documents as the Secretary shall require from time to time.
The Committee, in its discretion, also may allow (i) "cashless
exercise" as permitted under Federal Reserve Board's Regulation T, 12
CFR Part 220 (or its successor), and subject to applicable securities
law restrictions and tax withholdings, or (ii) by any other means which
the Committee, in its discretion, determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to or on behalf of
the Grantee, in the name of the Grantee or other appropriate recipient,
Share certificates for the number of Shares purchased under the Stock
Option. Such delivery shall be effected for all purposes when a stock
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transfer agent of the Company shall have deposited such certificates in
the United States mail, addressed to Grantee or other appropriate
recipient.
During the lifetime of a Grantee, each Option granted to him
shall be exercisable only by the Grantee (or his legal guardian in the
event of his Disability) or by a broker-dealer acting on his behalf
pursuant to a cashless exercise under the foregoing provisions of this
SECTION 2.3(A). No Option shall be assignable or transferable by Grantee
otherwise than by will or by the laws of descent and distribution.
(b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may
impose such restrictions on any Shares acquired pursuant to the exercise
of a Stock Option as it may deem advisable, including, without
limitation, restrictions under (i) any buy/sell agreement or right of
first refusal, (ii) any applicable federal securities laws, (iii) the
requirements of any stock exchange or market upon which such Shares are
then listed and/or traded, or (iv) any blue sky or state securities law
applicable to such Shares. Any certificate issued to evidence Shares
issued upon the exercise of an Incentive Award may bear such legends and
statements as the Committee shall deem advisable to assure compliance
with federal and state laws and regulations.
Any Grantee or other person exercising an Incentive Award may be
required by the Committee to give a written representation that the
Incentive Award and the Shares subject to the Incentive Award will be
acquired for investment and not with a view to public distribution;
provided, however, that the Committee, in its sole discretion, may
release any person receiving an Incentive Award from any such
representations either prior to or subsequent to the exercise of the
Incentive Award.
(c) NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM
INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the
Plan, a Grantee who disposes of Shares of Common Stock acquired upon the
exercise of an Incentive Stock Option by a sale or exchange either (i)
within two (2) years after the date of the grant of the Incentive Stock
Option under which the Shares were acquired or (ii) within one (1) year
after the transfer of such Shares to him pursuant to exercise, shall
promptly notify the Company of such disposition, the amount realized and
his adjusted basis in such Shares.
(d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the
Company from the sale of Shares pursuant to Stock Options exercised
under the Plan shall be used for general corporate purposes.
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2.4 STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may, at the time of grant of a
Nonstatutory Stock Option, or at any time thereafter during the term of
the Nonstatutory Stock Option, grant Stock Appreciation Rights with
respect to all or any portion of the Shares of Common Stock covered by
such Nonstatutory Stock Option. A Stock Appreciation Right in tandem
with a Nonstatutory Stock Option is referred to herein as a "TANDEM
SAR."
(b) GENERAL PROVISIONS. The terms and conditions of each Tandem
SAR shall be evidenced by an Incentive Agreement. The Option Price per
Share of a Tandem SAR shall be fixed in the Incentive Agreement and
shall not be less than one hundred percent (100%) of the Fair Market
Value of a Share on the grant date of the Nonstatutory Stock Option to
which it relates.
(c) EXERCISE. A Tandem SAR may be exercised at any time the
Nonstatutory Stock Option to which it relates is then exercisable, but
only to the extent such Nonstatutory Stock Option is exercisable, and
shall otherwise be subject to the conditions applicable to such
Nonstatutory Stock Option. When a Tandem SAR is exercised, the
Nonstatutory Stock Option to which it relates shall terminate to the
extent of the number of Shares with respect to which the Tandem SAR is
exercised. Similarly, when a Nonstatutory Stock Option is exercised, the
Tandem SARs relating to the Shares covered by such Nonstatutory Stock
Option exercise shall terminate. Any Tandem SAR which is outstanding on
the last day of the term of the related Nonstatutory Stock Option shall
be automatically exercised on such date for cash, without the need for
any action by the Grantee, to the extent of any Appreciation.
(d) SETTLEMENT. Upon exercise of a Tandem SAR, the holder shall
receive, for each Share with respect to which the Tandem SAR is
exercised, an amount equal to the Appreciation. The Appreciation shall
be payable in cash, Common Stock, or a combination of both, as specified
in the Incentive Agreement (or in the discretion of the Committee if not
so specified). The Appreciation shall be paid within 30 calendar days of
the exercise of the Tandem SAR. The number of Shares of Common Stock
which shall be issuable upon exercise of a Tandem SAR shall be
determined by dividing (1) by (2), where (1) is the number of Shares as
to which the Tandem SAR is exercised multiplied by the Appreciation in
such shares and (2) is the Fair Market Value of a Share on the exercise
date.
2.5 STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may grant Stock Appreciation Rights
independent of Nonstatutory Stock Options ("INDEPENDENT SARS").
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(b) GENERAL PROVISIONS. The terms and conditions of each
Independent SAR shall be evidenced by an Incentive Agreement. The
exercise price per share of Common Stock shall be not less than one
hundred percent (100%) of the Fair Market Value of a Share of Common
Stock on the date of grant of the Independent SAR. The term of an
Independent SAR shall be determined by the Committee.
(c) EXERCISE. Independent SARs shall be exercisable at such time
and subject to such terms and conditions as the Committee shall specify
in the Incentive Agreement for the Independent SAR grant.
(d) SETTLEMENT. Upon exercise of an Independent SAR, the holder
shall receive, for each Share specified in the Independent SAR grant, an
amount equal to the Spread. The Spread shall be payable in cash, Common
Stock, or a combination of both, in the discretion of the Committee or
as specified in the Incentive Agreement. The Spread shall be paid within
30 calendar days of the exercise of the Independent SAR. The number of
Shares of Common Stock which shall be issuable upon exercise of an
Independent SAR shall be determined by dividing (1) by (2), where (1) is
the number of Shares as to which the Independent SAR is exercised
multiplied by the Spread in such Shares and (2) is the Fair Market Value
of a Share on the exercise date.
2.6 RELOAD OPTIONS
At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, replacement Stock Options that permit the Grantee to
purchase an additional number of Shares equal to the number of previously owned
Shares surrendered by the Grantee to pay all or a portion of the Option Price
upon exercise of his Stock Options.
2.7 SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK
APPRECIATION RIGHTS
The Committee, either at the time of grant or as of the time of exercise
of any Nonstatutory Stock Option or Stock Appreciation Right, may provide in the
Incentive Agreement for a Supplemental Payment by the Company to the Grantee
with respect to the exercise of any Nonstatutory Stock Option or Stock
Appreciation Right. The Supplemental Payment shall be in the amount specified by
the Committee, which amount shall not exceed the amount necessary to pay the
federal and state income tax payable with respect to both the exercise of the
Nonstatutory Stock Option and/or Stock Appreciation Right and the receipt of the
Supplemental Payment, assuming the holder is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as deemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable
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in cash, Common Stock, or a combination of both, as determined by the Committee
at the time of payment.
SECTION 3.
RESTRICTED STOCK
3.1 AWARD OF RESTRICTED STOCK
(a) GRANT. In consideration of the performance of Employment by
any Grantee who is an Employee, Consultant or Outside Director, Shares
of Restricted Stock may be awarded under the Plan by the Committee with
such restrictions during the Restriction Period as the Committee may
designate in its discretion, any of which restrictions may differ with
respect to each particular Grantee. Restricted Stock shall be awarded
for no additional consideration or such additional consideration as the
Committee may determine, which consideration may be less than, equal to
or more than the Fair Market Value of the shares of Restricted Stock on
the grant date. The terms and conditions of each grant of Restricted
Stock shall be evidenced by an Incentive Agreement.
(b) IMMEDIATE TRANSFER WITHOUT IMMEDIATE DELIVERY OF RESTRICTED
STOCK. Unless otherwise specified in the Grantee's Incentive Agreement,
each Restricted Stock Award shall constitute an immediate transfer of
the record and beneficial ownership of the Shares of Restricted Stock to
the Grantee in consideration of the performance of services as an
Employee, Consultant or Outside Director, as applicable, entitling such
Grantee to all voting and other ownership rights in such Shares subject
to any restrictions thereon.
As specified in the Incentive Agreement, a Restricted Stock Award
may limit the Grantee's dividend rights during the Restriction Period in
which the shares of Restricted Stock are subject to a "substantial risk
of forfeiture" (within the meaning given to such term under Code Section
83) and restrictions on transfer. In the Incentive Agreement, the
Committee may apply any restrictions to the dividends that the Committee
deems appropriate. Without limiting the generality of the preceding
sentence, if the grant or vesting of Shares of Restricted Stock granted
to a Covered Employee, if applicable, is designed to comply with the
requirements of the Performance-Based Exception, the Committee may apply
any restrictions that it deems appropriate to the payment of dividends
declared with respect to such Shares of Restricted Stock, such that the
dividends and/or the Shares of Restricted Stock maintain eligibility for
the Performance-Based Exception. In the event that any dividend
constitutes a derivative security or an equity security pursuant to the
rules under Section 16 of the Exchange Act, if applicable, such dividend
shall be subject to a vesting
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period equal to the remaining vesting period of the Shares of Restricted
Stock with respect to which the dividend is paid.
Shares awarded pursuant to a grant of Restricted Stock may be
issued in the name of the Grantee and held, together with stock powers
endorsed by the Grantee in blank, by the Committee or the Secretary of
the Company (or their delegates) as a depository for safekeeping, as
determined by the Committee, until such time as the forfeiture
restrictions and the restrictions on transfer have lapsed. All such
terms and conditions shall be set forth in the particular Grantee's
Incentive Agreement. The Company or Committee (or their delegates) shall
issue to the Grantee a receipt evidencing the certificates held by it
which are registered in the name of the Grantee.
3.2 RESTRICTIONS
(a) FORFEITURE OF RESTRICTED STOCK. Restricted Stock awarded to a
Grantee may be subject to the following restrictions until the
expiration of the Restriction Period: (i) a restriction that constitutes
a "substantial risk of forfeiture" (as defined in Code Section 83), or a
restriction on transferability; (ii) unless otherwise specified by the
Committee in the Incentive Agreement, the Restricted Stock that is
subject to restrictions which are not satisfied shall be forfeited and
all rights of the Grantee to such Shares shall terminate; and (iii) any
other restrictions that the Committee determines in advance are
appropriate, including, without limitation, rights of repurchase or
first refusal in the Company or provisions subjecting the Restricted
Stock to a continuing substantial risk of forfeiture in the hands of any
transferee. Any such restrictions shall be set forth in the particular
Grantee's Incentive Agreement.
(b) ISSUANCE OF CERTIFICATES. Coincident with or promptly after
the date of grant with respect to Shares of Restricted Stock, the
Company shall cause to be issued a stock certificate, registered in the
name of the Grantee to whom such Shares of Restricted Stock were
granted, evidencing such Shares; provided, however, that the Company
shall not cause to be issued such a stock certificate unless it has
received a stock power duly endorsed in blank by the Grantee with
respect to such Shares. Each such stock certificate shall bear the
following legend or any other legend approved by the Company:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS AND
CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS AGAINST
TRANSFER) CONTAINED IN THE OEI INTERNATIONAL, INC. 1998 INCENTIVE
PLAN AND AN INCENTIVE AGREEMENT ENTERED INTO BETWEEN THE
REGISTERED OWNER OF SUCH SHARES AND OEI INTERNATIONAL, INC.. A
COPY OF THE PLAN AND
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INCENTIVE AGREEMENT ARE ON FILE IN THE CORPORATE OFFICES OF OEI
INTERNATIONAL, INC..
Such legend shall not be removed from the certificate evidencing such
Shares of Restricted Stock until such Shares vest pursuant to the terms
of the Incentive Agreement.
(c) REMOVAL OF RESTRICTIONS. The Committee, in its discretion,
shall have the authority to remove any or all of the restrictions on the
Restricted Stock if it determines that, by reason of a change in
applicable law or another change in circumstance arising after the grant
date of the Restricted Stock, such action is appropriate.
3.3 DELIVERY OF SHARES OF COMMON STOCK
Subject to withholding taxes under SECTION 7.3 and to the terms of the
Incentive Agreement, a stock certificate evidencing the Shares of Restricted
Stock with respect to which the restrictions in the Incentive Agreement have
lapsed or otherwise been satisfied shall be delivered to the Grantee or other
appropriate recipient free of restrictions. Such delivery shall be effected for
all purposes when the Company shall have deposited such certificate in the
United States mail, addressed to the Grantee or other appropriate recipient.
3.4 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK
The Committee, either at the time of grant or vesting of Restricted
Stock, may provide for a Supplemental Payment by the Company to the holder in an
amount specified by the Committee, which amount shall not exceed the amount
necessary to pay the federal and state income tax payable with respect to both
the vesting of the Restricted Stock and receipt of the Supplemental Payment,
assuming the Grantee is taxed at either the maximum effective income tax rate
applicable thereto or at a lower tax rate as deemed appropriate by the
Committee. The Committee shall have the discretion to grant Supplemental
Payments that are payable solely in cash or Supplemental Payments that are
payable in cash, Common Stock, or a combination of both, as determined by the
Committee at the time of payment.
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SECTION 4.
PERFORMANCE UNITS AND PERFORMANCE SHARES
4.1 PERFORMANCE BASED AWARDS
(a) GRANT. The Committee is authorized to grant Performance Units
and Performance Shares to selected Grantees who are Employees or
Consultants. Each grant of Performance Units and/or Performance Shares
shall be evidenced by an Incentive Agreement in such amounts and upon
such terms as shall be determined by the Committee. The Committee may
make grants of Performance Units or Performance Shares in such a manner
that more than one Performance Period is in progress concurrently. For
each Performance Period, the Committee shall establish the number of
Performance Units or Performance Shares and their contingent values
which may vary depending on the degree to which performance criteria
established by the Committee are met.
(b) PERFORMANCE CRITERIA. At the beginning of each Performance
Period, the Committee shall (i) establish for such Performance Period
specific financial or non-financial performance objectives that the
Committee believes are relevant to the Company's business objectives;
(ii) determine the value of a Performance Unit or the number of Shares
under a Performance Share grant relative to performance objectives; and
(iii) notify each Grantee in writing of the established performance
objectives and, if applicable, the minimum, target, and maximum value of
Performance Units or Performance Shares for such Performance Period.
(c) MODIFICATION. If the Committee determines, in its discretion
exercised in good faith, that the established performance measures or
objectives are no longer suitable to the Company's objectives because of
a change in the Company's business, operations, corporate structure,
capital structure, or other conditions the Committee deems to be
appropriate, the Committee may modify the performance measures and
objectives to the extent it considers to be necessary. The Committee
shall determine whether any such modification would cause the
Performance Unit or Performance Share to fail to qualify for the
Performance-Based Exception, if applicable.
(d) PAYMENT. The basis for payment of Performance Units or
Performance Shares for a given Performance Period shall be the
achievement of those performance objectives determined by the Committee
at the beginning of the Performance Period as specified in the Grantee's
Incentive Agreement. If minimum performance is not achieved for a
Performance Period, no payment shall be made and all contingent rights
shall cease. If minimum performance is achieved or exceeded, the value
of a Performance Unit or
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Performance Share may be based on the degree to which actual performance
exceeded the preestablished minimum performance standards. The amount of
payment shall be determined by multiplying the number of Performance
Units or Performance Shares granted at the beginning of the Performance
Period times the final Performance Unit or Performance Share value.
Payments shall be made, in the discretion of the Committee as specified
in the Incentive Agreement, solely in cash or Common Stock, or a
combination of cash and Common Stock, following the close of the
applicable Performance Period.
(e) SPECIAL RULE FOR COVERED EMPLOYEES. The Committee may
establish performance goals applicable to Performance Units or
Performance Shares awarded to Covered Employees in such a manner as
shall permit payments with respect thereto to qualify for the
Performance-Based Exception, if applicable. If a Performance Unit or
Performance Share granted to a Covered Employee is intended to comply
with the Performance-Based Exception, the Committee in establishing
performance goals shall be guided by Treasury Regulation ss.
1.162-27(e)(2) (or its successor).
4.2 SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE UNITS OR PERFORMANCE SHARES
The Committee, either at the time of grant or at the time of vesting of
Performance Units or Performance Shares, may provide for a Supplemental Payment
by the Company to the Grantee in an amount specified by the Committee, which
amount shall not exceed the amount necessary to pay the federal and state income
tax payable with respect to both the vesting of such Performance Units or
Performance Shares and receipt of the Supplemental Payment, assuming the Grantee
is taxed at either the maximum effective income tax rate applicable thereto or
at a lower tax rate as seemed appropriate by the Committee. The Committee shall
have the discretion to grant Supplemental Payments that are payable in cash,
Common Stock, or a combination of both, as determined by the Committee at the
time of payment.
SECTION 5.
OTHER STOCK-BASED AWARDS
5.1 GRANT OF OTHER STOCK-BASED AWARDS
Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation, Deferred
Stock, purchase rights, Shares of Common Stock awarded which are not subject to
any restrictions
A:\165889.7
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or conditions, convertible or exchangeable debentures, other rights convertible
into Shares, Incentive Awards valued by reference to the value of securities of
or the performance of a specified Subsidiary, division or department, and
settlement in cancellation of rights of any person with a vested interest in any
other plan, fund, program or arrangement that is or was sponsored, maintained or
participated in by the Company or any Parent or Subsidiary. As is the case with
other Incentive Awards, Other Stock-Based Awards may be awarded either alone or
in addition to or in tandem with any other Incentive Awards.
5.2 OTHER STOCK-BASED AWARD TERMS
(a) WRITTEN AGREEMENT. The terms and conditions of each grant of
an Other Stock-Based Award shall be evidenced by an Incentive Agreement.
(b) PURCHASE PRICE. Except to the extent that an Other
Stock-Based Award is granted in substitution for an outstanding
Incentive Award or is delivered upon exercise of a Stock Option, the
amount of consideration required to be received by the Company shall be
either (i) no consideration other than services actually rendered (in
the case of authorized and unissued shares) or to be rendered, or (ii)
in the case of an Other Stock-Based Award in the nature of a purchase
right, consideration (other than services rendered or to be rendered) at
least equal to 50% of the Fair Market Value of the Shares covered by
such grant on the date of grant.
(c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion, the
Committee may specify such criteria, periods or goals for vesting in
Other Stock-Based Awards and payment thereof to the Grantee as it shall
determine; and the extent to which such criteria, periods or goals have
been met shall be determined by the Committee. All terms and conditions
of Other Stock-Based Awards shall be determined by the Committee and set
forth in the Incentive Agreement. The Committee may also provide for a
Supplemental Payment similar to such payment as described in SECTION
4.2.
(d) PAYMENT. Other Stock-Based Awards may be paid in Shares of
Common Stock or other consideration related to such Shares, in a single
payment or in installments and on such dates as determined by the
Committee, all as specified in the Incentive Agreement.
(e) DIVIDENDS. The Grantee of an Other Stock-Based Award shall be
entitled to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the number of Shares covered by the
Other Stock-Based Award, as determined by the Committee and set forth in
the Incentive Agreement. The Committee may also provide in the Incentive
Agreement that such amounts (if any) shall be deemed to have been
reinvested in additional Shares.
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SECTION 6.
PROVISIONS RELATING TO PLAN PARTICIPATION
6.1 PLAN CONDITIONS
(a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive Award
is granted shall be required to enter into an Incentive Agreement with
the Company, in such a form as is provided by the Committee. The
Incentive Agreement shall contain specific terms as determined by the
Committee, in its discretion, with respect to the Grantee's particular
Incentive Award. Such terms need not be uniform among all Grantees or
any similarly-situated Grantees. The Incentive Agreement may include,
without limitation, vesting, forfeiture and other provisions particular
to the particular Grantee's Incentive Award, as well as, for example,
provisions to the effect that the Grantee (i) shall not disclose any
confidential information acquired during Employment with the Company,
(ii) shall abide by all the terms and conditions of the Plan and such
other terms and conditions as may be imposed by the Committee, (iii)
shall not interfere with the employment or other service of any
employee, (iv) shall not compete with the Company or become involved in
a conflict of interest with the interests of the Company, (v) shall
forfeit an Incentive Award if terminated for Cause, (vi) shall not be
permitted to make an election under Section 83(b) of the Code when
applicable, and (vii) shall be subject to any other agreement between
the Grantee and the Company regarding Shares that may be acquired under
an Incentive Award including, without limitation, an agreement
restricting the transferability of Shares by Grantee. An Incentive
Agreement shall include such terms and conditions as are determined by
the Committee, in its discretion, to be appropriate with respect to any
individual Grantee. The Incentive Agreement shall be signed by the
Grantee to whom the Incentive Award is made and by an Authorized
Officer.
(b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any instrument
executed pursuant to the Plan shall create any Employment rights
(including without limitation, rights to continued Employment) in any
Grantee or affect the right of the Company to terminate the Employment
of any Grantee at any time without regard to the existence of the Plan.
(c) SECURITIES REQUIREMENTS. The Company shall be under no
obligation to effect the registration pursuant to the Securities Act of
1933 of any Shares of Common Stock to be issued hereunder or to effect
similar compliance under any state laws. Notwithstanding anything herein
to the contrary, the Company shall not be obligated to cause to be
issued or delivered any certificates evidencing Shares pursuant to the
Plan unless and until the Company is advised by its counsel that the
issuance and delivery of such certificates is in
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compliance with all applicable laws, regulations of governmental
authorities, and the requirements of any securities exchange on which
Shares are traded. The Committee may require, as a condition of the
issuance and delivery of certificates evidencing Shares of Common Stock
pursuant to the terms hereof, that the recipient of such Shares make
such covenants, agreements and representations, and that such
certificates bear such legends, as the Committee, in its discretion,
deems necessary or desirable.
If the Shares issuable on exercise of an Incentive Award are not
registered under the Securities Act of 1933, the Company may imprint on
the certificate for such Shares the following legend or any other legend
which counsel for the Company considers necessary or advisable to comply
with the Securities Act of 1933:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED
EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY THE CORPORATION
OF AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM
AND SUBSTANCE SATISFACTORY TO THE CORPORATION, THAT REGISTRATION
IS NOT REQUIRED FOR SUCH SALE OR TRANSFER.
6.2 TRANSFERABILITY
(a) NON-TRANSFERABLE AWARDS AND OPTIONS. No Incentive Award and
no right under the Plan, contingent or otherwise, will be (i)
assignable, saleable, or otherwise transferable by a Grantee except by
will or by the laws of descent and distribution, or (ii) subject to any
encumbrance, pledge, lien, assignment or charge of any nature.
No transfer by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Committee has been
furnished with a copy of the deceased Grantee's enforceable will or such
other evidence as the Committee deems necessary to establish the
validity of the transfer. Any attempted transfer in violation of this
SECTION 6.2(A) shall be void and ineffective.
(b) ABILITY TO EXERCISE RIGHTS. Subject to a valid beneficiary
designation pursuant to SECTION 7.5, only the Grantee (or his legal
guardian in the event of Grantee's Disability), or in the event of his
death, his estate, may exercise Stock Options, receive cash payments and
deliveries of Shares, and otherwise assume any rights of the Grantee
hereunder.
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6.3 RIGHTS AS A STOCKHOLDER
(a) NO STOCKHOLDER RIGHTS. Except as otherwise provided in his
Incentive Agreement for the grant of Restricted Stock, a Grantee of an
Incentive Award (or a permitted transferee of such Grantee) shall have
no rights as a stockholder with respect to any Shares of Common Stock
until the issuance of a stock certificate for such Shares.
(b) REPRESENTATION OF OWNERSHIP. In the case of the exercise of
an Incentive Award by a person or estate acquiring the right to exercise
such Incentive Award by reason of the death or Disability of a Grantee,
the Committee may require reasonable evidence as to the ownership of
such Incentive Award or the authority of such person and may require
such consents and releases of taxing authorities as the Committee deems
advisable.
6.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which Shares are traded. The
Committee may, in its discretion, defer the effectiveness of any exercise of an
Incentive Award in order to allow the issuance of Shares to be made pursuant to
registration or an exemption from registration or other methods for compliance
available under federal or state securities laws. The Committee shall inform the
Grantee in writing of its decision to defer the effectiveness of the exercise of
an Incentive Award. During the period that the effectiveness of an Incentive
Award has been deferred, the Grantee may, by written notice to the Committee,
withdraw such exercise and obtain the refund of any amount paid with respect
thereto.
6.5 CHANGE IN STOCK AND ADJUSTMENTS
(a) CHANGES IN LAW OR CIRCUMSTANCES. Subject to SECTION 6.7
(which only applies in the event of a Change in Control), in the event
of any change in applicable laws or any change in circumstances which
results in or would result in any dilution of the rights granted under
the Plan, or which otherwise warrants equitable adjustment because it
interferes with the intended operation of the Plan, then, if the
Committee should determine, in its absolute discretion, that such change
equitably requires an adjustment in the number or kind of shares of
stock or other securities or property theretofore subject, or which may
become subject, to issuance or transfer under the Plan or in the terms
and conditions of outstanding Incentive Awards, such adjustment shall be
made in accordance with such determination. Such adjustments may include
changes with respect to (i) the aggregate number of Shares that may be
issued under the Plan, (ii) the number of Shares subject to
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Incentive Awards, and (iii) the price per Share for outstanding
Incentive Awards. Any adjustment under this paragraph of an outstanding
Incentive Stock Option shall be made only to the extent not constituting
a "modification" within the meaning of Section 424(h)(3) of the Code
unless otherwise agreed to by the Grantee in writing. The Committee
shall give notice to each applicable Grantee of such adjustment which
shall be effective and binding.
(b) EXERCISE OF CORPORATE POWERS. The existence of the Plan or
outstanding Incentive Awards hereunder shall not affect in any way the
right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalization, reorganization or other
changes in the Company's capital structure or its business or any merger
or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stocks ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding whether of a similar
character or otherwise.
(c) RECAPITALIZATION OF THE COMPANY. Subject to SECTION 6.7, if
while there are Incentive Awards outstanding, the Company shall effect
any subdivision or consolidation of Shares of Common Stock or other
capital readjustment, the payment of a stock dividend, stock split,
combination of Shares, recapitalization or other increase or reduction
in the number of Shares outstanding, without receiving compensation
therefor in money, services or property, then the number of Shares
available under the Plan and the number of Incentive Awards which may
thereafter be exercised shall (i) in the event of an increase in the
number of Shares outstanding, be proportionately increased and the Fair
Market Value of the Incentive Awards awarded shall be proportionately
reduced; and (ii) in the event of a reduction in the number of Shares
outstanding, be proportionately reduced, and the Fair Market Value of
the Incentive Awards awarded shall be proportionately increased. The
Committee shall take such action and whatever other action it deems
appropriate, in its discretion, so that the value of each outstanding
Incentive Award to the Grantee shall not be adversely affected by a
corporate event described in this subsection (c).
(d) REORGANIZATION OF THE COMPANY. Subject to SECTION 6.7, if the
Company is reorganized, merged or consolidated, or is a party to a plan
of exchange with another corporation, pursuant to which reorganization,
merger, consolidation or exchange, stockholders of the Company receive
any Shares of Common Stock or other securities or property, or if the
Company should distribute securities of another corporation to its
stockholders, each Grantee shall be entitled to receive, in lieu of the
number of unexercised Incentive Awards previously awarded, the number of
Stock Options, Stock Appreciation Rights, Performance Shares or Units,
Restricted Stock shares, or Other Stock-Based Awards, with a
corresponding adjustment to the Fair Market Value of said Incentive
Awards, to
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which he would have been entitled if, immediately prior to such
corporate action, such Grantee had been the holder of record of a number
of Shares equal to the number of the outstanding Incentive Awards
payable in Shares that were previously awarded to him. For this purpose,
Shares of Restricted Stock shall be treated the same as unrestricted
outstanding Shares of Common Stock. In this regard, the Committee shall
take whatever other action it deems appropriate to preserve the rights
of Grantees holding outstanding Incentive Awards.
(e) ISSUE OF COMMON STOCK BY THE COMPANY. Except as hereinabove
expressly provided in this SECTION 6.5 and subject to SECTION 6.7, the
issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or
for labor or services, either upon direct sale or upon the exercise of
rights or warrants to subscribe therefor, or upon any conversion of
shares or obligations of the Company convertible into such shares or
other securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number of, or Fair Market Value of,
any Incentive Awards then outstanding under previously granted Incentive
Awards; provided, however, in such event, outstanding Shares of
Restricted Stock shall be treated the same as outstanding unrestricted
Shares of Common Stock.
(f) ACQUISITION OF THE COMPANY. Subject to SECTION 6.7, in the
case of any sale of assets, merger, consolidation or combination of the
Company with or into another corporation other than a transaction in
which the Company is the continuing or surviving corporation and which
does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property, or any
combination thereof (an "Acquisition"), in the absolute discretion of
the Committee, any Grantee who holds an outstanding Incentive Award
shall have the right (subject to any limitation applicable to the
Incentive Award) thereafter and during the term of the Incentive Award,
to receive upon exercise thereof the Acquisition Consideration (as
defined below) receivable upon the Acquisition by a holder of the number
of Shares which would have been obtained upon exercise of the Incentive
Award immediately prior to the Acquisition. The term "Acquisition
Consideration" shall mean the kind and amount of shares of the surviving
or new corporation, cash, securities, evidence of indebtedness, other
property or any combination thereof receivable in respect of one Share
upon consummation of an Acquisition. The Committee, in its discretion,
shall have the authority to take whatever action it deems appropriate to
effectuate the provisions of this subsection (f).
(g) ASSUMPTION OF OUTSTANDING INCENTIVE AWARDS UNDER THE PLAN.
Notwithstanding any other provision of the Plan, the Committee, in its
absolute discretion, may authorize the assumption and continuation under
the Plan of outstanding and unexercised stock options or other types of
stock-based incentive awards that were granted under a stock option plan
(or other type of stock incentive plan or agreement) that is or was
maintained by
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a corporation or other entity that was merged into, consolidated with,
or whose stock or assets were acquired by, the Company as the surviving
corporation. Any such action shall be upon such terms and conditions as
the Committee, in its discretion, may deem appropriate, including
provisions to preserve the holder's rights under the previously granted
and unexercised stock option or other stock-based incentive award, such
as, for example, retaining an existing exercise price under an
outstanding stock option. Any such assumption and continuation of any
such previously granted and unexercised incentive award shall be treated
as an outstanding Incentive Award under the Plan and shall thus count
against the number of Shares reserved for issuance pursuant to SECTION
1.4. With respect to an incentive stock option (as described in Section
422 of the Code) subject to this subsection (g), no adjustment to such
option shall be made to the extent constituting a "modification" within
the meaning of Section 424(h)(3) of the Code unless otherwise agreed to
by the optionee in writing.
(h) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. In the event
of a dissolution or liquidation of the Company, a sale of all or
substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving
corporation, or a merger or consolidation involving the Company in which
the Company is the surviving corporation but the holders of Shares of
Common Stock receive securities of another corporation and/or other
property, including cash, the Committee shall, in its absolute
discretion, have the right and power to:
(i) cancel, effective immediately prior to the occurrence
of such corporate event, each outstanding Incentive Award
(whether or not then exercisable), and, in full consideration of
such cancellation, pay to the Grantee to whom such Incentive
Award was granted an amount in cash equal to the excess of (A)
the value, as determined by the Committee, in its discretion, of
the property (including cash) received by the holder of a Share
of Common Stock as a result of such event over (B) the exercise
or purchase price, if any, of such Incentive Award; or
(ii) provide for the exchange of each Incentive Award
outstanding immediately prior to such corporate event (whether or
not then exercisable) for another award on some or all of the
property for which such Incentive Award is exchanged and,
incident thereto, make an equitable adjustment as determined by
the Committee, in its discretion, in the exercise or purchase
price, if any, of the Incentive Award, or the number of shares or
amount of property (including cash) subject to the Incentive
Award or, if deemed appropriate, provide for a cash payment to
the Grantee in consideration for the exchange of his Incentive
Award.
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The Committee, in its discretion, shall have the authority to take
whatever action it deems appropriate to effectuate the provisions of
this subsection (h).
6.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT
(a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly
provided in the Grantee's Incentive Agreement, if the Grantee's
Employment is terminated for any reason other than due to his death,
Disability, Retirement or for Cause, any non-vested portion of any Stock
Option or other outstanding Incentive Award at the time of such
termination shall automatically expire and terminate and no further
vesting shall occur. In such event, except as otherwise expressly
provided in his Incentive Agreement, the Grantee shall be entitled to
exercise his rights only with respect to the portion of the Incentive
Award that was vested as of the termination date for a period that shall
end on the earlier of (i) the expiration date set forth in the Incentive
Agreement with respect to the vested portion of such Incentive Award or
(ii) the date that occurs ninety (90) calendar days after his
termination date.
(b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise
expressly provided in the Grantee's Incentive Agreement, in the event of
the termination of a Grantee's Employment for Cause, all vested and
non-vested Stock Options and other Incentive Awards granted to such
Grantee shall immediately expire, and shall not be exercisable, as of
the commencement of business on the date of such termination.
(c) RETIREMENT. Unless otherwise expressly provided in the
Grantee's Incentive Agreement, upon the Retirement of any Employee who
is a Grantee:
(i) any non-vested portion of any outstanding Option or
other Incentive Award shall immediately terminate and no further
vesting shall occur; and
(ii) any vested Option or other Incentive Award shall
expire on the earlier of (A) the expiration date set forth in the
Incentive Agreement for such Incentive Award; or (B) the
expiration of (1) one year after the date of Retirement in the
case of any Incentive Award other than an Incentive Stock Option,
or (2) three months after the date of Retirement in the case of
an Incentive Stock Option.
(d) DISABILITY OR DEATH. Unless otherwise expressly provided in
the Grantee's Incentive Agreement, upon termination of Employment as a
result of the Grantee's Disability or death:
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(i) any nonvested portion of any outstanding Option or
other applicable Incentive Award shall immediately terminate upon
termination of Employment, as applicable, and no further vesting
shall occur; and
(ii) any vested Incentive Award shall expire upon the
earlier of either (A) the expiration date set forth in the
Incentive Agreement or (B) the first anniversary of the Grantee's
termination of Employment, as applicable, as a result of his
Disability or death.
In the case of any vested Incentive Stock Option held by an
Employee following termination of Employment, notwithstanding the
definition of "Disability" in SECTION 1.2, whether the Employee has
incurred a "Disability" for purposes of determining the length of the
Option exercise period following termination of Employment under this
paragraph (d) shall be determined by reference to Section 22(e)(3) of
the Code to the extent required by Section 422(c)(6) of the Code. The
Committee shall determine whether a Disability for purposes of this
subsection (d) has occurred.
(e) CONTINUATION. Subject to the conditions and limitations of
the Plan and applicable law and regulation in the event that a Grantee
ceases to be an Employee, Outside Director or Consultant, as applicable,
for whatever reason, the Committee and Grantee may mutually agree with
respect to any outstanding Option or other Incentive Award then held by
the Grantee (i) for an acceleration or other adjustment in any vesting
schedule applicable to the Incentive Award, (ii) for a continuation of
the exercise period following termination for a longer period than is
otherwise provided under such Incentive Award, or (iii) to any other
change in the terms and conditions of the Incentive Award. In the event
of any such change to an outstanding Inventive Award, a written
amendment to the Grantee's Incentive Agreement shall be required.
6.7 CHANGE IN CONTROL
Notwithstanding any contrary provision in the Plan, in the event of a
Change in Control (as defined below), the following actions shall automatically
occur as of the day immediately preceding the Change in Control date unless
otherwise expressly provided in the Grantee's Incentive Agreement:
(a) all of the Stock Options and Stock Appreciation Rights then
outstanding shall become 100% vested and immediately and fully
exercisable;
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(b) all of the restrictions and conditions of any Restricted
Stock and any Other Stock-Based Awards then outstanding shall be deemed
satisfied, and the Restriction Period with respect thereto shall be
deemed to have expired; and
(c) all of the Performance Shares, Performance Units and any
Other Stock-Based Awards shall become fully vested, deemed earned in
full, and promptly paid within thirty (30) days to the affected Grantees
without regard to payment schedules and notwithstanding that the
applicable performance cycle, retention cycle or other restrictions and
conditions have not been completed or satisfied.
Notwithstanding any other provision of this Plan, unless expressly
provided otherwise in the Grantee's Incentive Agreement, the provisions of this
SECTION 6.7 may not be terminated, amended, or modified to adversely affect any
Incentive Award theretofore granted under the Plan without the prior written
consent of the Grantee with respect to his outstanding Incentive Award subject,
however, to the last paragraph of this SECTION 6.7.
For all purposes of the Plan, a "CHANGE IN CONTROL" of the Company shall
mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "PERSON")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or more of the total
voting power of all the Company's then outstanding securities entitled
to vote generally in the election of directors to the Board; provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any
acquisition by the Company or its Parent or Subsidiaries, (ii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or its Parent or Subsidiaries, or (iii) any
acquisition consummated with the prior approval of the Board; or
(b) During the period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board,
and any new director(s) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at
least two-thirds of the directors then still in office, who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority of the Board; or
(c) The Company becomes a party to a merger, plan of
reorganization, consolidation or share exchange in which either (i) the
Company will not be the surviving corporation or (ii) the Company will
be the surviving corporation and any outstanding shares of the Company's
common stock will be converted into shares of any other company (other
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than a reincorporation or the establishment of a holding company
involving no change of ownership of the Company) or other securities,
cash or other property (excluding payments made solely for fractional
shares); or
(d) The shareholders of the Company approve a merger, plan of
reorganization, consolidation or share exchange with any other
corporation, and immediately following such merger, plan of
reorganization, consolidation or share exchange the holders of the
voting securities of the Company outstanding immediately prior thereto
hold securities representing fifty percent (50%) or less of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger, plan of
reorganization, consolidation or share exchange; PROVIDED, HOWEVER, that
notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if one-half (1/2) or more of the members of the Board of
the Company or such surviving entity immediately after such merger, plan
of reorganization, consolidation or share exchange is comprised of
persons who served as directors of the Company immediately prior to such
merger, plan of reorganization, consolidation or share exchange or who
are otherwise designees of the Company; or
(e) Upon approval by the Company's stockholders of a complete
liquidation and dissolution of the Company or the sale or other
disposition of all or substantially all of the assets of the Company
other than to a Parent or Subsidiary; or
(f) Any other event that a majority of the Board, in its sole
discretion, shall determine constitutes a Change in Control.
Notwithstanding the occurrence of any of the foregoing events of this
SECTION 6.7 which would otherwise result in a Change in Control, the Board may
determine in its complete discretion, if it deems it to be in the best interest
of the Company, that an event or events otherwise constituting a Change in
Control shall not be considered a Change in Control. Such determination shall be
effective only if it is made by the Board prior to the occurrence of an event
that otherwise would be or probably would lead to a Change in Control; or after
such event if made by the Board a majority of which is composed of directors who
were members of the Board immediately prior to the event that otherwise would be
or probably would lead to a Change in Control.
6.8 EXCHANGE OF INCENTIVE AWARDS
The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding
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Incentive Awards (or comparable rights under other plans or arrangements) as a
condition precedent to the grant of new Incentive Awards.
6.9 FINANCING
The Company may extend and maintain, or arrange for and guarantee, the
extension and maintenance of financing to any Grantee to purchase Shares
pursuant to exercise of an Incentive Award upon such terms as are approved by
the Committee in its discretion.
SECTION 7.
GENERAL
7.1 EFFECTIVE DATE AND GRANT PERIOD
This Plan is adopted by the Board effective as of April 8, 1998 (the
"EFFECTIVE DATE"), subject to the approval of the stockholders of the Company by
April 7, 1999. Incentive Awards may be granted under the Plan at any time prior
to receipt of such stockholder approval; provided, however, if the requisite
stockholder approval is not obtained then any Incentive Awards granted hereunder
shall automatically become null and void and of no force or effect. Unless
sooner terminated by the Board, no Incentive Award shall be granted under the
Plan after ten (10) years from the Effective Date.
7.2 FUNDING AND LIABILITY OF COMPANY
No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other
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encumbrance on any property of the Company. Neither the Company, the Board nor
the Committee shall be required to give any security or bond for the performance
of any obligation that may be created by the Plan.
7.3 WITHHOLDING TAXES
(a) TAX WITHHOLDING. The Company shall have the power and the
right to deduct or withhold, or require a Grantee to remit to the
Company, an amount sufficient to satisfy federal, state, and local
taxes, domestic or foreign, required by law or regulation to be withheld
with respect to any taxable event arising as a result of the Plan or an
Incentive Award hereunder.
(b) SHARE WITHHOLDING. With respect to tax withholding required
upon the exercise of Stock Options or SARs, upon the lapse of
restrictions on Restricted Stock, or upon any other taxable event
arising as a result of any Incentive Awards, Grantees may elect, subject
to the approval of the Committee in its discretion, to satisfy the
withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be
imposed on the transaction. All such elections shall be made in writing,
signed by the Grantee, and shall be subject to any restrictions or
limitations that the Committee, in its discretion, deems appropriate.
(c) INCENTIVE STOCK OPTIONS. With respect to Shares received by a
Grantee pursuant to the exercise of an Incentive Stock Option, if such
Grantee disposes of any such Shares within (i) two years from the date
of grant of such Option or (ii) one year after the transfer of such
shares to the Grantee, the Company shall have the right to withhold from
any salary, wages or other compensation payable by the Company to the
Grantee an amount sufficient to satisfy federal, state and local tax
withholding requirements attributable to such disqualifying disposition.
(d) LOANS. The Committee may provide for loans, on either a short
term or demand basis, from the Company to a Grantee who is an Employee
or Consultant to permit the payment of taxes required by law.
7.4 NO GUARANTEE OF TAX CONSEQUENCES
Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.
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7.5 DESIGNATION OF BENEFICIARY BY PARTICIPANT
Each Grantee may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit. Each such designation shall revoke all prior
designations by the same Grantee, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Grantee in writing with
the Committee during the Grantee's lifetime.
A Grantee may, from time to time, revoke or change his beneficiary
designation by filing a new beneficiary designation form with the Committee (or
its delegate). The last valid designation received shall be controlling;
provided, however, that no beneficiary designation, or change or revocation
thereof, shall be effective unless received prior to the Grantee's death and in
no event shall it be effective as of a date prior to its receipt.
Notwithstanding any contrary provision of this SECTION 7.5, no beneficiary
designation made by a married Grantee, other than one under which the surviving
lawful spouse of such Grantee is designated as the sole beneficiary, shall be
valid and effective without the written consent of such spouse.
As determined by the Committee, if no valid and effective beneficiary
designation exists at the time of the Grantee's death, no designated beneficiary
survives the Grantee, or if such designation conflicts with applicable law, the
payment of the Grantee's Incentive Award, if earned and payable hereunder, shall
be made to the Grantee's surviving lawful spouse, if any, or if there is no such
surviving spouse, to the executor or administrator of his estate. If the
Committee is in doubt as to the right of any person to receive such amount, the
Committee may direct that the amount be paid into any court of competent
jurisdiction in an interpleader or other action, and such payment, to the extent
thereof, shall be a full and complete discharge of any liability or obligation
therefor under the Plan and the Incentive Agreement.
7.6 DEFERRALS
The Committee may permit a Grantee to defer such Grantee's receipt of
the payment of cash or the delivery of Shares that would, otherwise be due to
such Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance Units, Performance Shares or Other Stock-Based Awards. If any
such deferral election is permitted, the Committee shall, in its discretion,
establish rules and procedures for such payment deferrals to the extent
consistent with the Code.
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7.7 AMENDMENT AND TERMINATION
The Board shall have complete power and authority to terminate or amend
the Plan at any time; provided, however, that the Board shall not, without the
approval of the stockholders of the Company within the time period required by
applicable law, (a) except as provided in SECTION 6.5, increase the maximum
number of Shares which may be issued under the Plan pursuant to SECTION 1.4, (b)
amend the requirements as to the class of Employees eligible to purchase Common
Stock under the Plan, (c) to the extent applicable, increase the maximum limits
on Incentive Awards to Covered Employees as set for compliance with the
Performance-Based Exception, (d) extend the term of the Plan, or (e) to the
extent applicable, decrease the authority granted to the Committee under the
Plan in contravention of Rule 16b-3 under the Exchange Act.
No termination, amendment, or modification of the Plan shall adversely
affect in any material way any outstanding Incentive Award previously granted to
a Grantee under the Plan, without the written consent of such Grantee or other
designated holder of such Incentive Award.
In addition, to the extent that the Committee determines that (a) the
listing for qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
if applicable, or (b) the Code (or regulations promulgated thereunder), require
stockholder approval in order to maintain compliance with such listing
requirements or to maintain any favorable tax advantages or qualifications, then
the Plan shall not be amended in such respect without approval of the Company's
stockholders.
7.8 REQUIREMENTS OF LAW
The granting of Incentive Awards and the issuance of Shares under the
Plan shall be subject to all applicable laws, rules, and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required. Certificates evidencing shares of Common Stock delivered under
this Plan (to the extent that such shares are so evidenced) may be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules and regulations of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon which
the Common Stock is then listed or to which it is admitted for quotation, and
any applicable federal or state securities law. The Committee may cause a legend
or legends to be placed upon such certificates to make appropriate reference to
such restrictions.
7.9 RULE 16B-3 SECURITIES LAW COMPLIANCE
With respect to Insiders to the extent applicable, transactions under
the Plan are intended to comply with all applicable conditions of Rule 16b-3
under the Exchange Act. Any ambiguities or inconsistencies in the construction
of an Incentive Award or the Plan shall be interpreted to give
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effect to such intention. However, to the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void to
the extent permitted by law and deemed advisable by the Committee in its
discretion.
7.10 COMPLIANCE WITH CODE SECTION 162(M)
If the Company is a Publicly Held Corporation, then unless otherwise
determined by the Committee with respect to any particular Incentive Award, it
is intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that any applicable types of Incentive Awards that
are granted to Covered Employees shall qualify for the Performance-Based
Exception. If any provision of the Plan or an Incentive Agreement would
disqualify the Plan or would not otherwise permit the Plan or Incentive Award to
comply with the Performance-Based Exception as so intended, such provision shall
be construed or deemed amended to conform to the requirements of the
Performance-Based Exception to the extent permitted by applicable law and deemed
advisable by the Committee; provided that no such construction or amendment
shall have an adverse effect on the prior grant of an Incentive Award or the
economic value to a Grantee of any outstanding Incentive Award.
7.11 SUCCESSORS
All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
7.12 MISCELLANEOUS PROVISIONS
(a) No Employee, Consultant, Outside Director, or other person
shall have any claim or right to be granted an Incentive Award under the
Plan. Neither the Plan, nor any action taken hereunder, shall be
construed as giving any Employee, Consultant, or Outside Director any
right to be retained in the Employment or other service of the Company
or any Parent or Subsidiary.
(b) No Shares of Common Stock shall be issued hereunder unless
counsel for the Company is then reasonably satisfied that such issuance
will be in compliance with federal and state securities laws, if
applicable.
(c) The expenses of the Plan shall be borne by the Company.
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(d) By accepting any Incentive Award, each Grantee and each
person claiming by or through him shall be deemed to have indicated his
acceptance of the Plan.
7.13 SEVERABILITY
In the event that any provision of this Plan shall be held illegal,
invalid or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provisions of the Plan, and the
Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.
7.14 GENDER, TENSE AND HEADINGS
Whenever the context so requires, words of the masculine gender used
herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Section headings as used herein are inserted solely
for convenience and reference and constitute no part of the interpretation or
construction of the Plan.
7.15 GOVERNING LAW
The Plan shall be interpreted, construed and constructed in accordance
with the laws of the State of Texas without regard to its conflicts of law
provisions, except as may be superseded by applicable laws of the United States.
IN WITNESS WHEREOF, OEI International, Inc. has caused this Plan to be
duly executed in its name and on its behalf by its duly authorized officer.
OEI INTERNATIONAL, INC.
By: /s/ GARY J. COURY
Gary J. Coury, President
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EXHIBIT 10.2
OEI INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
(EFFECTIVE APRIL 8, 1998)
<PAGE>
TABLE OF CONTENTS
PAGE
1. Purpose...........................................................1
2. Definitions......................................................1
(a) "Account"..................................................1
(b) "Base Pay".................................................1
(c) "Benefits Representative"..................................1
(d) "Board"....................................................1
(e) "Code".....................................................1
(f) "Committee"................................................1
(g) "Common Stock".............................................2
(h) "Company"..................................................2
(i) "Disability"...............................................2
(j) "Effective Date"...........................................2
(k) "Employee".................................................2
(l) "Employer".................................................2
(m) "Employment"...............................................2
(n) "Entry Date"...............................................2
(o) "Fiscal Quarter"...........................................3
(p) "Market Price".............................................3
(q) "Participant"..............................................3
(r) "Plan".....................................................3
(s) "Stock"....................................................3
(t) "Subsidiary"...............................................3
3. Eligibility.......................................................4
(a) Eligibility Requirements...................................4
(b) Limitations on Eligibility.................................4
4. Shares Subject to the Plan........................................5
5. Participation.....................................................5
(a) Payroll Deduction Authorization............................5
(b) Continuing Effect of Payroll Deduction Authorization.......5
(c) Employment and Stockholders Rights.........................6
6. Payroll Deductions................................................6
(a) Participant Contributions by Payroll Deductions............6
(b) No Other Participant Contributions Permitted...............6
(c) Changes in Participant Contributions.......................6
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7. Granting of Option to Purchase Stock..............................6
(a) Quarterly Grant of Options.................................6
(b) Option Price...............................................7
8. Exercise of Option................................................7
(a) Automatic Exercise of Options..............................7
(b) Dividends Generally........................................7
(c) Pro-rata Allocation of Available Shares....................8
9. Ownership and Delivery of Shares..................................8
(a) Beneficial Ownership.......................................8
(b) Custody of Shares During Restriction Period................8
(c) Registration of Stock......................................8
(d) Delivery of Stock Certificates.............................8
(e) Regulatory Approval........................................9
10. Withdrawal of Payroll Deductions..................................9
11. Termination of Employment.........................................9
(a) General Rule...............................................9
(b) Termination Due to Retirement, Death or Disability.........9
(c) Termination Other Than for Retirement, Death or Disability.10
(d) Rehired Employees..........................................10
12. Interest..........................................................10
13. Administration of the Plan........................................10
(a) No Participation in Plan by Committee Members..............10
(b) Authority of the Committee.................................10
(c) Meetings...................................................11
(d) Decisions Binding..........................................11
(e) Expenses of Committee......................................11
(f) Indemnification............................................11
14. Designation of Beneficiary........................................12
15. Transferability...................................................12
16. No Rights of Stockholder Until Certificate Issued.................12
17. Changes in the Company's Capital Structure........................13
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18. Plan Expenses; Use of Funds; No Interest Paid.....................14
19. Term of the Plan..................................................14
20. Amendment or Termination of the Plan..............................14
21. Securities Laws Restrictions on Exercise..........................14
22. Section 16 Compliance.............................................15
23. Withholding Taxes for Disqualifying Disposition...................15
24. No Restriction on Corporate Action................................15
25. Use of Funds......................................................15
26. Miscellaneous.....................................................15
(a) Options Carry Same Rights and Privileges...................15
(b) Headings...................................................15
(c) Gender and Tense...........................................16
(d) Governing Law..............................................16
(e) Regulatory Approvals and Compliance........................16
(f) Severability...............................................16
(g) Refund of Contributions on Noncompliance with Tax Law......16
(h) No Guarantee of Tax Consequences...........................16
(i) Company as Agent for the Employers.........................16
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OEI INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The OEI International, Inc. Employee Stock Purchase Plan
(the "Plan") is intended to provide an incentive for employees of OEI
International, Inc. (the "Company") and its participating subsidiaries to
acquire or increase their proprietary interests in the Company through the
purchase of shares of Common Stock of the Company. The Plan is intended to
qualify as an "Employee Stock Purchase Plan" under Sections 421 and 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan will be construed in a manner consistent with the requirements of such
sections of the Code and the regulations issued thereunder.
2. DEFINITIONS. As used in this Plan,
(a) "ACCOUNT" means the account recorded in the records of the
Company established on behalf of a Participant to which the amount of
the Participant's payroll deductions authorized under SECTION 6 and
purchases of Common Stock under SECTION 8 shall be credited, and any
distributions of shares of Common Stock under SECTION 9 and withdrawals
under SECTION 10 shall be charged.
(b) "BASE PAY" means regular straight-time earnings or base
salary, excluding payments for overtime, shift differentials, incentive
compensation, bonuses, and other special payments, fees, allowances or
extraordinary compensation.
(c) "BENEFITS REPRESENTATIVE" means the employee benefits
department of the Company or any such other person, regardless of
whether employed by an Employer, who has been formally, or by operation
or practice, designated by the Committee to assist the Committee with
the day-to-day administration of the Plan.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, or any
successor thereto, as amended and in effect from time to time. Reference
in the Plan to any Section of the Code shall be deemed to include any
amendments or successor provisions to any Section and any treasury
regulations thereunder.
(f) "COMMITTEE" means the Compensation Committee of the Board.
The Board shall have the power to fill vacancies on the Committee
arising by resignation, death, removal or otherwise. The Board, in its
sole discretion, may bifurcate the powers and duties of the Committee
among one or more separate Committees, or retain all powers and duties
of the Committee in a single Committee. The members of the Committee
shall serve at the discretion of the Board.
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(g) "COMMON STOCK" or "STOCK" means the common stock, $.001 par
value per share, of the Company.
(h) "COMPANY" means OEI International, Inc., a Delaware
corporation, and any successor thereto.
(i) "DISABILITY" means any complete and permanent disability as
defined in Section 22(e)(3) of the Code.
(j) "EFFECTIVE DATE" means April 8, 1998, the inception date of
the Plan.
(k) "EMPLOYEE" means any employee who is currently in Employment
with an Employer.
(l) "EMPLOYER" means the Company, its successors, any future
parent (as defined in Section 424(e) of the Code) and each current or
future Subsidiary which has been designated by the Board or the
Committee as a participating employer in the Plan.
(m) "EMPLOYMENT" means Employment as an employee or officer by
the Company or a Subsidiary as designated in such entity's payroll
records, or by any corporation issuing or assuming rights or obligations
under the Plan in any transaction described in Section 424(a) of the
Code or by a parent corporation or a subsidiary corporation of such
corporation. In this regard, neither the transfer of a Participant from
Employment by the Company to Employment by a Subsidiary, nor the
transfer of a Participant from Employment by a Subsidiary to Employment
by the Company, shall be deemed to be a termination of Employment of the
Participant. Moreover, the Employment of a Participant shall not be
deemed to have been terminated because of absence from active Employment
on account of temporary illness or during authorized vacation, temporary
leaves of absence from active Employment granted by Company or a
Subsidiary for reasons of professional advancement, education, health,
or government service, or during military leave for any period if the
Participant returns to active Employment within 90 days after the
termination of military leave, or during any period required to be
treated as a leave of absence which, by virtue of any valid law or
agreement, does not result in a termination of Employment.
Any worker treated as an independent contractor by the Employer
who is later reclassified as a common-law employee shall not be in
Employment during any period in which such worker was treated by the
Employer as an independent contractor. Any "leased employee", as
described in Section 414(n) of the Code, shall not be deemed an Employee
hereunder.
(n) "ENTRY DATE" means the first day of each Fiscal Quarter.
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(o) "FISCAL QUARTER" means a three-consecutive-month period
beginning on each January 1, April 1, July 1, and October 1, during the
period beginning on the Effective Date until the Plan is terminated.
(p) "MARKET PRICE" means, subject to the next paragraph, the
market value of a share of Stock on any date, which shall be determined
as (i) the closing sales price on the immediately preceding business day
of a share of Stock as reported on the New York Stock Exchange or other
principal securities exchange on which shares of Stock are then listed
or admitted to trading or (ii) if not so reported, the average of the
closing bid and asked prices for a share of Stock on the immediately
preceding business day as quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), or (iii) if
not quoted on NASDAQ, the average of the closing bid and asked prices
for a share of Stock as quoted by the National Quotation Bureau's "Pink
Sheets" or the National Association of Securities Dealers' OTC Bulletin
Board System. If the price of a share of Stock shall not be so reported
pursuant to the previous sentence, the fair market value of a share of
Stock shall be determined by the Committee in its discretion provided
that such method is appropriate for purposes of an employee stock
purchase plan under Section 423 of the Code.
Notwithstanding the previous paragraph of this definition, the
Market Price of a share of Stock solely for purposes of determining the
option price on the first or last day of the Fiscal Quarter in
accordance with SECTION 7(B) shall be based on the Market Price on the
first or last day of the Fiscal Quarter, as applicable, and not on the
immediately preceding business day. For example, if the Stock is traded
on the New York Stock Exchange, when determining the option price under
SECTION 7(B) at which shares of Stock are purchased, the Market Price
for determining this option price shall be based on either (i) the first
business day of the Fiscal Quarter or (ii) the last business day of the
Fiscal Quarter, whichever day has the lower closing sales price.
(q) "PARTICIPANT" means any Employee who meets the eligibility
requirements of SECTION 3 and who has elected to and is participating in
the Plan.
(r) "PLAN" means the OEI International, Inc. Employee Stock
Purchase Plan, as set forth herein, and all amendments hereto.
(s) "STOCK" means the Common Stock (as defined above).
(t) "SUBSIDIARY" means any domestic or foreign corporation (other
than the Company) (i) which, pursuant to Section 424(f) of the Code, is
included in an unbroken chain of corporations beginning with the Company
if, at the time of the granting of the option, each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of capital stock in one of the other corporations
in such chain and (ii) which has been
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designated by the Board or the Committee as a corporation whose
Employees are eligible to participate in the Plan.
3. ELIGIBILITY.
(a) ELIGIBILITY REQUIREMENTS. Participation in the Plan is
voluntary. Each Employee (i) whose customary Employment is at least
twenty (20) hours a week and more than five (5) months of Employment in
any calendar year, and (ii) who is in Employment on the Effective Date,
or if not employed on the Effective Date, who has completed at least six
(6) consecutive months of continuous Employment with an Employer
(calculated from his last date of hire to the termination of his
Employment for any reason), will be eligible to participate in the Plan
on the first day of the payroll period commencing on or after the
earlier of (A) the Effective Date or (B) the Entry Date on which the
Employee satisfies the aforementioned eligibility requirements. Each
Employee whose Employment terminates and who is rehired by an Employer
shall be treated as a new Employee for eligibility purposes under the
Plan.
(b) LIMITATIONS ON ELIGIBILITY. Any provision of the Plan to the
contrary notwithstanding, no Employee will be granted an option under
the Plan:
(i) if, immediately after the grant, the Employee would
own stock, and/or hold outstanding options to purchase stock,
possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any
Subsidiary; or
(ii) which permits the Employee's rights to purchase stock
under this Plan and all other employee stock purchase plans
(within the meaning of Section 423 of the Code) of the Company
and its Subsidiaries to accrue at a rate which exceeds $25,000 of
the fair market value of the stock (determined at the time such
option is granted) for each Fiscal year in which such option is
outstanding at any time, all as determined in accordance with
Section 423(b)(8) of the Code.
For purposes of SECTION 3(B)(I) above, pursuant to Section 424(d) of the
Code, (i) the Employee with respect to whom such limitation is being
determined shall be considered as owning the stock owned, directly or
indirectly, by or for his brothers and sisters (whether by the whole or
half blood), spouse, ancestors, and lineal descendants; and (ii) stock
owned, directly or indirectly, by or for a corporation, partnership,
estate, or trust, shall be considered as being owned proportionately by
or for its shareholders, partners, or beneficiaries. In addition, for
purposes of SECTION 3(B)(II) above, pursuant to Section 423(b)(8) of the
Code, (1) the right to purchase stock under an option accrues when the
option (or any portion thereof) first becomes exercisable during the
calendar year, (2) the right to purchase stock under an option accrues
at the rate provided in the option but in no case may such rate exceed
$25,000 of fair market value of such stock (determined at the time such
option is granted)
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for any one calendar year, and (3) a right to purchase stock which has
accrued under one option granted pursuant to the Plan may not be carried
over to any other option.
4. SHARES SUBJECT TO THE PLAN. The total number of shares of Common
Stock that may be issued upon the exercise of options granted under the Plan
will not exceed Three Hundred Thousand (300,000) shares (subject to adjustment
as provided in SECTION 17). Such shares may be originally issued shares,
treasury shares, reacquired shares, shares bought in the market, or any
combination of the foregoing. If any option which has been granted under the
Plan expires or terminates for any reason without having been exercised in full,
the unpurchased shares will again become available for purposes of the Plan. Any
shares which are not subject to outstanding options upon the termination of the
Plan shall cease to be subject to the Plan.
5. PARTICIPATION.
(a) PAYROLL DEDUCTION AUTHORIZATION. An Employee shall be
eligible to participate in the Plan as of the first Entry Date following
such Employee's satisfaction of the eligibility requirements of SECTION
3, or, if later, the first Entry Date following the date on which the
Employee's Employer adopted the Plan. At least 10 days (or such other
period as may be prescribed by the Committee or a Benefits
Representative) prior to the first Entry Date as of which an Employee is
eligible to participate in the Plan, the Employee shall execute and
deliver to the Benefits Representative, on the form prescribed for such
purpose, an authorization for payroll deductions which specifies his
chosen rate of payroll deduction contributions pursuant to SECTION 6,
and such other information as is required to be provided by the Employee
on such enrollment form. The enrollment form shall authorize the
Employer to reduce the Employee's Base Pay by the amount of such
authorized contributions. To the extent provided by the Committee or a
Benefits Representative, each Participant shall also be required to open
a stock brokerage account with a brokerage firm which has been engaged
to administer the purchase, holding and sale of Common Stock for
Accounts under the Plan and, as a condition of participation hereunder,
the Participant shall be required to execute any form required by the
brokerage firm to open and maintain such brokerage account.
(b) CONTINUING EFFECT OF PAYROLL DEDUCTION AUTHORIZATION. Payroll
deductions for a Participant will commence with the first payroll period
beginning after the Participant's authorization for payroll deductions
becomes effective, and will end with the payroll period that ends when
terminated by the Participant in accordance with SECTION 6(C) or due to
his termination of Employment in accordance with SECTION 11. Payroll
deductions will also cease when the Participant is suspended from
participation due to a withdrawal of payroll deductions in accordance
with SECTION 10. When applicable with respect to Employees who are paid
on a hourly wage basis, the authorized payroll deductions shall be
withheld from wages when actually paid following the period in which the
compensatory services were rendered. Only payroll deductions that are
credited to the Participant's Account during the
5
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Fiscal Quarter will be used to purchase Common Stock pursuant to SECTION
8 regardless of when the work was performed.
(c) EMPLOYMENT AND STOCKHOLDERS RIGHTS. Nothing in the Plan will
confer on a Participant the right to continue in the employ of the
Employer or will limit or restrict the right of the Employer to
terminate the Employment of a Participant at any time with or without
cause. A Participant will have no interest in any Common Stock to be
purchased under the Plan or any rights as a stockholder with respect to
such Stock until the Stock has been purchased and credited to the
Participant's Account.
6. PAYROLL DEDUCTIONS.
(a) PARTICIPANT CONTRIBUTIONS BY PAYROLL DEDUCTIONS. At the time
a Participant files his payroll deduction authorization form, the
Participant will elect to have deductions made from the Participant's
Base Pay for each payroll period such authorization is in effect in
whole percentages at the rate of not less than one percent (1%) nor more
than fifteen percent (15%) of the Participant's Base Pay.
(b) NO OTHER PARTICIPANT CONTRIBUTIONS PERMITTED. All payroll
deductions made for a Participant will be credited to the Participant's
Account under the Plan. A Participant may not make any separate cash
payment into such Account.
(c) CHANGES IN PARTICIPANT CONTRIBUTIONS. Subject to SECTIONS 10
AND 22, a Participant may increase, decrease, suspend, or resume payroll
deductions under the Plan by giving written notice to a designated
Benefits Representative at such time and in such form as the Committee
or Benefits Representative may prescribe from time to time. Such
increase, decrease, suspension or resumption will be effective as of the
first day of the first payroll period which begins as soon as
administratively practicable after receipt of the Participant's written
notice, but not earlier than the first day of the payroll period of the
Fiscal Quarter next following receipt and acceptance of such form.
Notwithstanding the previous sentence, a Participant may completely
discontinue contributions at any time during a Fiscal Quarter, effective
as of the first day of the payroll period as soon as administratively
practicable following receipt of a written discontinuance notice from
the Participant on a form provided by a designated Benefits
Representative. Following a discontinuance of contributions, a
Participant cannot authorize any payroll contributions to his Account
for the remainder of the Fiscal Quarter in which the discontinuance was
effective.
7. GRANTING OF OPTION TO PURCHASE STOCK.
(a) QUARTERLY GRANT OF OPTIONS. For each Fiscal Quarter, a
Participant will be deemed to have been granted an option to purchase,
on the first day of the Fiscal Quarter, as many whole and fractional
shares as may be purchased with the payroll deductions (and any
6
<PAGE>
cash dividends as provided in SECTION 8) credited to the Participant's
Account during the Fiscal Quarter.
(b) OPTION PRICE. The option price of the Common Stock purchased
with the amount credited to the Participant's Account during each Fiscal
Quarter will be the lower of:
(i) Ninety percent (90%) of the Market Price of a share of
Stock on the first day of the Fiscal Quarter; or
(ii) Ninety percent (90%) of the Market Price of a share
of Stock on the last day of the Fiscal Quarter.
Only the Market Price as of the first day of the Fiscal Quarter
and the last day of the Fiscal Quarter shall be considered for purposes
of determining the option purchase price; interim fluctuations during
the Fiscal Quarter shall not be considered.
8. EXERCISE OF OPTION.
(a) AUTOMATIC EXERCISE OF OPTIONS. Unless a Participant has
elected to withdraw payroll deductions in accordance with SECTION 10,
the Participant's option for the purchase of Common Stock will be deemed
to have been exercised automatically as of the last day of the Fiscal
Quarter for the purchase of the number of whole and fractional shares of
Common Stock which the accumulated payroll deductions (and cash
dividends on the Common Stock as provided in SECTION 8(B)) in the
Participant's Account at that time will purchase at the applicable
option price; provided, however, the number of shares purchased for the
Fiscal Quarter shall not exceed 20,000 shares. Fractional shares may be
issued under the Plan. As of the last day of each Fiscal Quarter, the
balance of each Participant's Account shall be applied to purchase the
number of whole and fractional shares of Stock as determined by dividing
the balance of such Participant's Account as of such date by the option
price determined pursuant to SECTION 7(B). The Participant's Account
shall be debited accordingly. The Committee or its delegate shall make
all determinations with respect to applicable currency exchange rates if
a Participant's payroll deductions are not made in U.S. dollars.
(b) DIVIDENDS GENERALLY. Cash dividends paid on shares of Common
Stock which have not been delivered to the Participant pending the
Participant's request for delivery pursuant to SECTION 9(C), will be
combined with the Participant's payroll deductions and applied to the
purchase of Common Stock at the end of the Fiscal Quarter in which the
cash dividends are received, subject to the Participant's withdrawal
rights set forth in SECTION 10. Dividends paid in the form of shares of
Common Stock or other securities with respect to shares that have been
purchased under the Plan, but which have not been delivered to the
Participant, will be credited to the shares that are credited to the
Participant's Account.
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(c) PRO-RATA ALLOCATION OF AVAILABLE SHARES. If the total number
of shares to be purchased under option by all Participants exceeds the
number of shares authorized under SECTION 4, a pro-rata allocation of
the available shares will be made among all Participants authorizing
such payroll deductions based on the amount of their respective payroll
deductions through the last day of the Fiscal Quarter.
9. OWNERSHIP AND DELIVERY OF SHARES.
(a) BENEFICIAL OWNERSHIP. A Participant will be the beneficial
owner of the shares of Common Stock purchased under the Plan on exercise
of his option and will have all rights of beneficial ownership in such
shares; provided, however, the Participant may not transfer or otherwise
dispose of the shares for a period of six (6) months following the date
on which the shares were purchased. Any dividends paid with respect to
such shares will be credited to the Participant's Account and applied as
provided in SECTION 8 until the shares are delivered to the Participant.
(b) CUSTODY OF SHARES DURING RESTRICTION PERIOD. The Company, or
a brokerage firm or other entity selected by the Company, will retain
custody of the certificates representing the shares until the expiration
of the six-month period in SECTION 9(A).
(c) REGISTRATION OF STOCK. Stock to be delivered to a Participant
under the Plan will be registered in the name of the Participant, or if
the Participant so directs by written notice to the designated Benefits
Representative or brokerage firm, if any, prior to the purchase of Stock
hereunder, in the names of the Participant and one such other person as
may be designated by the Participant, as joint tenants with rights of
survivorship or as tenants by the entireties, to the extent permitted by
applicable law. Any such designation shall not apply to shares purchased
after a Participant's death by the Participant's beneficiary or estate,
as the case may be, pursuant to SECTION 11(B). If a brokerage firm is
engaged by the Company to administer Accounts under the Plan, such firm
shall provide such account registration forms as are necessary for each
Participant to open and maintain a brokerage account with such firm.
(d) DELIVERY OF STOCK CERTIFICATES. The Company, or a brokerage
firm or other entity selected by the Company, shall deliver to each
Participant a certificate for the number of shares of Common Stock
purchased by the Participant hereunder as soon as practicable after the
close of each Fiscal Quarter. Alternatively, in the discretion of the
Committee, the stock certificate may be delivered to a designated stock
brokerage account maintained for the Participant and held in "street
name" in order to facilitate the subsequent sale of the purchased
shares. As provided in SECTION 9(A), the Participant may not transfer or
otherwise dispose of the shares for a period of six (6) months following
the date on which the shares were purchased.
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(e) REGULATORY APPROVAL. In the event the Company is required to
obtain from any commission or agency the authority to issue any stock
certificate hereunder, the Company shall seek to obtain such authority.
The inability of the Company to obtain from any such commission or
agency the authority which counsel for the Company deems necessary for
the lawful issuance of any such certificate shall relieve the Company
from liability to any Participant, except to return to the Participant
the amount of his Account balance used to exercise the option to
purchase the affected shares.
10. WITHDRAWAL OF PAYROLL DEDUCTIONS. At any time during a Fiscal
Quarter, but in no event later than 15 days (or such shorter prescribed by the
Committee or a Benefits Representative) prior to the last day of the Fiscal
Quarter, a Participant may elect to abandon his election to purchase Common
Stock under the Plan. By written notice to the designated Benefits
Representative on a form provided for such purpose, the Participant may thus
elect to withdraw all of the accumulated balance in his Account being held for
the purchase of Common Stock in accordance with SECTION 8(B). Partial
withdrawals will not be permitted. All such amounts will be paid to the
Participant as soon as administratively practical after receipt of his notice of
withdrawal. After receipt and acceptance of such withdrawal notice, no further
payroll deductions will be made from the Participant's Base Pay beginning as of
the next payroll period during the Fiscal Quarter in which the withdrawal notice
is received. The Committee, in its discretion, may determine that amounts
otherwise withdrawable hereunder by Participants shall be offset by an amount
that the Committee, in its discretion, determines to be reasonable to help
defray the administrative costs of effecting the withdrawal, including, without
limitation, fees imposed by any brokerage firm which administers such
Participant's Account. After a withdrawal, an otherwise eligible Participant may
resume participation in the Plan as of the first day of the Fiscal Quarter next
following his delivery of a payroll deduction authorization pursuant to the
procedures prescribed in SECTION 5(A).
11. TERMINATION OF EMPLOYMENT.
(a) GENERAL RULE. Upon termination of a Participant's
Employment for any reason, his participation in the Plan will
immediately terminate.
(b) TERMINATION DUE TO RETIREMENT, DEATH OR DISABILITY. If the
Participant's termination of Employment is due to (i) retirement from
Employment on or after his attainment of age 65, (ii) death or (iii)
Disability, the Participant (or the Participant's personal
representative or legal guardian in the event of Disability, or the
Participant's beneficiary (as defined in SECTION 14) or the
administrator of his will or executor of his estate in the event of
death), will have the right to elect, either to:
(1) Withdraw all of the cash and shares of Common Stock
credited to the Participant's Account as of his termination date;
or
(2) Exercise the Participant's option for the purchase of
Common Stock on the last day of the Fiscal Quarter (in which
termination of Employment occurs)
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for the purchase of the number of shares of Common Stock which
the cash balance credited to the Participant's Account as of the
date of the Participant's termination of Employment will purchase
at the applicable option price.
The Participant (or, if applicable, such other person designated in the
first paragraph of this SECTION 11(B)) must make such election by giving
written notice to the Benefits Representative at such time and in such
manner as prescribed from time to time by the Committee or Benefits
Representative. In the event that no such written notice of election is
received by the Benefits Representative within 30 days of the
Participant's termination of Employment date, the Participant (or such
other designated person) will automatically be deemed to have elected to
withdraw the balance in the Participant's Account as of his termination
date. Thereafter, any accumulated cash and shares of Common Stock
credited to the Participant's Account as of his termination of
Employment date will be delivered to or on behalf of the Participant as
soon as administratively practicable.
(c) TERMINATION OTHER THAN FOR RETIREMENT, DEATH OR DISABILITY.
Upon termination of a Participant's Employment for any reason other than
retirement, death, or Disability pursuant to SECTION 11(B), the
participation of the Participant in the Plan will immediately terminate.
Thereafter, any accumulated cash and shares of Common Stock credited to
the Participant's Account as of his termination of Employment date will
be delivered to the Participant as soon as administratively practicable.
(d) REHIRED EMPLOYEES. Any Employee whose Employment terminates
and who is subsequently rehired by an Employer shall be treated as a new
Employee for purposes of eligibility to participate in the Plan.
12. INTEREST. No interest will be paid or allowed on any money paid into
the Plan or credited to the Account of any Participant.
13. ADMINISTRATION OF THE PLAN.
(a) NO PARTICIPATION IN PLAN BY COMMITTEE MEMBERS. No options may
be granted under the Plan to any member of the Committee during the term
of his membership on the Committee.
(b) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the
Plan, the Committee shall have the plenary authority to (a) interpret
the Plan and all options granted under the Plan, (b) make such rules as
it deems necessary for the proper administration of the Plan, (c) make
all other determinations necessary or advisable for the administration
of the Plan, and (d) correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any option granted under
the Plan in the manner and to the extent that the Committee deems
advisable. Any action taken or determination made by the Committee
pursuant to this and the other provisions of the Plan shall be
conclusive on all parties. The
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act or determination of a majority of the Committee shall be deemed to
be the act or determination of the Committee. By express written
direction, or by the day-to-day operation of Plan administration, the
Committee may delegate the authority and responsibility for the
day-to-day administrative or ministerial tasks of the Plan to a Benefits
Representative, including a brokerage firm or other third party engaged
for such purpose.
(c) MEETINGS. The Committee shall designate a chairman from among
its members to preside at its meetings, and may designate a secretary,
without regard to whether that person is a member of the Committee, who
shall keep the minutes of the proceedings. Meetings shall be held at
such times and places as shall be determined by the Committee, and the
Committee may hold telephonic meetings. The Committee may take any
action otherwise proper under the Plan by the affirmative vote of a
majority of its members, taken at a meeting, or by the affirmative vote
of all of its members taken without a meeting. The Committee may
authorize any one or more of their members or any officer of the Company
to execute and deliver documents on behalf of the Committee.
(d) DECISIONS BINDING. All determinations and decisions made by
the Committee shall be made in its discretion pursuant to the provisions
of the Plan, and shall be final, conclusive and binding on all persons
including the Company, Participants, and their estates and
beneficiaries.
(e) EXPENSES OF COMMITTEE. The Committee may employ legal
counsel, including, without limitation, independent legal counsel and
counsel regularly employed by the Company, consultants and agents as the
Committee may deem appropriate for the administration of the Plan. The
Committee may rely upon any opinion or computation received from any
such counsel, consultant or agent. All expenses incurred by the
Committee in interpreting and administering the Plan, including, without
limitation, meeting expenses and professional fees, shall be paid by the
Company.
(f) INDEMNIFICATION. Each person who is or was a member of the
Committee shall be indemnified by the Company against and from any
damage, loss, liability, cost and expense that may be imposed upon or
reasonably incurred by him in connection with or resulting from any
claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act
under the Plan, except for any such act or omission constituting willful
misconduct or gross negligence. Such person shall be indemnified by the
Company for all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of any judgment in
any such action, suit, or proceeding against him, provided he shall give
the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under
the Company's Articles of Incorporation or Bylaws, as a matter of law,
or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
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14. DESIGNATION OF BENEFICIARY. At such time, in such manner, and using
such form as shall be prescribed from time to time by the Committee or a
Benefits Representative, a Participant may file a written designation of a
beneficiary who is to receive any Common Stock and/or cash credited to the
Participant's Account at the Participant's death. Upon the death of a
Participant, and receipt by the Benefits Representative of proof of the identity
of a beneficiary validly designated under the Plan, the Benefits Representative
will take appropriate action to ensure delivery of such Common Stock and/or cash
to such beneficiary.
A Participant may, from time to time, revoke or change his beneficiary
designation by filing a new designation form with the Benefits Representative.
The last valid designation received shall be controlling; provided, however,
that no beneficiary designation, or change or revocation thereof, shall be
effective unless received prior to the Participant's death and in no event shall
it be effective as of a date prior to its receipt and acceptance by the Benefits
Representative. Notwithstanding any contrary provision of this SECTION 14, no
beneficiary designation made by a married Participant, other than one under
which the surviving lawful spouse of such Participant is designated as the sole
beneficiary, shall be valid and effective without the written consent of such
spouse.
If no valid and effective beneficiary designation exists at the time of
the Participant's death, or if no designated beneficiary survives the
Participant, or if such designation conflicts with applicable law, the payment
of the Participant's Account balance shall be made to the Participant's
surviving lawful spouse, if any, of if there is no such surviving spouse, to the
executor or administrator of his estate. If the Committee is in doubt as to the
right of any person to receive such amount, the Committee may direct that the
amount be paid into any court of competent jurisdiction in an interpleader
action, and such payment shall be a full and complete discharge of any liability
or obligation under the Plan to the extent of such payment.
15. TRANSFERABILITY. No amounts credited to a Participant's Account,
whether cash or Common Stock, nor any rights with regard to the exercise of an
option or to receive Common Stock under the Plan, may be assigned, transferred,
pledged, or otherwise disposed of in any way by the Participant other than by
will or the laws of descent and distribution. Any such attempted assignment,
transfer, pledge, or other disposition will be void and without effect.
Each option shall be exercisable, during the Participant's lifetime,
only by the Employee to whom the option was granted. The Company shall not
recognize, and shall be under no duty to recognize, any assignment or purported
assignment by an employee of his option or of any rights under his option.
16. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUED. With respect to
shares of Stock subject to an option, an optionee shall not be deemed to be a
stockholder, and the optionee shall not have any of the rights or privileges of
a stockholder. An optionee shall have the rights and privileges of a stockholder
when, but not until, a certificate for shares has been issued to the optionee
following exercise of his option.
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17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The Board shall make or
provide for such adjustments in the maximum number of shares specified in
SECTION 4 and the number and option price of shares subject to options
outstanding under the Plan as the Board shall determine is appropriate to
prevent dilution or enlargement of the rights of Participants that otherwise
would result from any stock dividend, stock split, stock exchange, combination
of shares, recapitalization or other change in the capital structure of the
Company, merger, consolidation, spin-off of assets, reorganization, partial or
complete liquidation, issuance of rights or warrants to purchase securities, any
other corporate transaction or event having an effect similar to any of the
foregoing.
In the event of a merger of one or more corporations into the Company,
or a consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each Participant, at no additional
cost, shall be entitled, upon his payment for all or part of the Common Stock
purchasable by him under the Plan, to receive (subject to any required action by
shareholders) in lieu of the number of shares of Common Stock which he was
entitled to purchase, the number and class of shares of stock or other
securities to which such holder would have been entitled pursuant to the terms
of the agreement of merger or consolidation if, immediately prior to such merger
or consolidation, such holder had been the holder of record of the number of
shares of Common Stock equal to the number of shares purchasable by the
Participant hereunder.
If the Company shall not be the surviving corporation in any
reorganization, merger or consolidation (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company), or if
the Company is to be dissolved or liquidated or sell substantially all of its
assets or stock to another corporation or other entity, then (i) the date of
exercise for all options then outstanding may be accelerated to a date fixed by
the Committee prior to the effective date of such corporate event, (ii) a
Participant may, at his election by written notice to the Company, either (x)
withdraw from the Plan pursuant to SECTION 10 and receive a full distribution of
the cash and Stock balance credited to his Account, or (y) fully exercise
pursuant to SECTION 8(A) his outstanding options as of such exercise date to
purchase shares of Stock, at the option price, to the extent of the cash balance
in the Participant's Account pursuant to SECTION 8(A) and, in such event, the
date fixed by the Committee shall be deemed the last day of the Fiscal Quarter
for purposes of SECTION 8(A). If the Participant fails to provide the notice of
exercise within three business days after the date selected by the Committee,
the Participant shall be conclusively deemed to have requested to receive full
payment of the accumulated balance of his Account. After the date fixed by the
Committee, the six month holding period requirement of SECTION 9(A) will no
longer be effective and thus the shares may be transferred within such 6-month
period. The date the Committee selects for the exercise date shall be deemed to
be the exercise date for purposes of computing the option price pursuant to
SECTION 7(B). If the Participant elects to exercise his outstanding options, the
Company shall deliver to such Participant a stock certificate issued pursuant to
SECTION 9(D) for the number of shares with respect to which such options were
exercised. The Committee shall take such steps in connection with such
transactions as the Committee deems necessary or appropriate to assure that the
provisions of this SECTION 17 are effectuated for the benefit of the
Participants.
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Except as expressly provided in this SECTION 17, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services either
upon direct sale or 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, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of shares of
Stock then available for purchase under the Plan.
18. PLAN EXPENSES; USE OF FUNDS; NO INTEREST PAID. The expenses of the
Plan shall be paid by the Company except as otherwise provided herein or under
the terms and conditions of any agreement entered into between the Participant
and any brokerage firm engaged to administer Accounts. All funds received or
held by the Company under the Plan shall be included in the general funds of the
Company free of any trust or other restriction, and may be used for any
corporate purpose. No interest shall be paid to any Participant or credited to
his Account under the Plan.
19. TERM OF THE PLAN. The Plan shall become effective as of April
8,1998, subject to approval by the holders of the majority of the Common Stock
present and represented at a special or annual meeting of the Company's
stockholders held on or before 12 months from April 8, 1998.
Except with respect to options then outstanding, if not terminated
sooner under the provisions of SECTION 20, no further options shall be granted
under the Plan at the EARLIER of (i) April 7, 2008, or (ii) the point in time
when no shares of Stock reserved for issuance under SECTION 4 are available.
20. AMENDMENT OR TERMINATION OF THE PLAN. The Board shall have the
plenary authority to terminate or amend the Plan; provided, however, that the
Board shall not, without the approval of the stockholders of the Company, (a)
increase the maximum number of shares which may be issued under the Plan
pursuant to SECTION 4, (b) amend the requirements as to the class of employees
eligible to purchase Stock under the Plan, or (c) permit the members of the
Committee to purchase Stock under the Plan. No termination, modification, or
amendment of the Plan shall adversely affect the rights of a Participant with
respect to an option previously granted to him under such option without his
written consent.
In addition, to the extent that the Committee determines that, in the
opinion of counsel, (a) the listing for qualification requirements of any
national securities exchange or quotation system on which the Company's Common
Stock is then listed or quoted, or (b) the Code or Treasury regulations issued
thereunder, require stockholder approval in order to maintain compliance with
such listing or qualification requirements or to maintain any favorable tax
advantages or qualifications, then the Plan shall not be amended by the Board in
such respect without first obtaining such required approval of the Company's
stockholders.
21. SECURITIES LAWS RESTRICTIONS ON EXERCISE. The Committee may, in its
discretion, require as conditions to the exercise of any option that the shares
of Common Stock reserved for issuance upon the exercise of the option shall have
been duly listed, upon official notice of issuance, upon a stock exchange, and
that either:
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(a) a Registration Statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective; or
(b) the participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it is
his intention to purchase the Stock for investment and not for resale or
distribution.
22. SECTION 16 COMPLIANCE. The Plan, and transactions hereunder by
persons subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), are intended to comply with all applicable conditions of
the exemption under Rule 16b-3 or any successor exemption provision promulgated
under the Exchange Act.
23. WITHHOLDING TAXES FOR DISQUALIFYING DISPOSITION. Whenever shares of
Stock that were received upon the exercise of an option granted under the Plan
are disposed of within two years after the date of grant of such option or one
year from the date of exercise of such option (within the meaning of Section
423(a)(1)), the Company shall have the right to require the Participant to remit
to the Company in cash an amount sufficient to satisfy federal, state and local
withholding and payroll tax requirements, if any, attributable to such
disposition prior to authorizing such disposition or permitting the delivery of
any certificate or certificates with respect thereto.
24. NO RESTRICTION ON CORPORATE ACTION. Subject to SECTION 20, nothing
contained in the Plan shall be construed to prevent the Board or any Employer
from taking any corporate action which is deemed by the Employer to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any option granted under the Plan. No Employee,
beneficiary or other person shall have any claim against any Employer as a
result of any such action.
25. USE OF FUNDS. The Employers shall promptly transfer all amounts
withheld under SECTION 6 to the Company or to any brokerage firm engaged to
administer Accounts, as directed by the Company. All payroll deductions received
or held by the Company under the Plan may be used by the Company for any
corporate purpose, and the Company will not be obligated to segregate such
payroll deductions.
26. MISCELLANEOUS.
(a) OPTIONS CARRY SAME RIGHTS AND PRIVILEGES. To the extent
required to comply with the requirements of Section 423 of the Code, all
Employees granted options under the Plan to purchase Common Stock shall
have the same rights and privileges hereunder.
(b) HEADINGS. Any headings or subheadings in this Plan are
inserted for convenience of reference only and are to be ignored in the
construction or interpretation of any provisions hereof.
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<PAGE>
(c) GENDER AND TENSE. Any words herein used in the masculine
shall be read and construed in the feminine when appropriate. Words in
the singular shall be read and construed as though in the plural, and
vice-versa, when appropriate.
(d) GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of the State of Texas without regard to its
conflicts of law provisions, to the extent not preempted by federal law.
(e) REGULATORY APPROVALS AND COMPLIANCE. The Company's obligation
to sell and deliver Common Stock under the Plan is at all times subject
to all approvals of and compliance with the (i) regulations of any
applicable stock exchanges and (ii) any governmental authorities
required in connection with the authorization, issuance, sale or
delivery of such Stock, as well as federal, state and foreign securities
laws.
(f) SEVERABILITY. In the event that any provision of this Plan
shall be held illegal, invalid, or unenforceable for any reason, such
provision shall be fully severable, but shall not affect the remaining
provisions of the Plan, and the Plan shall be construed and enforced as
if the illegal, invalid, or unenforceable provision had not been
included herein.
(g) REFUND OF CONTRIBUTIONS ON NONCOMPLIANCE WITH TAX LAW. In the
event the Company should receive notice that this Plan fails to qualify
as an "employee stock purchase plan" under Section 423 of the Code, all
then-existing Account balances will be paid to the Participants and the
Plan shall immediately terminate.
(h) NO GUARANTEE OF TAX CONSEQUENCES. The Board, Employer and the
Committee do not make any commitment or guarantee that any tax treatment
will apply or be available to any person participating or eligible to
participate in the Plan, including, without limitation, any tax imposed
by the United States or any state thereof, any estate tax, or any tax
imposed by a foreign government.
(i) COMPANY AS AGENT FOR THE EMPLOYERS. Each Employer, by
adopting the Plan, appoints the Company and the Board as its agents to
exercise on its behalf all of the powers and authorities hereby
conferred upon the Company and the Board by the terms of the Plan,
including, but not by way of limitation, the power to amend and
terminate the Plan.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, this Plan is hereby executed by a duly authorized
officer of the Company, to be effective as of April 8, 1998.
OEI INTERNATIONAL, INC.
By: /s/ GARY J. COURY
Gary J. Coury, President
17
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into and effective as of the
______ day of ____________________, 1998 ("Agreement"), by and between OEI
International, Inc., a Delaware corporation ("Company"), and _____________
("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
corporations as directors, executive officers or in other capacities unless they
are provided, with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, the corporation;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons' serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the corporation or business enterprise itself;
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons;
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
<PAGE>
SECTION 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as a
director/executive officer of the Company and, as mutually agreed by Indemnitee
and the Company, as a director, officer, employee, agent or fiduciary of other
corporations, partnerships, joint ventures, trusts or other enterprises
(including, without limitation, employee benefit plans). Indemnitee may at any
time and for any reason resign from any such position (subject to any other
contractual obligation or any obligation imposed by operation of law), in which
event the Company shall have no obligation under this Agreement to continue
Indemnitee in that position. This Agreement shall not be deemed an employment
contract between the Company (or any of its subsidiaries) and Indemnitee.
Indemnitee specifically acknowledges that Indemnitee's employment with the
Company (or any of its subsidiaries), if any, is at will, and the Indemnitee may
be discharged at any time for any reason, with or without cause, except as may
be otherwise provided in any written employment contract between Indemnitee and
the Company (or any of its subsidiaries), other applicable formal severance
policies duly adopted by the Board or, with respect to service as a director of
the Company, by the Company's Certificate of incorporation, Bylaws and the
General Corporation Law of the State of Delaware. Notwithstanding, the
foregoing, this Agreement shall continue in force after Indemnitee has ceased to
serve as an officer or director of the Company and no longer serves at the
request of the Company as a director, officer, employee or agent of the Company
or any subsidiary of the Company.
SECTION 2. INDEMNIFICATION--GENERAL. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this
Agreement and (b) to the fullest extent permitted by applicable law in effect on
the date hereof and as amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
SECTION 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. Indemnitee shall be entitled to the rights of indemnification provided
in Section 2 and this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, the Company shall indemnify Indemnitee against, and shall hold
Indemnitee harmless from and in respect of, all Expenses, judgments, penalties,
fines (including excise taxes) and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
SECTION 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee
shall be entitled to the rights of indemnification provided in Section 2 and
this Section 4 if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, the Company shall indemnify Indemnitee
against, and shall
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hold Indemnitee harmless from and in respect of, all Expenses actually and
reasonably incurred by him or on his behalf in connection with, and any amounts
paid in settlement of, such Proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company. Notwithstanding the foregoing, no indemnification against such Expenses
shall be made in respect of any claim, issue or matter in such Proceeding as to
which Indemnitee shall have been adjudged to be liable to the Company if
applicable law prohibits such indemnification; PROVIDED, HOWEVER, if applicable
law so permits, indemnification against such Expenses shall nevertheless be made
by the Company in such event if and only to the extent that the Court of
Chancery of the State of Delaware, or the court in which such Proceeding shall
have been brought or is pending, shall determine.
SECTION 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to (or a
participant in) and is successful, on the merits or otherwise, in defense of any
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in defense of such Proceeding but is successful, on the merits
or otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company shall indemnify Indemnitee against all Expenses
actually and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 6. INDEMNIFICATION FOR EXPENSES AS A WITNESS. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
SECTION 7. ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it ultimately shall
be determined, in accordance with this Agreement, that Indemnitee is not
entitled to be indemnified against such Expenses.
SECTION 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that
Indemnitee has
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<PAGE>
requested indemnification.
(b) On written request by Indemnitee for indemnification pursuant to the
first sentence of Section 8(a), a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto shall be made in the specific
case: (i) if a Change in Control (as hereinafter defined) shall have occurred
within two (2) years prior to the date of such written request, by Independent
Counsel (as hereinafter defined) in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not
have occurred within two (2) years prior to the date of such written request,
(A) by a majority vote of the Disinterested Directors (as hereinafter defined),
even though less than a quorum of the Board, or (B) if there are no such
Disinterested Directors, or if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee; and, if it is so determined that Indemnitee is entitled
to indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity on
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b), the Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred within two (2) years prior to the date of
Indemnitee's written request for indemnification pursuant to Section 8(a), the
Independent Counsel shall be selected by the Board, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred within two (2)
years prior to the date of Indemnitee's written request for indemnification
pursuant to Section 8(a), the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board, in which event the preceding sentence shall apply), and Indemnitee shall
give written notice to the Company advising it of the identity of the
Independent Counsel so selected in either event, Indemnitee or the Company, as
the case may be, may, within ten (10) days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection. Such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in section 17, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is so made and substantiated, the
Independent Counsel so selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within twenty (20) days after submission by Indemnitee of
a written request for indemnification pursuant to Section 8(a), no Independent
Counsel shall have been
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<PAGE>
selected and not objected to, either the Company or Indemnitee may petition the
Court of Chancery or other court of competent jurisdiction for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person selected by the petitioned court or by such other person as
the petitioned court shall designate, and the person with respect to whom all
objections are so resolved or the person so appointed shall act as Independent
Counsel under Section 8(b). The Company shall pay any and all reasonable fees
and expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b), and the Company shall pay all
reasonable fees and expenses incident to the procedures of this Section 8(c),
regardless of the manner in which such Independent Counsel was selected and
appointed. If (i) Independent Counsel does not make any determination respecting
Indemnitee's entitlement to indemnification hereunder within ninety (90) days
after receipt by the Company of a written request therefor and (ii) any judicial
proceeding or arbitration pursuant to Section 10(a)(iii) hereof is then
commenced, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
SECTION 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the Person, Persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a), and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or on a plea of NOLO
CONTENDERE or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(c) Any action taken by Indemnitee in connection with any employee
benefit plan shall, if taken in good faith by Indemnitee and in a manner
Indemnitee reasonably believed to be in the interest of the participants in or
beneficiaries of that plan, be deemed to have been taken in a manner "not
opposed to the best interests of the Company" for all purposes of this
Agreement.
SECTION 10. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section 8
that Indemnitee is not entitled to indemnification hereunder, (ii) advancement
of Expenses is not timely made pursuant to Section 7, (iii) Independent Counsel
is to determine Indemnitee's entitlement to indemnification hereunder, but does
not make that determination within ninety (90) days after receipt by the
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<PAGE>
Company of the request for that indemnification, (iv) payment of indemnification
is not made pursuant to section 5 or 6 within ten (10) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within ten (10) days after a determination has been made that Indemnitee is
entitled to indemnification, Indemnitee shall be entitled to an adjudication
from the Court of Chancery of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. Indemnitee
shall commence such Proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a); PROVIDED, HOWEVER, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 5.
(b) In the event that a determination shall have been made pursuant to
Section 8(b) that Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration commenced pursuant to this Section 10 shall be
conducted in all respects as a DE NOVO trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. In
any judicial proceeding or arbitration commenced pursuant to this section 10,
the Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 8(b)
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact,
or an omission by Indemnitee of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
(d) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17) actually and reasonably incurred by him in such judicial
adjudication or arbitration, but only if he prevails therein. If it shall be
determined in said judicial adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
SECTION 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION.
(a) The rights of indemnification and to receive advancement of Expenses
as provided by this Agreement shall not be deemed exclusive of any other rights
to which Indemnitee may at any time be entitled under applicable law, the
Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders
or a resolution of directors, or otherwise. No amendment, alteration or repeal
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<PAGE>
of this Agreement or of any provision hereof shall limit or restrict any right
of Indemnitee under this Agreement in respect of any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal. To the extent that a change in Delaware law (whether by statute or
judicial decision) permits greater indemnification by agreement than would be
afforded currently under this Agreement, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits so afforded
by such change.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, Officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder
to Indemnitee with respect to Indemnitee's service at the request of the Company
as a director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise shall be reduced
by any amount Indemnitee has actually received as indemnification or advancement
of Expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 12. DURATION OF AGREEMENT. This Agreement shall continue until
and terminate upon the later of: (a) ten (10) years after the date that
Indemnitee shall have ceased to serve as a director or officer of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served on behalf of the Company; or
(b) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 10
relating thereto. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of Indemnitee and his
spouse (if Indemnitee resides in Texas or another community property state),
heirs, executors and administrators, and this Agreement does not, and shall not
be construed to confer any rights on any person that is not a party to this
Agreement, other than Indemnitee's spouse, and his heirs, executors and assigns.
7
<PAGE>
SECTION 13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable which is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including. without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable which
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
SECTION 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Notwithstanding any other provision hereof, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding brought by Indemnitee or any claim therein prior to a
Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors.
SECTION 15. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts by means of original or facsimile signatures, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. HEADINGS. The headings of the Sections hereof are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
SECTION 17. DEFINITIONS. For purposes of this Agreement:
(a) "Acquiring Person" means any Person who or which, together
with all Affiliates and Associates of such Person, is or are the
Beneficial Owner of twenty-five percent (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person;
PROVIDED, HOWEVER, that a Person shall not be or become an Acquiring
Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of twenty-five percent (25%) or more
of the shares of Common Stock then outstanding solely as a result of a
reduction in the number of shares of Common Stock outstanding due to the
repurchase of Common Stock by the Company, unless and until such time as
such Person or any Affiliate or Associate of such Person shall purchase
or otherwise become the Beneficial Owner of additional shares of Common
Stock constituting one percent (1%) or more of the then outstanding
shares of Common Stock or any other Person (or Persons) who is (or
collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of
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<PAGE>
Common Stock shall become an Affiliate or Associate of such Person,
unless, in either such case, such Person, together with all Affiliates
and Associates of such Person, is not then the Beneficial Owner of
twenty-five percent (25%) or more of the shares of Common Stock then
outstanding.
(b) "Affiliate" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
(c) "Associate" means, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated organization
or other entity (other than the Company or a subsidiary of the Company)
of which that Person is an officer or general partner (or officer or
general partner of a general partner) or is, directly or indirectly, the
Beneficial owner of 10% or more of any class of its equity securities,
(ii) any trust or other estate in which that Person has a substantial
beneficial interest or for or of which that Person serves as trustee or
in a similar fiduciary capacity and (iii) any relative or spouse of that
Person, or any relative of that spouse, who has the same home as that
Person.
(d) A specified Person is deemed the "Beneficial Owner" of, and
is deemed to "beneficially own," any securities:
(i) of which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, is the
"beneficial owner" (as determined pursuant to Exchange Act Rule
13d-3) or otherwise has the right to vote or dispose of,
including pursuant to any agreement, arrangement or understanding
(whether or not in writing); PROVIDED, HOWEVER, that a Person
shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph as a
result of an agreement, arrangement or understanding to vote that
security if that agreement, arrangement or understanding: (A)
arises solely from a revocable proxy or consent given in response
to a public (that is, not including a solicitation exempted by
Exchange Act Rule 14a-2(b)(2)) proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of
the Exchange Act; and (B) is not then reportable by such Person
on Exchange Act Schedule 13D (or any comparable or successor
report);
(ii) which that Person or any of that Person's Affiliates
or Associates, directly or indirectly, has the right or
obligation to acquire (whether that right or obligation is
exercisable or effective immediately or only after the passage of
time or the occurrence of an event) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or on
the exercise of conversion rights, exchange rights, other rights,
warrants or options, or otherwise; PROVIDED, HOWEVER, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered
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<PAGE>
pursuant to a tender or exchange offer made by that Person or any
of that Person's Affiliates or Associates until those tendered
securities are accepted for purchase or exchange; or
(iii) which are beneficially owned, directly or
indirectly, by (A) any other Person (or any Affiliate or
Associate thereof) with which the specified Person or any of the
specified Person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing) for the
purpose of acquiring, holding, voting (except pursuant to a
revocable proxy or consent as described in the proviso to
subparagraph (i) of this definition) or disposing of any voting
securities of the Company or (B) any group (as that term is used
in Exchange Act Rule 13d-5(b)) of which that specified Person is
a member;
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of that acquisition. For purposes
of this Agreement, "voting" a security shall include voting, granting a proxy,
acting by consent, making a request or demand relating to corporate action
(including, without limitation, calling a stockholder meeting) or otherwise
giving an authorization (within the meaning of Section 14(a) of the Exchange
Act) in respect of such security.
(e) "Change of Control" means the occurrence of any of the
following events that occurs after the IPO Closing Date: (i) any Person
becomes an Acquiring Person; (ii) at any time the then Continuing
Directors cease to constitute a majority of the members of the Board;
(iii) a merger of the Company with or into, or a sale by the Company of
its properties and assets substantially as an entirety to, another
Person occurs and, immediately after that occurrence, any Person, other
than an Exempt Person, together with all Affiliates and Associates of
such Person, shall be the Beneficial Owner of twenty-five percent (25%)
or more of the total voting power of the then outstanding Voting Shares
of the Person surviving that transaction (in the case or a merger or
consolidation) or the Person acquiring those properties and assets
substantially as an entirety.
(f) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(g) "Continuing Director" means at any time any individual who
then (i) is a member of the Board and was a member of the Board as of
the IPO Closing Date or whose nomination for his first election, or that
first election, to the Board following that date was recommended or
approved by a majority of the then Continuing Directors (acting
separately or as a part of any action taken by the Board or any
committee thereof) and (ii) is not an Acquiring Person, an Affiliate or
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PAGE>
Associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such Affiliate or Associate.
(h) "Corporate Status" describes the status of a Person who is or
was a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Company. For purposes of this Agreement, "serving at the
request of the Company" includes any service by Indemnitee which imposes
duties on, or involves services by, Indemnitee with respect to any
employee benefit plan or its participants or beneficiaries.
(i) "Court of Chancery" means the Court of Chancery of the State
of Delaware.
(j) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee hereunder.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Exempt Person" means (i), (A) the Company, any subsidiary of
the Company, any employee benefit plan of the Company or of any
subsidiary of the Company and (B) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such plan
or for the purpose of funding any such plan or funding other employee
benefits for employees of the Company or any subsidiary of the Company
and (ii) Indemnitee, any Affiliate or Associate of Indemnitee or any
group (as that term is used in Exchange Act Rule 13d-5(b)) of which
Indemnitee or any Affiliate or Associate of Indemnitee is a member.
(m) "Expenses" include all attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, all other disbursements or expenses of
the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, being or
preparing to be a witness in, or otherwise participating in, a
Proceeding and all interest or finance charges attributable to any
thereof. Should any payments by the Company under this Agreement be
determined to be subject to any federal, state or local income or excise
tax, "Expenses" also shall include such amounts as are necessary to
place Indemnitee in the same after-tax position (after giving effect to
all applicable taxes) he would have been in had no such tax been
determined to apply to such payments.
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PAGE>
(m) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five (5) years has been, retained to
represent: (i) the Company, its Affiliates or Indemnitee in any matter
material to either such party; or (ii) any other Party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing. the term "Independent Counsel" shall not include any
person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
(o) "IPO" means the first time a registration statement filed
under the Securities Act of 1933, as amended, and respecting an
underwritten primary offering by the Company of shares of Common Stock
is declared effective under that act and the shares registered by that
registration statement are issued and sold by the Company (otherwise
than pursuant to the exercise of any over-allotment option).
(p) "IPO Closing Date" means the date on which the Company first
receives payment for the shares of Common Stock it sells in the IPO.
(q) "Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status,
limited liability company, business trust, unincorporated organization
or association, mutual company, joint stock company, joint venture,
estate, trust, union or employee organization or governmental authority.
(r) "Proceeding" includes any action, suit, alternate dispute
resolution mechanism, hearing or any other proceeding, whether civil,
criminal, administrative, arbitrative, investigative or mediative, any
appeal in any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding and any inquiry or investigation that could
lead to any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding, except one (i) initiated by an Indemnitee
pursuant to Section 10 to enforce his rights hereunder or (ii) pending
on or before the date of this Agreement.
(s) "Voting Shares" means: (i) in the case of any corporation,
stock of that corporation of the class or classes having general voting
power under ordinary circumstances to elect a majority of that
corporation's board of directors; and (ii) in the case of any other
entity, equity interests of the class or classes having general voting
power under ordinary circumstances equivalent to the Voting Shares of a
corporation.
SECTION 18. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of
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any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
SECTION 19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder; PROVIDED, HOWEVER, failure to give such notice shall not
deprive Indemnitee of his rights to indemnification and advancement of Expenses
under this Agreement unless the Company is actually and materially prejudiced
thereby.
SECTION 20. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or (b) mailed by
certified or registered mail with postage prepaid, on the third (3rd) business
day after the date on which it is so mailed:
(a) If to Indemnitee, to: _______________________
_______________________
_______________________
(b) If to the Company, to: OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77009
Attention: Corporate Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case way be.
SECTION 21. CONTRIBUTION. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement and/or for Expenses, in connection with any claim relating to
an indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all the circumstances of such Proceeding in
order to reflect: (a) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such
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Proceeding; and/or (b) the relative fault of the Company (and its directors,
officers, employees and agents) and Indemnitee in connection with such event(s)
and/or transaction(s).
SECTION 22. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
and the legal relations among the parties shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a), the Company and Indemnitee
hereby irrevocably and unconditionally (a) agree that any action or proceeding
arising out of or in connection with this Agreement shall be brought only in the
Court of Chancery and not in any other state or federal court in the United
States of America or any court in any other country, (b) consent to submit to
the exclusive jurisdiction of the Court of Chancery for purposes of any action
or proceeding arising out of or in connection with this Agreement, (c) waive any
objection to the laying of venue of any such action or proceeding in the Court
of Chancery, and (d) waive, and agree not to plead or to make, any claim that
any such action or proceeding brought in the Court of Chancery has been brought
in an improper or otherwise inconvenient forum.
SECTION 23. MISCELLANEOUS. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate. When used in this
Agreement, the words "herein," "hereof" and words of similar import shall refer
to this Agreement as a whole and not to any provision of this Agreement, and the
word "Section" refers to a Section of this Agreement, unless otherwise
specified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
OEI INTERNATIONAL, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
INDEMNITEE
--------------------------------------------
14
Exhibit 10.4
EMPLOYMENT AGREEMENT BETWEEN
MICHAEL L. BURROW
AND
OEI INTERNATIONAL, INC.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of April 10, 1998, between OEI International,
Inc., a Delaware, corporation (the "COMPANY"), and Michael L. Burrow, a resident
of Beaumont, Texas the ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, on the date of this Agreement, the Company, Petrocon
Engineering, Inc. ("PETROCON"), PEI Acquisition, Inc., a Texas corporation and a
wholly owned subsidiary of OEI (the "MERGER SUBSIDIARY"), and the stockholders
of Petrocon, including the Executive, are entering into an Agreement and Plan of
Reorganization (the "ACQUISITION AGREEMENT"), under which Petrocon will merge
with the Merger Subsidiary in a merger (the "MERGER") of which Petrocon will be
the surviving corporation and as a result of which Petrocon will become a wholly
owned subsidiary of OEI; and
WHEREAS the Company is entering into similar merger transactions with
W-Industries, Inc., a Texas corporation, Chemical & Industrial Engineering,
Inc., a Kentucky corporation, Gulsby Engineering, Inc., a Texas corporation and
Paulus Sokolowski and Sartor, Inc., a New Jersey corporation (collectively,
these corporations and Petrocon are the "Acquired Companies")
WHEREAS, the Executive has been serving as an officer and director of
Petrocon, and has contributed substantially to Petrocon's growth and success;
and
WHEREAS, OEI wishes to insure that the Company and the Acquired
Companies will have the continued benefit of the Executive's knowledge and
experience concerning the affairs of the Company, the Acquired Companies and the
engineering services industry generally, and to keep them from being availed of
by third parties, and has therefore required as a condition to its execution of
the Acquisition Agreement that the Executive enter into this Agreement to become
effective upon consummation of the Merger; and
WHEREAS, the Executive is willing to accept employment by the Company on
the terms and conditions of this Agreement;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as Chairman and Chief Executive Officer of the Company for the
duration of the Employment Term (as defined in Section 2 below), to render such
services and to perform such duties as are normally associated with and inherent
in the executive capacity in which the Executive will be serving, as well as
such other duties, which are not inconsistent with the Executive's position as
an executive of the Company, as shall from time to time reasonably be
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assigned to him by the Board of Directors of the Company (the "BOARD OF
DIRECTORS") or the officers of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Houston/Beaumont, and nothing in this Agreement shall require the Executive to
relocate his base of employment or principal place of residence from the
Houston/Beaumont.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Company shall be terminated effective as of
the commencement of the Employment Term. However, nothing in this Section 1.4
shall (i) affect accrued vacation, holiday or sick pay accruals (but only to the
extent such accruals were reflected in the Acquired Company's financial
statements delivered to OEI pursuant to the Acquisition Agreement), (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Company for its
employees generally, in each case until replacement coverage is provided by the
Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third-party claims or
proceedings that relate to actions taken by the Executive as an officer or
director of the Acquired Company prior to the date hereof and that are disclosed
to OEI in the Disclosure Statement delivered to OEI pursuant to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Acquired Company or its stockholders under the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "EMPLOYMENT TERM") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "COMMENCEMENT DATE"), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "EXPIRATION DATE"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
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3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "ANNUAL
SALARY"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $300,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "ADDITIONAL COMPENSATION"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve. The Annual Salary and the Additional
Compensation shall be payable in accordance with the applicable payroll and/or
other compensation policies and plans of the Company as in effect from time to
time during the Employment Term, less such deductions as shall be required to be
withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent he is and
continues to meet all applicable eligibility requirements, to participate in any
group life, hospitalization or disability insurance plan, health program,
pension plan, similar benefit plan or other "fringe benefits" of the Company,
which may be available to all other similarly situated members of the Company's
management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, and equipment, secretarial and support personnel
and other management level support services as the Executive shall reasonably
require in connection with his performance of his duties under this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his duties under this Agreement, including expenses for travel,
food and entertainment. The Company shall reimburse the Executive for all such
business expenses if (i) the expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the
use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company, at is option, may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose.
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4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes OEI and all
of its present and future subsidiaries and affiliates, including subsidiaries
and affiliates that may be formed or incorporated during the Restricted Period
(as defined in Section 4.1.1), is engaged in the business of providing
professional engineering services and designing, engineering, building,
installing, programming, and integrating control and instrumentation systems and
modular processing plants (the "Business"); (ii) the Executive is one of a
limited number of persons who has performed a significant role in developing the
Business; (iii) the Business is conducted throughout the United States and
internationally; (iv) his work for the Company has given him, and will continue
to give him, possession of and access to trade secrets of, and confidential
information concerning, the Company; (v) the agreements and covenants contained
in this Section 4 (collectively, the "RESTRICTIVE COVENANTS") are essential to
protect the Business and the goodwill of the Company; and (vi) the Restrictive
Covenants will not impair his ability to do so. Accordingly, the Executive
agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, whether as an employee, independent contractor, consultant or
advisor, in any business selling or providing any services which are
sold or offered by the Company, within the territory surrounding each
office or fabrication facility (each a "FACILITY") at which the
Executive was employed by the Company within the three-year period
immediately preceding the date of the Executive's termination of
employment (for purposes of this Section 4.1, the territory surrounding
a facility shall be: (1) the city, town or village in which the facility
is located, (2) the county or parish in which the facility is located,
(3) the counties or parishes contiguous to the county or parish in which
the facility is located and (4) the area located within 100 miles of the
facility, all of such locations being herein collectively called the
"TERRITORY"), or (B) call on any person or entity that at the time is,
or at any time within one year prior to the date of termination of the
Executive's employment was, a customer of the Company, for the purpose
of soliciting or selling any product or service which is then sold or
offered within the Territory by the Company if the Executive has
knowledge of that customer relationship; PROVIDED, HOWEVER, that nothing
in this Section 4.1.1 shall prohibit the Executive from owning, directly
or indirectly, solely as an investment, securities of any entity traded
on any national securities exchange or over-the-counter market if the
Executive is not a controlling person of, or a member of a group which
controls, such entity and does not, directly or indirectly, own one
percent or more of any class of securities of such entity. As used in
this Section 4, the term "RESTRICTED PERIOD" means the period beginning
on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
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(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the expiration of the Total Severance Benefit Period
(as defined in Section 5.5); or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth anniversary of the Commencement Date if he is not
eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
bidding practices and procedures, operational methods, marketing plans
or strategies, project development techniques or plans, business
acquisition plans, new personnel acquisition plans, methods of
production, manufacture and installation, technical processes, designs
and design projects, inventions and research projects of the Company
learned by the Executive heretofore or during the Restricted Period; nor
shall the Executive exploit for his own benefit, or the benefit of
others, personal relationships with customers, suppliers or agents of
the Company in connection with or adversely affecting the Business
formed previously during the course of his association with the Acquired
Company or formed during the Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or consultant
engineer of the Company away from the Company or encourage any such
employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
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4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "ACQUISITION CANDIDATE" means any person or entity engaged
in any of the businesses of providing professional engineering services,
and (i) which was called on by the Company, in connection with the
possible acquisition by the Company of that person or entity, or (ii)
with respect to which the Company has made an acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants,
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as to breaches of such covenants in such other respective jurisdictions, such
covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, term "CAUSE" shall mean that a majority of the
Board of Directors shall have determined, and a majority of the Board of
Directors of OEI shall have concurred, that (i) after notice and a right to
cure, there has been a material breach by the Executive of the terms of this
Agreement, (ii) after receipt of a written warning, the Executive has willfully
and persistently failed or refused to follow the reasonable policies and
directives established by the Board of Directors or executive officers of the
Company senior to the Executive, (iii) the Executive has wrongfully
misappropriated money or other assets or properties of the Company or any
subsidiary or affiliate of the Company, (iv) the Executive has been convicted of
any felony or other serious crime, (v) the Executive's employment performance
has been substantially impaired by chronic absenteeism, alcoholism or drug
addiction, or (vi) the Executive has exhibited gross moral turpitude relevant to
his office or employment with the Company or any subsidiary or affiliate of the
Company.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's obligation to
the Executive shall be as set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States,
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so that the Executive is unable to substantially perform his services hereunder
for (i) a period of six consecutive months, or (ii) for shorter periods
aggregating six months during any period of twelve consecutive months, the
Company may at any time after the last day of the six consecutive months of
disability or the day on which the shorter periods of disability equal an
aggregate of six months within a period of twelve consecutive months, by written
notice to the Executive, terminate the Executive's employment hereunder. If such
right is exercised, the Company's obligation to the Executive shall be as set
forth in Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "INITIAL
SEVERANCE BENEFIT PERIOD"), the Company shall continue to (a) pay to the
Executive, in payroll period installments in accordance with the Company's
normal payroll policies, the amount of Annual Salary in effect at the date of
termination of his employment and (b) at the Company's expense, continue to
include the Executive and his eligible dependents under the coverage of all
group health, medical and dental insurance policies, plans and programs
maintained by the Company during Initial Severance Benefit Period for the
Company's employees, or management employees, generally.
The Company, at its option, which shall be exercisable by a written
notice sent to the Executive at least 60 days prior to the expiration of the
Initial Severance Benefit Period, may elect to extend the Initial Severance
Benefit Period for a period of an additional one year following the expiration
of the Initial Severance Benefit Period (the "SECOND SEVERANCE BENEFIT PERIOD").
If the Company so elects to extend the Initial Severance Benefit Period, the
Company, during the Second Severance Benefits Period, shall (i) pay to the
Executive, in payroll period installments in accordance with the Company's
normal payroll policies, an amount equal to 50% of the Annual Salary in effect
at the date of termination of his employment and (ii) at the Company's expense,
continue to include the Executive and his eligible dependants under the coverage
of all group health, medical and dental insurance policies, plans and programs
maintained by the Company during the Second Severance Benefit Period for the
Company's employees, or management employees, generally.
For purposes of Section 4.1.1 of this Agreement, the term "TOTAL
SEVERANCE BENEFIT PERIOD" means the total period (including the Initial
Severance Benefit Period and, if applicable, the Second Severance Benefit
Period) during which the Company is obligated to pay and provide, and performs
its obligations to pay and provide, severance benefits to the Executive under
this Section 5.5
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance
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company or companies to which any application or applications for insurance may
be made by or for the Company.
7. OTHER PROVISIONS.
7.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
if TO THE COMPANY, to:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77008
Attn: M. L. Burrow, Chief Executive Officer
with a COPY TO:
Porter & Hedges, L.L.P.
Attn: Jim Harbison
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy: (713) 228-1331
if TO THE EXECUTIVE, to:
Michael L. Burrow
7955 Shire
Beaumont, Texas 77006
Telecopy: None
Either party may change its address for notice hereunder by notice to
the other party.
7.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
7.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or
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privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder, nor any single
or partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder.
7.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Texas without reference to principles governing choice or
conflicts of law.
7.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
OEI INTERNATIONAL, INC.
By:/s/ GARY J. COURY
Gary J. Coury
President
/s/ MICHAEL L. BURROW
Michael L. Burrow
10
Exhibit 10.5
EMPLOYMENT AGREEMENT BETWEEN
GARY J. COURY
AND
OEI INTERNATIONAL, INC.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of April 10, 1998, between OEI International,
Inc., a Delaware, corporation (the "COMPANY"), and Gary J. Coury, a resident of
League City, Texas the ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, on the date of this Agreement, the Company, Petrocon
Engineering, Inc. ("PETROCON"), PEI Acquisition, Inc., a Texas corporation and a
wholly owned subsidiary of OEI (the "MERGER SUBSIDIARY"), and the stockholders
of Petrocon, including the Executive, are entering into an Agreement and Plan of
Reorganization (the "ACQUISITION AGREEMENT"), under which Petrocon will merge
with the Merger Subsidiary in a merger (the "MERGER") of which Petrocon will be
the surviving corporation and as a result of which Petrocon will become a wholly
owned subsidiary of OEI; and
WHEREAS the Company is entering into similar merger transactions with
W-Industries, Inc., a Texas corporation, Chemical & Industrial Engineering,
Inc., a Kentucky corporation, Gulsby Engineering, Inc., a Texas corporation and
Paulus Sokolowski and Sartor, Inc., a New Jersey corporation (collectively,
these corporations and Petrocon are the "Acquired Companies")
WHEREAS, the Executive has been serving as an officer and director of
Petrocon, and has contributed substantially to Petrocon's growth and success;
and
WHEREAS, OEI wishes to insure that the Company and the Acquired
Companies will have the continued benefit of the Executive's knowledge and
experience concerning the affairs of the Company, the Acquired Companies and the
engineering services industry generally, and to keep them from being availed of
by third parties, and has therefore required as a condition to its execution of
the Acquisition Agreement that the Executive enter into this Agreement to become
effective upon consummation of the Merger; and
WHEREAS, the Executive is willing to accept employment by the Company on
the terms and conditions of this Agreement;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as President and Chief Operating Officer of the Company for the
duration of the Employment Term (as defined in Section 2 below), to render such
services and to perform such duties as are normally associated with and inherent
in the executive capacity in which the Executive will be serving, as well as
such other duties, which are not inconsistent with the Executive's position as
an executive of the Company, as shall from time to time reasonably be
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assigned to him by the Board of Directors of the Company (the "BOARD OF
DIRECTORS") or the officers of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Houston/Beaumont, and nothing in this Agreement shall require the Executive to
relocate his base of employment or principal place of residence from the
Houston/Beaumont.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Company shall be terminated effective as of
the commencement of the Employment Term. However, nothing in this Section 1.4
shall (i) affect accrued vacation, holiday or sick pay accruals (but only to the
extent such accruals were reflected in the Acquired Company's financial
statements delivered to OEI pursuant to the Acquisition Agreement), (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Company for its
employees generally, in each case until replacement coverage is provided by the
Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third-party claims or
proceedings that relate to actions taken by the Executive as an officer or
director of the Acquired Company prior to the date hereof and that are disclosed
to OEI in the Disclosure Statement delivered to OEI pursuant to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Acquired Company or its stockholders under the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "EMPLOYMENT TERM") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "COMMENCEMENT DATE"), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "EXPIRATION DATE"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
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3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "ANNUAL
SALARY"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $250,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "ADDITIONAL COMPENSATION"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve. The Annual Salary and the Additional
Compensation shall be payable in accordance with the applicable payroll and/or
other compensation policies and plans of the Company as in effect from time to
time during the Employment Term, less such deductions as shall be required to be
withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent he is and
continues to meet all applicable eligibility requirements, to participate in any
group life, hospitalization or disability insurance plan, health program,
pension plan, similar benefit plan or other "fringe benefits" of the Company,
which may be available to all other similarly situated members of the Company's
management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, and equipment, secretarial and support personnel
and other management level support services as the Executive shall reasonably
require in connection with his performance of his duties under this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his duties under this Agreement, including expenses for travel,
food and entertainment. The Company shall reimburse the Executive for all such
business expenses if (i) the expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes OEI and all
of its present and future subsidiaries and affiliates, including subsidiaries
and affiliates that may be formed or incorporated during the Restricted Period
(as defined in Section 4.1.1), is engaged in the business of providing
professional engineering services and designing, engineering, building,
installing, programming, and integrating control and instrumentation systems and
modular processing
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plants (the "Business"); (ii) the Executive is one of a limited number of
persons who has performed a significant role in developing the Business; (iii)
the Business is conducted throughout the United States and internationally; (iv)
his work for the Company has given him, and will continue to give him,
possession of and access to trade secrets of, and confidential information
concerning, the Company; (v) the agreements and covenants contained in this
Section 4 (collectively, the "RESTRICTIVE COVENANTS") are essential to protect
the Business and the goodwill of the Company; and (vi) the Restrictive Covenants
will not impair his ability to do so. Accordingly, the Executive agrees as
follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, whether as an employee, independent contractor, consultant or
advisor, in any business selling or providing any services which are
sold or offered by the Company, within the territory surrounding each
office or fabrication facility (each a "FACILITY") at which the
Executive was employed by the Company within the three-year period
immediately preceding the date of the Executive's termination of
employment (for purposes of this Section 4.1, the territory surrounding
a facility shall be: (1) the city, town or village in which the facility
is located, (2) the county or parish in which the facility is located,
(3) the counties or parishes contiguous to the county or parish in which
the facility is located and (4) the area located within 100 miles of the
facility, all of such locations being herein collectively called the
"TERRITORY"), or (B) call on any person or entity that at the time is,
or at any time within one year prior to the date of termination of the
Executive's employment was, a customer of the Company, for the purpose
of soliciting or selling any product or service which is then sold or
offered within the Territory by the Company if the Executive has
knowledge of that customer relationship; PROVIDED, HOWEVER, that nothing
in this Section 4.1.1 shall prohibit the Executive from owning, directly
or indirectly, solely as an investment, securities of any entity traded
on any national securities exchange or over-the-counter market if the
Executive is not a controlling person of, or a member of a group which
controls, such entity and does not, directly or indirectly, own one
percent or more of any class of securities of such entity. As used in
this Section 4, the term "RESTRICTED PERIOD" means the period beginning
on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the expiration of the Total Severance Benefit Period
(as defined in Section 5.5); or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth anniversary of the Commencement Date if he is not
eligible for severance benefits under Section 5.5
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or (b) the expiration of the Severance Benefit Period if the
Executive is eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
bidding practices and procedures, operational methods, marketing plans
or strategies, project development techniques or plans, business
acquisition plans, new personnel acquisition plans, methods of
production, manufacture and installation, technical processes, designs
and design projects, inventions and research projects of the Company
learned by the Executive heretofore or during the Restricted Period; nor
shall the Executive exploit for his own benefit, or the benefit of
others, personal relationships with customers, suppliers or agents of
the Company in connection with or adversely affecting the Business
formed previously during the course of his association with the Acquired
Company or formed during the Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or consultant
engineer of the Company away from the Company or encourage any such
employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "ACQUISITION CANDIDATE" means any person or entity engaged
in any of the businesses of providing professional engineering services,
and (i) which was called on by the Company, in
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connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
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5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, term "CAUSE" shall mean that a majority of the
Board of Directors shall have determined, and a majority of the Board of
Directors of OEI shall have concurred, that (i) after notice and a right to
cure, there has been a material breach by the Executive of the terms of this
Agreement, (ii) after receipt of a written warning, the Executive has willfully
and persistently failed or refused to follow the reasonable policies and
directives established by the Board of Directors or executive officers of the
Company senior to the Executive, (iii) the Executive has wrongfully
misappropriated money or other assets or properties of the Company or any
subsidiary or affiliate of the Company, (iv) the Executive has been convicted of
any felony or other serious crime, (v) the Executive's employment performance
has been substantially impaired by chronic absenteeism, alcoholism or drug
addiction, or (vi) the Executive has exhibited gross moral turpitude relevant to
his office or employment with the Company or any subsidiary or affiliate of the
Company.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's obligation to
the Executive shall be as set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability equal an
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aggregate of six months within a period of twelve consecutive months, by written
notice to the Executive, terminate the Executive's employment hereunder. If such
right is exercised, the Company's obligation to the Executive shall be as set
forth in Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "INITIAL
SEVERANCE BENEFIT PERIOD"), the Company shall continue to (a) pay to the
Executive, in payroll period installments in accordance with the Company's
normal payroll policies, the amount of Annual Salary in effect at the date of
termination of his employment and (b) at the Company's expense, continue to
include the Executive and his eligible dependents under the coverage of all
group health, medical and dental insurance policies, plans and programs
maintained by the Company during Initial Severance Benefit Period for the
Company's employees, or management employees, generally.
The Company, at its option, which shall be exercisable by a written
notice sent to the Executive at least 60 days prior to the expiration of the
Initial Severance Benefit Period, may elect to extend the Initial Severance
Benefit Period for a period of an additional one year following the expiration
of the Initial Severance Benefit Period (the "SECOND SEVERANCE BENEFIT PERIOD").
If the Company so elects to extend the Initial Severance Benefit Period, the
Company, during the Second Severance Benefits Period, shall (i) pay to the
Executive, in payroll period installments in accordance with the Company's
normal payroll policies, an amount equal to 50% of the Annual Salary in effect
at the date of termination of his employment and (ii) at the Company's expense,
continue to include the Executive and his eligible dependants under the coverage
of all group health, medical and dental insurance policies, plans and programs
maintained by the Company during the Second Severance Benefit Period for the
Company's employees, or management employees, generally.
For purposes of Section 4.1.1 of this Agreement, the term "TOTAL
SEVERANCE BENEFIT PERIOD" means the total period (including the Initial
Severance Benefit Period and, if applicable, the Second Severance Benefit
Period) during which the Company is obligated to pay and provide, and performs
its obligations to pay and provide, severance benefits to the Executive under
this Section 5.5
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
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7. OTHER PROVISIONS.
7.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
if TO THE COMPANY, to:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77008
Attn: M. L. Burrow, Chief Executive Officer
with a COPY TO:
Porter & Hedges, L.L.P.
Attn: Jim Harbison
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy: (713) 228-1331
if TO THE EXECUTIVE, to:
Gary J. Coury
503 Audubon
League City, Texas 77573
Telecopy: None
Either party may change its address for notice hereunder by notice to
the other party.
7.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
7.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right,
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power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
7.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Texas without reference to principles governing choice or
conflicts of law.
7.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
OEI INTERNATIONAL, INC.
By: /s/ MICHAEL L. BURROW
Michael L. Burrow
Chief Executive Officer
/s/ GARY J. COURY
Gary J. Coury
10
Exhibit 10.6
EMPLOYMENT AGREEMENT BETWEEN
RICK BERRY
AND
OEI INTERNATIONAL, INC.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of April 10, 1998, between OEI International,
Inc., a Delaware, corporation (the "COMPANY"), and Rick Berry, a resident of
Houston, Texas the ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, on the date of this Agreement, the Company, Petrocon Engineering,
Inc. ("PETROCON"), PEI Acquisition, Inc., a Texas corporation and a wholly owned
subsidiary of OEI (the "MERGER SUBSIDIARY"), and the stockholders of Petrocon,
including the Executive, are entering into an Agreement and Plan of
Reorganization (the "ACQUISITION AGREEMENT"), under which Petrocon will merge
with the Merger Subsidiary in a merger (the "MERGER") of which Petrocon will be
the surviving corporation and as a result of which Petrocon will become a wholly
owned subsidiary of OEI; and
WHEREAS the Company is entering into similar merger transactions with
W-Industries, Inc., a Texas corporation, Chemical & Industrial Engineering,
Inc., a Kentucky corporation, Gulsby Engineering, Inc., a Texas corporation and
Paulus Sokolowski and Sartor, Inc., a New Jersey corporation (collectively,
these corporations and Petrocon are the "Acquired Companies")
WHEREAS, OEI wishes to insure that the Company and the Acquired Companies
will have the benefit of the Executive's knowledge and experience concerning the
affairs of the Company, the Acquired Companies and the engineering services
industry generally, and to keep them from being availed of by third parties, and
has therefore required as a condition to its execution of the Acquisition
Agreement that the Executive enter into this Agreement to become effective upon
consummation of the Merger; and
WHEREAS, the Executive is willing to accept employment by the Company on
the terms and conditions of this Agreement;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as Chief Financial Officer of the Company for the duration of the
Employment Term (as defined in Section 2 below), to render such services and to
perform such duties as are normally associated with and inherent in the
executive capacity in which the Executive will be serving, as well as such other
duties, which are not inconsistent with the Executive's position as an executive
of the Company, as shall from time to time reasonably be assigned to him by the
Board of Directors of the Company (the "BOARD OF DIRECTORS") or the officers of
the Company senior to the Executive.
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1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive accepts
such employment for the Employment Term and agrees to render the services
required of him under Section 1.1. During the Employment Term, the Executive
shall devote his full business time, attention and energy to the business of the
Company and the performance of his duties under this Agreement. The foregoing
shall not, however, prohibit the Executive from making and managing personal
investments, or from engaging in civic or charitable activities, that do not
materially impair the performance of his duties under this Agreement. If
appointed or elected, as applicable, the Executive also shall serve during all
or any part of the Employment Term as any other officer and/or as a director of
the Company or any of its subsidiaries or affiliates, without any additional
compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Greater Houston Metropolitan Area, and nothing in this Agreement shall require
the Executive to relocate his base of employment or principal place of residence
from the Greater Houston Metropolitan Area.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that all
agreements and contracts, whether written or oral, relating to the employment of
the Executive by the Company shall be terminated effective as of the
commencement of the Employment Term. However, nothing in this Section 1.4 shall
(i) affect accrued vacation, holiday or sick pay accruals (but only to the
extent such accruals were reflected in the Acquired Company's financial
statements delivered to OEI pursuant to the Acquisition Agreement), (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Company for its
employees generally, in each case until replacement coverage is provided by the
Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third-party claims or
proceedings that relate to actions taken by the Executive as an officer or
director of the Acquired Company prior to the date hereof and that are disclosed
to OEI in the Disclosure Statement delivered to OEI pursuant to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Acquired Company or its stockholders under the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "EMPLOYMENT TERM") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "COMMENCEMENT DATE"), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "EXPIRATION DATE"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
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3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered under
this Agreement, the Company shall pay the Executive a salary (the "ANNUAL
SALARY"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $175,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "ADDITIONAL COMPENSATION"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve. The Annual Salary and the Additional
Compensation shall be payable in accordance with the applicable payroll and/or
other compensation policies and plans of the Company as in effect from time to
time during the Employment Term, less such deductions as shall be required to be
withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall be
permitted, during the Employment Term, if and to the extent he is and continues
to meet all applicable eligibility requirements, to participate in any group
life, hospitalization or disability insurance plan, health program, pension
plan, similar benefit plan or other "fringe benefits" of the Company, which may
be available to all other similarly situated members of the Company's management
on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, and equipment, secretarial and support personnel
and other management level support services as the Executive shall reasonably
require in connection with his performance of his duties under this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his duties under this Agreement, including expenses for travel,
food and entertainment. The Company shall reimburse the Executive for all such
business expenses if (i) the expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges that
(i) the Company, which for purposes of this Section 4 includes OEI and all of
its present and future subsidiaries and affiliates, including subsidiaries and
affiliates that may be formed or incorporated during the Restricted Period (as
defined in Section 4.1.1), is engaged in the business of providing professional
engineering services and designing, engineering, building, installing,
programming, and integrating control and instrumentation systems and modular
processing
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plants (the "Business"); (ii) the Executive is one of a limited number of
persons who has performed a significant role in developing the Business; (iii)
the Business is conducted throughout the United States and internationally; (iv)
his work for the Company has given him, and will continue to give him,
possession of and access to trade secrets of, and confidential information
concerning, the Company; (v) the agreements and covenants contained in this
Section 4 (collectively, the "RESTRICTIVE COVENANTS") are essential to protect
the Business and the goodwill of the Company; and (vi) the Restrictive Covenants
will not impair his ability to do so.
Accordingly, the Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the Executive
shall not (A) engage, anywhere within the Territory (as hereinafter
defined), as an officer, director or in any other managerial capacity or
as an owner, co-owner or other investor or creditor in or of, whether as
an employee, independent contractor, consultant or advisor, in any
business selling or providing any services which are sold or offered by
the Company, within the territory surrounding each office or fabrication
facility (each a "FACILITY") at which the Executive was employed by the
Company within the three-year period immediately preceding the date of the
Executive's termination of employment (for purposes of this Section 4.1,
the territory surrounding a facility shall be: (1) the city, town or
village in which the facility is located, (2) the county or parish in
which the facility is located, (3) the counties or parishes contiguous to
the county or parish in which the facility is located and (4) the area
located within 100 miles of the facility, all of such locations being
herein collectively called the "TERRITORY"), or (B) call on any person or
entity that at the time is, or at any time within one year prior to the
date of termination of the Executive's employment was, a customer of the
Company, for the purpose of soliciting or selling any product or service
which is then sold or offered within the Territory by the Company if the
Executive has knowledge of that customer relationship; PROVIDED, HOWEVER,
that nothing in this Section 4.1.1 shall prohibit the Executive from
owning, directly or indirectly, solely as an investment, securities of any
entity traded on any national securities exchange or over-the-counter
market if the Executive is not a controlling person of, or a member of a
group which controls, such entity and does not, directly or indirectly,
own one percent or more of any class of securities of such entity. As used
in this Section 4, the term "RESTRICTED PERIOD" means the period beginning
on the Commencement Date and ending:
(i) if during the Employment Term the Executive's employment
terminates as a result of (a) a termination for Cause under Section
5.2 or (b) the Executive's voluntary resignation, the fourth
anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's employment
terminates as a result of (a) a termination without Cause under
Section 5.3 or (b) a termination for disability under Section 5.4,
the expiration of the Total Severance Benefit Period (as defined in
Section 5.5); or
(iii) if after the Employment Term the Executive's employment
terminates for any reason, the latest to occur of (a) the fourth
anniversary of the Commencement Date if he is not eligible for
severance benefits under Section 5.5
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or (b) the expiration of the Severance Benefit Period if the
Executive is eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS. During
the Restricted Period and thereafter, the Executive shall keep secret and
retain in strict confidence, and shall not use for the benefit of himself
or others, all confidential matters of the Company, including, without
limitation, "know-how," trade secrets, customer lists, details of client
or consultant contracts, pricing policies, bidding practices and
procedures, operational methods, marketing plans or strategies, project
development techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production, manufacture and installation,
technical processes, designs and design projects, inventions and research
projects of the Company learned by the Executive heretofore or during the
Restricted Period; nor shall the Executive exploit for his own benefit, or
the benefit of others, personal relationships with customers, suppliers or
agents of the Company in connection with or adversely affecting the
Business formed previously during the course of his association with the
Acquired Company or formed during the Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof), including
such items stored in computer memories, on microfiche or by any other
means, made or compiled by or on behalf of the Executive, or made
available to the Executive relating to the Company, other than purely
personal matters, are and shall be the Company's property and shall be
delivered to the Company promptly upon the termination of the Executive's
employment (whether such termination is for Cause, as hereinafter defined,
or otherwise) or at any other time on request of the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of or
consultant to the Company, the Executive shall not, directly or
indirectly, hire or solicit any employee or consultant engineer of the
Company away from the Company or encourage any such employee or agent to
leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of or
consultant to the Company, the Executive shall not, directly or
indirectly, hire or solicit any consultant then under contract with the
Company or encourage such consultant to terminate such relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period and
thereafter for as long as the Executive shall remain an employee of or
consultant to the Company, the Executive shall not call on any Acquisition
Candidate (as defined below in this Section 4.1.6), with the knowledge of
such Acquisition Candidate's status as such, for the purpose of acquiring,
or arranging the acquisition of, that Acquisition Candidate by any person
or entity other than the Company. In this Section 4.1.6 "ACQUISITION
CANDIDATE" means any person or entity engaged in any of the businesses of
providing professional engineering services, and (i) which was called on
by the Company, in
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connection with the possible acquisition by the Company of that person or
entity, or (ii) with respect to which the Company has made an acquisition
analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company and
that money damages would not provide an adequate remedy to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting a
breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in geographical and
temporal scope and in all other respects. If any court determines that any of
the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the Executive
intend to and hereby confer jurisdiction to enforce the Restrictive Covenants
upon the courts of any jurisdiction within the geographical scope of the
Restrictive Covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Company and the Executive that
such determination not bar or in any way affect the Company's right to the
relief provided above in the courts of any other jurisdiction within the
geographical scope of the Restrictive Covenants, as to breaches of such
covenants in such other respective jurisdictions, such covenants as they relate
to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
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5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment Term,
the Company shall have the right, exercisable by serving notice effective in
accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, term "CAUSE" shall mean that a majority of the
Board of Directors shall have determined, and a majority of the Board of
Directors of OEI shall have concurred, that (i) after notice and a right to
cure, there has been a material breach by the Executive of the terms of this
Agreement, (ii) after receipt of a written warning, the Executive has willfully
and persistently failed or refused to follow the reasonable policies and
directives established by the Board of Directors or executive officers of the
Company senior to the Executive, (iii) the Executive has wrongfully
misappropriated money or other assets or properties of the Company or any
subsidiary or affiliate of the Company, (iv) the Executive has been convicted of
any felony or other serious crime, (v) the Executive's employment performance
has been substantially impaired by chronic absenteeism, alcoholism or drug
addiction, or (vi) the Executive has exhibited gross moral turpitude relevant to
his office or employment with the Company or any subsidiary or affiliate of the
Company.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's obligation to
the Executive shall be as set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term the
Executive becomes physically or mentally disabled, whether totally or partially,
as evidenced by the written statement of a competent physician licensed to
practice medicine in the United States, so that the Executive is unable to
substantially perform his services hereunder for (i) a period of six consecutive
months, or (ii) for shorter periods aggregating six months during any period of
twelve consecutive months, the Company may at any time after the last day of the
six consecutive months of disability or the day on which the shorter periods of
disability equal an
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aggregate of six months within a period of twelve consecutive months, by written
notice to the Executive, terminate the Executive's employment hereunder. If such
right is exercised, the Company's obligation to the Executive shall be as set
forth in Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the Employment
Term, the Executive's employment by the Company is terminated for any reason
other than (i) a termination for Cause under Section 5.2, (ii) his voluntary
resignation, or (iii) his death, then for a period of one year following the
date of termination of the Executive's employment (the "INITIAL SEVERANCE
BENEFIT PERIOD"), the Company shall continue to (a) pay to the Executive, in
payroll period installments in accordance with the Company's normal payroll
policies, the amount of Annual Salary in effect at the date of termination of
his employment and (b) at the Company's expense, continue to include the
Executive and his eligible dependents under the coverage of all group health,
medical and dental insurance policies, plans and programs maintained by the
Company during Initial Severance Benefit Period for the Company's employees, or
management employees, generally.
The Company, at its option, which shall be exercisable by a written notice
sent to the Executive at least 60 days prior to the expiration of the Initial
Severance Benefit Period, may elect to extend the Initial Severance Benefit
Period for a period of an additional one year following the expiration of the
Initial Severance Benefit Period (the "SECOND SEVERANCE BENEFIT PERIOD"). If the
Company so elects to extend the Initial Severance Benefit Period, the Company,
during the Second Severance Benefits Period, shall (i) pay to the Executive, in
payroll period installments in accordance with the Company's normal payroll
policies, an amount equal to 50% of the Annual Salary in effect at the date of
termination of his employment and (ii) at the Company's expense, continue to
include the Executive and his eligible dependants under the coverage of all
group health, medical and dental insurance policies, plans and programs
maintained by the Company during the Second Severance Benefit Period for the
Company's employees, or management employees, generally.
For purposes of Section 4.1.1 of this Agreement, the term "TOTAL SEVERANCE
BENEFIT PERIOD" means the total period (including the Initial Severance Benefit
Period and, if applicable, the Second Severance Benefit Period) during which the
Company is obligated to pay and provide, and performs its obligations to pay and
provide, severance benefits to the Executive under this Section 5.5
6. INSURANCE. The Company may, from time to time, apply for and take out,
in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
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7. OTHER PROVISIONS.
7.1 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, five days after the date of deposit in the United States mail, as
follows:
if TO THE COMPANY, to:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77008
Attn: M. L. Burrow, Chief Executive Officer
with a COPY TO:
Porter & Hedges, L.L.P.
Attn: Jim Harbison
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy: (713) 228-1331
if TO THE EXECUTIVE, to:
Rick Berry
6000 Hollister No. 206
Houston, Texas 77040
Telecopy: None
Either party may change its address for notice hereunder by notice to the
other party.
7.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
and understanding between the parties with respect to its subject matter and
supersedes all prior agreements, written or oral, with respect thereto;
PROVIDED, HOWEVER, that nothing herein shall in any way limit the obligation,
rights or liabilities of the parties under any written stock option agreement
separately entered into by the parties.
7.3 WAIVERS AND AMENDMENTS. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
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power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
7.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Texas without reference to principles governing choice or
conflicts of law.
7.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
OEI INTERNATIONAL, INC.
/s/ GARY J. COURY
Gary J. Coury
President
/s/ RICK BERRY
Rick Berry
10
Exhibit 10.7
EMPLOYMENT AGREEMENT BETWEEN
DANA W. SWINDLER
AND
OEI INTERNATIONAL, INC.
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EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of April 10, 1998, between OEI International,
Inc., a Delaware, corporation (the "COMPANY"), and Dana W. Swindler, a resident
of Dallas, Texas the ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, on the date of this Agreement, the Company, Petrocon
Engineering, Inc. ("PETROCON"), PEI Acquisition, Inc., a Texas corporation and a
wholly owned subsidiary of OEI (the "MERGER SUBSIDIARY"), and the stockholders
of Petrocon, including the Executive, are entering into an Agreement and Plan of
Reorganization (the "ACQUISITION AGREEMENT"), under which Petrocon will merge
with the Merger Subsidiary in a merger (the "MERGER") of which Petrocon will be
the surviving corporation and as a result of which Petrocon will become a wholly
owned subsidiary of OEI; and
WHEREAS the Company is entering into similar merger transactions with
W-Industries, Inc., a Texas corporation, Chemical & Industrial Engineering,
Inc., a Kentucky corporation, Gulsby Engineering, Inc., a Texas corporation and
Paulus Sokolowski and Sartor, Inc., a New Jersey corporation (collectively,
these corporations and Petrocon are the "Acquired Companies")
WHEREAS, the Executive has been serving as an officer and director of
Petrocon, and has contributed substantially to Petrocon's growth and success;
and
WHEREAS, OEI wishes to insure that the Company and the Acquired
Companies will have the continued benefit of the Executive's knowledge and
experience concerning the affairs of the Company, the Acquired Companies and the
engineering services industry generally, and to keep them from being availed of
by third parties, and has therefore required as a condition to its execution of
the Acquisition Agreement that the Executive enter into this Agreement to become
effective upon consummation of the Merger; and
WHEREAS, the Executive is willing to accept employment by the Company on
the terms and conditions of this Agreement;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as Executive Vice President-Manager of Mergers and Acquisitions of the
Company for the duration of the Employment Term (as defined in Section 2 below),
to render such services and to perform such duties as are normally associated
with and inherent in the executive capacity in which the Executive will be
serving, as well as such other duties, which are not inconsistent with the
Executive's position as an executive of the Company, as shall from time to time
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reasonably be assigned to him by the Board of Directors of the Company (the
"BOARD OF DIRECTORS") or the officers of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Dallas, and nothing in this Agreement shall require the Executive to relocate
his base of employment or principal place of residence from the Dallas.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Company shall be terminated effective as of
the commencement of the Employment Term. However, nothing in this Section 1.4
shall (i) affect accrued vacation, holiday or sick pay accruals (but only to the
extent such accruals were reflected in the Acquired Company's financial
statements delivered to OEI pursuant to the Acquisition Agreement), (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Company for its
employees generally, in each case until replacement coverage is provided by the
Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third-party claims or
proceedings that relate to actions taken by the Executive as an officer or
director of the Acquired Company prior to the date hereof and that are disclosed
to OEI in the Disclosure Statement delivered to OEI pursuant to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Acquired Company or its stockholders under the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "EMPLOYMENT TERM") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "COMMENCEMENT DATE"), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "EXPIRATION DATE"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
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3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "ANNUAL
SALARY"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $200,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "ADDITIONAL COMPENSATION"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve. The Annual Salary and the Additional
Compensation shall be payable in accordance with the applicable payroll and/or
other compensation policies and plans of the Company as in effect from time to
time during the Employment Term, less such deductions as shall be required to be
withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent he is and
continues to meet all applicable eligibility requirements, to participate in any
group life, hospitalization or disability insurance plan, health program,
pension plan, similar benefit plan or other "fringe benefits" of the Company,
which may be available to all other similarly situated members of the Company's
management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, and equipment, secretarial and support personnel
and other management level support services as the Executive shall reasonably
require in connection with his performance of his duties under this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his duties under this Agreement, including expenses for travel,
food and entertainment. The Company shall reimburse the Executive for all such
business expenses if (i) the expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes OEI and all
of its present and future subsidiaries and affiliates, including subsidiaries
and affiliates that may be formed or incorporated during the Restricted Period
(as defined in Section 4.1.1), is engaged in the business of providing
professional engineering services and designing, engineering, building,
installing, programming, and integrating control and instrumentation systems and
modular processing
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plants (the "Business"); (ii) the Executive is one of a limited number of
persons who has performed a significant role in developing the Business; (iii)
the Business is conducted throughout the United States and internationally; (iv)
his work for the Company has given him, and will continue to give him,
possession of and access to trade secrets of, and confidential information
concerning, the Company; (v) the agreements and covenants contained in this
Section 4 (collectively, the "RESTRICTIVE COVENANTS") are essential to protect
the Business and the goodwill of the Company; and (vi) the Restrictive Covenants
will not impair his ability to do so. Accordingly, the Executive agrees as
follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, whether as an employee, independent contractor, consultant or
advisor, in any business selling or providing any services which are
sold or offered by the Company, within the territory surrounding each
office or fabrication facility (each a "FACILITY") at which the
Executive was employed by the Company within the three-year period
immediately preceding the date of the Executive's termination of
employment (for purposes of this Section 4.1, the territory surrounding
a facility shall be: (1) the city, town or village in which the facility
is located, (2) the county or parish in which the facility is located,
(3) the counties or parishes contiguous to the county or parish in which
the facility is located and (4) the area located within 100 miles of the
facility, all of such locations being herein collectively called the
"TERRITORY"), or (B) call on any person or entity that at the time is,
or at any time within one year prior to the date of termination of the
Executive's employment was, a customer of the Company, for the purpose
of soliciting or selling any product or service which is then sold or
offered within the Territory by the Company if the Executive has
knowledge of that customer relationship; PROVIDED, HOWEVER, that nothing
in this Section 4.1.1 shall prohibit the Executive from owning, directly
or indirectly, solely as an investment, securities of any entity traded
on any national securities exchange or over-the-counter market if the
Executive is not a controlling person of, or a member of a group which
controls, such entity and does not, directly or indirectly, own one
percent or more of any class of securities of such entity. As used in
this Section 4, the term "RESTRICTED PERIOD" means the period beginning
on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the expiration of the Total Severance Benefit Period
(as defined in Section 5.5); or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth anniversary of the Commencement Date if he is not
eligible for severance benefits under Section 5.5
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or (b) the expiration of the Severance Benefit Period if the
Executive is eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
bidding practices and procedures, operational methods, marketing plans
or strategies, project development techniques or plans, business
acquisition plans, new personnel acquisition plans, methods of
production, manufacture and installation, technical processes, designs
and design projects, inventions and research projects of the Company
learned by the Executive heretofore or during the Restricted Period; nor
shall the Executive exploit for his own benefit, or the benefit of
others, personal relationships with customers, suppliers or agents of
the Company in connection with or adversely affecting the Business
formed previously during the course of his association with the Acquired
Company or formed during the Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or consultant
engineer of the Company away from the Company or encourage any such
employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "ACQUISITION CANDIDATE" means any person or entity engaged
in any of the businesses of providing professional engineering services,
and (i) which was called on by the Company, in
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connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
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5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, term "CAUSE" shall mean that a majority of the
Board of Directors shall have determined, and a majority of the Board of
Directors of OEI shall have concurred, that (i) after notice and a right to
cure, there has been a material breach by the Executive of the terms of this
Agreement, (ii) after receipt of a written warning, the Executive has willfully
and persistently failed or refused to follow the reasonable policies and
directives established by the Board of Directors or executive officers of the
Company senior to the Executive, (iii) the Executive has wrongfully
misappropriated money or other assets or properties of the Company or any
subsidiary or affiliate of the Company, (iv) the Executive has been convicted of
any felony or other serious crime, (v) the Executive's employment performance
has been substantially impaired by chronic absenteeism, alcoholism or drug
addiction, or (vi) the Executive has exhibited gross moral turpitude relevant to
his office or employment with the Company or any subsidiary or affiliate of the
Company.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's obligation to
the Executive shall be as set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability equal an
<PAGE>
aggregate of six months within a period of twelve consecutive months, by written
notice to the Executive, terminate the Executive's employment hereunder. If such
right is exercised, the Company's obligation to the Executive shall be as set
forth in Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "INITIAL
SEVERANCE BENEFIT PERIOD"), the Company shall continue to (a) pay to the
Executive, in payroll period installments in accordance with the Company's
normal payroll policies, the amount of Annual Salary in effect at the date of
termination of his employment and (b) at the Company's expense, continue to
include the Executive and his eligible dependents under the coverage of all
group health, medical and dental insurance policies, plans and programs
maintained by the Company during Initial Severance Benefit Period for the
Company's employees, or management employees, generally.
The Company, at its option, which shall be exercisable by a written
notice sent to the Executive at least 60 days prior to the expiration of the
Initial Severance Benefit Period, may elect to extend the Initial Severance
Benefit Period for a period of an additional one year following the expiration
of the Initial Severance Benefit Period (the "SECOND SEVERANCE BENEFIT PERIOD").
If the Company so elects to extend the Initial Severance Benefit Period, the
Company, during the Second Severance Benefits Period, shall (i) pay to the
Executive, in payroll period installments in accordance with the Company's
normal payroll policies, an amount equal to 50% of the Annual Salary in effect
at the date of termination of his employment and (ii) at the Company's expense,
continue to include the Executive and his eligible dependants under the coverage
of all group health, medical and dental insurance policies, plans and programs
maintained by the Company during the Second Severance Benefit Period for the
Company's employees, or management employees, generally.
For purposes of Section 4.1.1 of this Agreement, the term "TOTAL
SEVERANCE BENEFIT PERIOD" means the total period (including the Initial
Severance Benefit Period and, if applicable, the Second Severance Benefit
Period) during which the Company is obligated to pay and provide, and performs
its obligations to pay and provide, severance benefits to the Executive under
this Section 5.5
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
<PAGE>
7. OTHER PROVISIONS.
7.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
if TO THE COMPANY, to:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77008
Attn: M. L. Burrow, Chief Executive Officer
with a COPY TO:
Porter & Hedges, L.L.P.
Attn: Jim Harbison
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy: (713) 228-1331
if TO THE EXECUTIVE, to:
Dana W. Swindler
4307 Travis Street
Dallas, Texas 75205
Telecopy: None
Either party may change its address for notice hereunder by notice to
the other party.
7.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
7.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right,
<PAGE>
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
7.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Texas without reference to principles governing choice or
conflicts of law.
7.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
OEI INTERNATIONAL, INC.
By: /s/ GARY J. COURY
Gary J. Coury
President
/s/ DANA W. SWINDLER
Dana W. Swindler
Exhibit 10.8
EMPLOYMENT AGREEMENT BETWEEN
ROBERT W. RAIFORD
AND
OEI INTERNATIONAL, INC.
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EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of April 10, 1998, between OEI International,
Inc., a Delaware, corporation (the "COMPANY"), and Robert W. Raiford, a resident
of Houston, Texas the ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, on the date of this Agreement, the Company, Petrocon
Engineering, Inc. ("PETROCON"), PEI Acquisition, Inc., a Texas corporation and a
wholly owned subsidiary of OEI (the "MERGER SUBSIDIARY"), and the stockholders
of Petrocon, including the Executive, are entering into an Agreement and Plan of
Reorganization (the "ACQUISITION AGREEMENT"), under which Petrocon will merge
with the Merger Subsidiary in a merger (the "MERGER") of which Petrocon will be
the surviving corporation and as a result of which Petrocon will become a wholly
owned subsidiary of OEI; and
WHEREAS the Company is entering into similar merger transactions with
W-Industries, Inc., a Texas corporation, Chemical & Industrial Engineering,
Inc., a Kentucky corporation, Gulsby Engineering, Inc., a Texas corporation and
Paulus Sokolowski and Sartor, Inc., a New Jersey corporation (collectively,
these corporations and Petrocon are the "Acquired Companies")
WHEREAS, the Executive has been serving as an officer and director of
Petrocon, and has contributed substantially to Petrocon's growth and success;
and
WHEREAS, OEI wishes to insure that the Company and the Acquired
Companies will have the continued benefit of the Executive's knowledge and
experience concerning the affairs of the Company, the Acquired Companies and the
engineering services industry generally, and to keep them from being availed of
by third parties, and has therefore required as a condition to its execution of
the Acquisition Agreement that the Executive enter into this Agreement to become
effective upon consummation of the Merger; and
WHEREAS, the Executive is willing to accept employment by the Company on
the terms and conditions of this Agreement;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as Controller of the Company for the duration of the Employment Term
(as defined in Section 2 below), to render such services and to perform such
duties as are normally associated with and inherent in the executive capacity in
which the Executive will be serving, as well as such other duties, which are not
inconsistent with the Executive's position as an executive of the Company, as
shall from time to time reasonably be assigned to him by the Board of Directors
of the Company (the "BOARD OF DIRECTORS") or the officers of the Company senior
to the Executive.
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1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Houston/Beaumont Metropolitan Area, and nothing in this Agreement shall require
the Executive to relocate his base of employment or principal place of residence
from the Houston/Beaumont Metropolitan Area.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Company shall be terminated effective as of
the commencement of the Employment Term. However, nothing in this Section 1.4
shall (i) affect accrued vacation, holiday or sick pay accruals (but only to the
extent such accruals were reflected in the Acquired Company's financial
statements delivered to OEI pursuant to the Acquisition Agreement), (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Company for its
employees generally, in each case until replacement coverage is provided by the
Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third-party claims or
proceedings that relate to actions taken by the Executive as an officer or
director of the Acquired Company prior to the date hereof and that are disclosed
to OEI in the Disclosure Statement delivered to OEI pursuant to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Acquired Company or its stockholders under the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "EMPLOYMENT TERM") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "COMMENCEMENT DATE"), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "EXPIRATION DATE"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
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<PAGE>
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "ANNUAL
SALARY"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $162,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "ADDITIONAL COMPENSATION"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve. The Annual Salary and the Additional
Compensation shall be payable in accordance with the applicable payroll and/or
other compensation policies and plans of the Company as in effect from time to
time during the Employment Term, less such deductions as shall be required to be
withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent he is and
continues to meet all applicable eligibility requirements, to participate in any
group life, hospitalization or disability insurance plan, health program,
pension plan, similar benefit plan or other "fringe benefits" of the Company,
which may be available to all other similarly situated members of the Company's
management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, and equipment, secretarial and support personnel
and other management level support services as the Executive shall reasonably
require in connection with his performance of his duties under this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his duties under this Agreement, including expenses for travel,
food and entertainment. The Company shall reimburse the Executive for all such
business expenses if (i) the expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the
use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company, at is option, may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose.
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4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes OEI and all
of its present and future subsidiaries and affiliates, including subsidiaries
and affiliates that may be formed or incorporated during the Restricted Period
(as defined in Section 4.1.1), is engaged in the business of providing
professional engineering services and designing, engineering, building,
installing, programming, and integrating control and instrumentation systems and
modular processing plants (the "Business"); (ii) the Executive is one of a
limited number of persons who has performed a significant role in developing the
Business; (iii) the Business is conducted throughout the United States and
internationally; (iv) his work for the Company has given him, and will continue
to give him, possession of and access to trade secrets of, and confidential
information concerning, the Company; (v) the agreements and covenants contained
in this Section 4 (collectively, the "RESTRICTIVE COVENANTS") are essential to
protect the Business and the goodwill of the Company; and (vi) the Restrictive
Covenants will not impair his ability to do so. Accordingly, the Executive
agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, whether as an employee, independent contractor, consultant or
advisor, in any business selling or providing any services which are
sold or offered by the Company, within the territory surrounding each
office or fabrication facility (each a "FACILITY") at which the
Executive was employed by the Company within the three-year period
immediately preceding the date of the Executive's termination of
employment (for purposes of this Section 4.1, the territory surrounding
a facility shall be: (1) the city, town or village in which the facility
is located, (2) the county or parish in which the facility is located,
(3) the counties or parishes contiguous to the county or parish in which
the facility is located and (4) the area located within 100 miles of the
facility, all of such locations being herein collectively called the
"TERRITORY"), or (B) call on any person or entity that at the time is,
or at any time within one year prior to the date of termination of the
Executive's employment was, a customer of the Company, for the purpose
of soliciting or selling any product or service which is then sold or
offered within the Territory by the Company if the Executive has
knowledge of that customer relationship; PROVIDED, HOWEVER, that nothing
in this Section 4.1.1 shall prohibit the Executive from owning, directly
or indirectly, solely as an investment, securities of any entity traded
on any national securities exchange or over-the-counter market if the
Executive is not a controlling person of, or a member of a group which
controls, such entity and does not, directly or indirectly, own one
percent or more of any class of securities of such entity. As used in
this Section 4, the term "RESTRICTED PERIOD" means the period beginning
on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
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(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the expiration of the Total Severance Benefit Period
(as defined in Section 5.5); or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth anniversary of the Commencement Date if he is not
eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
bidding practices and procedures, operational methods, marketing plans
or strategies, project development techniques or plans, business
acquisition plans, new personnel acquisition plans, methods of
production, manufacture and installation, technical processes, designs
and design projects, inventions and research projects of the Company
learned by the Executive heretofore or during the Restricted Period; nor
shall the Executive exploit for his own benefit, or the benefit of
others, personal relationships with customers, suppliers or agents of
the Company in connection with or adversely affecting the Business
formed previously during the course of his association with the Acquired
Company or formed during the Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or consultant
engineer of the Company away from the Company or encourage any such
employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
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4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "ACQUISITION CANDIDATE" means any person or entity engaged
in any of the businesses of providing professional engineering services,
and (i) which was called on by the Company, in connection with the
possible acquisition by the Company of that person or entity, or (ii)
with respect to which the Company has made an acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants,
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as to breaches of such covenants in such other respective jurisdictions, such
covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, term "CAUSE" shall mean that a majority of the
Board of Directors shall have determined, and a majority of the Board of
Directors of OEI shall have concurred, that (i) after notice and a right to
cure, there has been a material breach by the Executive of the terms of this
Agreement, (ii) after receipt of a written warning, the Executive has willfully
and persistently failed or refused to follow the reasonable policies and
directives established by the Board of Directors or executive officers of the
Company senior to the Executive, (iii) the Executive has wrongfully
misappropriated money or other assets or properties of the Company or any
subsidiary or affiliate of the Company, (iv) the Executive has been convicted of
any felony or other serious crime, (v) the Executive's employment performance
has been substantially impaired by chronic absenteeism, alcoholism or drug
addiction, or (vi) the Executive has exhibited gross moral turpitude relevant to
his office or employment with the Company or any subsidiary or affiliate of the
Company.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's obligation to
the Executive shall be as set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States,
<PAGE>
so that the Executive is unable to substantially perform his services hereunder
for (i) a period of six consecutive months, or (ii) for shorter periods
aggregating six months during any period of twelve consecutive months, the
Company may at any time after the last day of the six consecutive months of
disability or the day on which the shorter periods of disability equal an
aggregate of six months within a period of twelve consecutive months, by written
notice to the Executive, terminate the Executive's employment hereunder. If such
right is exercised, the Company's obligation to the Executive shall be as set
forth in Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "INITIAL
SEVERANCE BENEFIT PERIOD"), the Company shall continue to (a) pay to the
Executive, in payroll period installments in accordance with the Company's
normal payroll policies, the amount of Annual Salary in effect at the date of
termination of his employment and (b) at the Company's expense, continue to
include the Executive and his eligible dependents under the coverage of all
group health, medical and dental insurance policies, plans and programs
maintained by the Company during Initial Severance Benefit Period for the
Company's employees, or management employees, generally.
The Company, at its option, which shall be exercisable by a written
notice sent to the Executive at least 60 days prior to the expiration of the
Initial Severance Benefit Period, may elect to extend the Initial Severance
Benefit Period for a period of an additional one year following the expiration
of the Initial Severance Benefit Period (the "SECOND SEVERANCE BENEFIT PERIOD").
If the Company so elects to extend the Initial Severance Benefit Period, the
Company, during the Second Severance Benefits Period, shall (i) pay to the
Executive, in payroll period installments in accordance with the Company's
normal payroll policies, an amount equal to 50% of the Annual Salary in effect
at the date of termination of his employment and (ii) at the Company's expense,
continue to include the Executive and his eligible dependants under the coverage
of all group health, medical and dental insurance policies, plans and programs
maintained by the Company during the Second Severance Benefit Period for the
Company's employees, or management employees, generally.
For purposes of Section 4.1.1 of this Agreement, the term "TOTAL
SEVERANCE BENEFIT PERIOD" means the total period (including the Initial
Severance Benefit Period and, if applicable, the Second Severance Benefit
Period) during which the Company is obligated to pay and provide, and performs
its obligations to pay and provide, severance benefits to the Executive under
this Section 5.5
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance
<PAGE>
company or companies to which any application or applications for insurance may
be made by or for the Company.
7. OTHER PROVISIONS.
7.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
if TO THE COMPANY, to:
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77008
Attn: M. L. Burrow, Chief Executive Officer
with a COPY TO:
Porter & Hedges, L.L.P.
Attn: Jim Harbison
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy: (713) 228-1331
if TO THE EXECUTIVE, to:
Robert W. Raiford
15123 Greenleaf Lane
Houston, Texas 77062
Telecopy: None
Either party may change its address for notice hereunder by notice to
the other party.
7.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
7.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or
<PAGE>
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder, nor any single
or partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder.
7.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Texas without reference to principles governing choice or
conflicts of law.
7.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
OEI INTERNATIONAL, INC.
By: /s/ GARY J. COURY
Gary J. Coury
President
/s/ ROBERT W. RAIFORD
Robert W. Raiford
Exhibit 10.9
EMPLOYMENT AGREEMENT BETWEEN
JERRY G. GULSBY
AND
GULSBY ENGINEERING, INC.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of April 10, 1998, between Gulsby Engineering,
Inc., a Texas corporation (the "COMPANY"), and Jerry G. Gulsby, a resident of
Kingwood, Texas, the ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, on the date of this Agreement, the Company, OEI International,
Inc., a Delaware corporation ("OEI"), GEI Acquisition, Inc., a Texas corporation
and a wholly owned subsidiary of OEI (the "MERGER SUBSIDIARY"), and the
stockholders of the Company, including the Executive, are entering into an
Agreement and Plan of Reorganization (the "ACQUISITION AGREEMENT"), under which
the Company will merge with the Merger Subsidiary in a merger (the "MERGER") of
which the Company will be the surviving corporation and as a result of which the
Company will become a wholly owned subsidiary of OEI; and
WHEREAS, The Executive founded the Company, has served as an officer and
director of the Company since its inception, and has contributed substantially
to the Company's growth and success; and
WHEREAS, OEI wishes to insure that the Company will have the continued
benefit of the Executive's knowledge and experience concerning the affairs of
the Company and the engineering services industry generally, and to keep them
from being availed of by third parties, and has therefore required as a
condition to its execution of the Acquisition Agreement that the Executive enter
into this Agreement to become effective upon consummation of the Merger; and
WHEREAS, the Executive is willing to accept employment by the Company on
the terms and conditions of this Agreement;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ The
Executive as the Chairman and Chief Executive Officer of the Company for the
duration of the Employment Term (as defined in Section 2 below), to render such
services and to perform such duties as are normally associated with and inherent
in the executive capacity in which the Executive will be serving, as well as
such other duties, which are not inconsistent with the Executive's position as
an executive of the Company, as shall from time to time reasonably be assigned
to him by the Board of Directors of the Company (the "BOARD OF DIRECTORS").
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive accepts
such employment for the Employment Term and agrees to render the services
required of him under Section 1.1. During the Employment Term, the Executive
shall devote his full business time,
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attention and energy to the business of the Company and the performance of his
duties under this Agreement. The foregoing shall not, however, prohibit the
Executive from making and overseeing personal investments, including management
of his existing ownership interest in an ammonia plant in Gordon, Georgia
previously operated by Shoreline Chemical and the Patterson Gas processing Plant
in Patterson, Louisiana, or from engaging in civic or charitable activities,
that do not materially impair the performance of his duties under this
Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Greater Houston Metropolitan Area, and nothing in this Agreement shall require
the Executive to relocate his base of employment or principal place of residence
from the Greater Houston Metropolitan Area.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that all
agreements and contracts, whether written or oral, relating to the employment of
the Executive by the Company shall be terminated effective as of the
commencement of the Employment Term. However, nothing in this Section 1.4 shall
(i) affect accrued vacation, holiday or sick pay accruals (but only to the
extent such accruals were reflected in the Acquired Company's financial
statements delivered to OEI pursuant to the Acquisition Agreement), (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Company for its
employees generally, in each case until replacement coverage is provided by the
Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third-party claims or
proceedings that relate to actions taken by the Executive as an officer or
director of the Acquired Company prior to the date hereof and that are disclosed
to OEI in the Disclosure Statement delivered to OEI pursuant to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Acquired Company or its stockholders under the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "EMPLOYMENT TERM") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "COMMENCEMENT DATE"), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "EXPIRATION DATE"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
2.1 CONSULTING CONTRACT. On the Expiration Date, the Company, at it
sole and exclusive option, may offer to engage Executive in a consulting
capacity. If the Company elects to
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offer such a consulting contract to Executive, the contract shall be for a
period of up to two years, and shall be on substantially the same salary and
benefit terms contained herein.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered under
this Agreement, the Company shall pay the Executive a salary (the "ANNUAL
SALARY"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $225,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "ADDITIONAL COMPENSATION"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve. The Annual Salary and the Additional
Compensation shall be payable in accordance with the applicable payroll and/or
other compensation policies and plans of the Company as in effect from time to
time during the Employment Term, less such deductions as shall be required to be
withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall be
permitted, during the Employment Term, if and to the extent he is and continues
to meet all applicable eligibility requirements, to participate in any group
life, hospitalization or disability insurance plan, health program, pension
plan, similar benefit plan or other "fringe benefits" of the Company, which may
be available to all other members of the Company's management on generally the
same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, and equipment, secretarial and support personnel
and other management level support services as the Executive shall reasonably
require in connection with his performance of his duties under this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his duties under this Agreement, including expenses for travel,
food and entertainment. The Company shall reimburse the Executive for all such
business expenses if (i) the expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the use
of a Company-owned or leased automobile for use by the Executive in connection
with the performance of his duties under this Agreement, and shall pay the
reasonable costs of insuring, operating and maintaining the automobile, or, in
lieu thereof the Company, at is option, may pay to the Executive an automobile
allowance to help defray the Executive's cost of owning and operating a personal
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<PAGE>
automobile for such purpose. Such Company furnished automobile or such allowance
shall be comparable to the automobile or allowance that was taken into account
in determining the merger consideration that is to be paid by the Company to the
Company's stockholders pursuant to the Acquisition Agreement.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges that
(i) the Company, which for purposes of this Section 4 includes OEI and all of
its present and future subsidiaries and affiliates, including subsidiaries and
affiliates that may be formed or incorporated during the Restricted Period (as
defined in Section 4.1.1), is engaged in the business of providing professional
engineering services (the "Business"); (ii) the Executive is one of a limited
number of persons who has performed a significant role in developing the
Business; (iii) the Business is conducted throughout the United States and
internationally; (iv) his work for the Company has given him, and will continue
to give him, possession of and access to trade secrets of, and confidential
information concerning, the Company; (v) the agreements and covenants contained
in this Section 4 (collectively, the "RESTRICTIVE COVENANTS") are essential to
protect the Business and the goodwill of the Company; (vi) he has means to
support himself and his dependents other than by engaging in the Business in
violation of the Restrictive Covenants, and (vii) the Restrictive Covenants will
not impair his ability to do so. Accordingly, the Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the Executive
shall not (A) engage, anywhere within the Territory (as hereinafter
defined), as an officer, director or in any other managerial capacity or
as an owner, co-owner or other investor or creditor in or of, whether as
an employee, independent contractor, consultant or advisor, in any
business selling or providing any services which are sold or offered by
the Company, within the territory surrounding each office or fabrication
facility (each a "FACILITY") at which the Executive was employed by the
Company within the three-year period immediately preceding the date of the
Executive's termination of employment (for purposes of this Section 4.1,
the territory surrounding a facility shall be: (A) the city, town or
village in which the facility is located, (B) the county or parish in
which the facility is located, (C) the counties or parishes contiguous to
the county or parish in which the facility is located, (D) the area
located within 100 miles of the facility and (E) the area in which the
facility regularly makes sales or provides services, all of such locations
being herein collectively called the "TERRITORY"), or (B) call on any
person or entity that at the time is, or at any time within one year prior
to the date of termination of the Executive's employment was, a customer
of the Company, for the purpose of soliciting or selling any product or
service which is then sold or offered within the Territory by the Company
if the Executive has knowledge of that customer relationship; PROVIDED,
HOWEVER, that nothing in this Section 4.1.1 shall prohibit the Executive
from owning, directly or indirectly, solely as an investment, securities
of any entity traded on any national securities exchange or
over-the-counter market if the Executive is not a controlling person of,
or a member of a group which controls, such entity and does not, directly
or indirectly, own one percent or more of any class of securities of such
entity. As used in this Section 4, the term "RESTRICTED PERIOD" means the
period beginning on the Commencement Date and ending:
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(i) if during the Employment Term the Executive's employment
terminates as a result of (a) a termination for Cause under Section
5.2 or (b) the Executive's voluntary resignation, the fourth
anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's employment
terminates as a result of a termination for disability under Section
5.3, the latest to occur of (a) expiration of the Severance Benefit
Period (as defined in Section 5.4) or (b) the third anniversary of
the Commencement Date; or
(iii) if after the Employment Term the Executive's employment
terminates for any reason, the later to occur of (a) the fourth
anniversary of the Commencement Date if he is not eligible for
severance benefits under Section 5.4 or (b) the expiration of the
Severance Benefit Period if the Executive is eligible for severance
benefits under Section 5.4.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS. During
the Restricted Period and thereafter, the Executive shall keep secret and
retain in strict confidence, and shall not use for the benefit of himself
or others, all confidential matters of the Company, including, without
limitation, "know-how," trade secrets, customer lists, details of client
or consultant contracts, pricing policies, bidding practices and
procedures, operational methods, marketing plans or strategies, project
development techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production, manufacture and installation,
technical processes, designs and design projects, inventions and research
projects of the Company learned by the Executive heretofore or during the
Restricted Period; nor shall the Executive exploit for his own benefit, or
the benefit of others, personal relationships with customers, suppliers or
agents of the Company in connection with or adversely affecting the
Business formed previously during the course of his association with the
Acquired Company or formed during the Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes, lists,
records and other documents or papers (and all copies thereof), including
such items stored in computer memories, on microfiche or by any other
means, made or compiled by or on behalf of the Executive, or made
available to the Executive relating to the Company, other than purely
personal matters, are and shall be the Company's property and shall be
delivered to the Company promptly upon the termination of the Executive's
employment (whether such termination is for Cause, as hereinafter defined,
or otherwise) or at any other time on request of the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of or
consultant to the Company, the Executive shall not, directly or
indirectly, hire or solicit any employee or consultant engineer of the
Company away from the Company or encourage any such employee or agent to
leave such employment.
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4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of or
consultant to the Company, the Executive shall not, directly or
indirectly, hire or solicit any consultant then under contract with the
Company or encourage such consultant to terminate such relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period and
thereafter for as long as the Executive shall remain an employee of or
consultant to the Company, the Executive shall not call on any Acquisition
Candidate (as defined below in this Section 4.1.6), with the knowledge of
such Acquisition Candidate's status as such, for the purpose of acquiring,
or arranging the acquisition of, that Acquisition Candidate by any person
or entity other than the Company. In this Section 4.1.6 "ACQUISITION
CANDIDATE" means any person or entity engaged in any of the businesses of
providing professional engineering services, and (i) which was called on
by the Company, in connection with the possible acquisition by the Company
of that person or entity, or (ii) with respect to which the Company has
made an acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company and
that money damages would not provide an adequate remedy to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting a
breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in geographical and
temporal scope and in all other respects. If any court determines that any of
the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
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4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the Executive
intend to and hereby consent to jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment Term,
the Company shall have the right, exercisable by serving notice effective in
accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, term "CAUSE" shall mean that a majority of the
Board of Directors shall have determined, and a majority of the Board of
Directors of OEI shall have concurred, that (i) after notice and a right to
cure, there has been a material breach by the Executive of the terms of this
Agreement, (ii) after receipt of a written warning, the Executive has willfully
and persistently failed or refused to follow the reasonable policies and
directives established by the Board of Directors or executive officers of the
Company senior to the Executive, (iii) the Executive has wrongfully
misappropriated money or other assets or properties of the Company or any
subsidiary or affiliate of the Company, (iv) the Executive has been convicted of
any felony or other serious crime, (v) the Executive's employment performance
has been substantially impaired by chronic absenteeism, alcoholism or drug
addiction, or (vi) the Executive has exhibited gross moral turpitude relevant to
his office or employment with the Company or any subsidiary or affiliate of the
Company.
5.3 TERMINATION UPON DISABILITY. If during the Employment Term the
Executive becomes physically or mentally disabled, whether totally or partially,
as evidenced by the written statement of a competent physician licensed to
practice medicine in the United States, so that the Executive is unable to
substantially perform his services hereunder for (i) a period of six consecutive
7
<PAGE>
months, or (ii) for shorter periods aggregating six months during any period of
twelve consecutive months, the Company may at any time after the last day of the
six consecutive months of disability or the day on which the shorter periods of
disability equal an aggregate of six months within a period of twelve
consecutive months, by written notice to the Executive, terminate the
Executive's employment hereunder. If such right is exercised, the Company's
obligation to the Executive shall be as set forth in Section 5.4 below.
5.4 SEVERANCE BENEFIT. If at any time during or after the Employment
Term, the Executive's employment by the Company is terminated for disability
pursuant to Section 5.3, then for a period of one year following the date of
termination of the Executive's employment (the "SEVERANCE BENEFIT PERIOD"), the
Company shall continue to (a) pay to the Executive the amount of Annual Salary
in effect at the date of termination of his employment and (b) at the Company's
expense, continue to include the Executive and his eligible dependents under the
coverage of all group health, medical and dental insurance policies, plans and
programs maintained by the Company during Severance Benefit Period for the
Company's employees, or management employees, generally.
6. INSURANCE. The Company may, from time to time, apply for and take out,
in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. OTHER PROVISIONS.
7.1 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, five days after the date of deposit in the United States mail, as
follows:
if to the Company, to:
Gulsby Engineering, Inc.
1250 Indiana Street
P.O. Box 549
Humble, Texas 77347
Attn: Jerry G. Gulsby
Telecopy No.(713) 446-5445
with a copy to:
8
<PAGE>
OEI International, Inc.
2727 North Loop West, Suite 400
Houston, Texas 77008
Attn: M. L. Burrow
Chief Executive Officer
Telecopy: (713) 880-6300
if to the Executive, to:
Jerry G. Gulsby
3002 Royal Circle
Kingwood, Texas 77339
Telecopy: None
Either party may change its address for notice hereunder by notice to the
other party.
7.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
and understanding between the parties with respect to its subject matter and
supersedes all prior agreements, written or oral, with respect thereto;
PROVIDED, HOWEVER, that nothing herein shall in any way limit the obligation,
rights or liabilities of the parties under any written stock option agreement
separately entered into by the parties.
7.3 WAIVERS AND AMENDMENTS. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
7.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Texas without reference to principles governing choice or
conflicts of law.
7.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9
<PAGE>
7.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
GULSBY ENGINEERING, INC.
/s/ CLARA GULSBY
Clara Gulsby, Secretary
/s/ JERRY G. GULSBY
Jerry G. Gulsby
10
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
April 16, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS' REPORT
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
SCHONBRAUN SAFRIS MCCANN BEKRITSKY & CO., L.L.C.
Roseland, New Jersey
April 16, 1998
EXHIBIT 23.4
CONSENT
In accordance with Rule 438 under the Securities Act of 1933, as
amended, the undersigned consents to being named in this Registration Statement
on Form S-1 as a person who is about to become a director of OEI International,
Inc.
April 15, 1998
/s/ W. BERNARD PIEPER
W. Bernard Pieper
1
EXHIBIT 23.5
CONSENT
In accordance with Rule 438 under the Securities Act of 1933, as
amended, the undersigned consents to being named in this Registration Statement
on Form S-1 as a person who is about to become a director of OEI International,
Inc.
April 15, 1998
/s/ BOB G. GOWER
Bob G. Gower
1
EXHIBIT 23.6
CONSENT
In accordance with Rule 438 under the Securities Act of 1933, as
amended, the undersigned consents to being named in this Registration Statement
on Form S-1 as a person who is about to become a director of OEI International,
Inc.
April 15, 1998
/s/ C. ROLAND HADEN
C. Roland Haden
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF PETROCON ENGINEERING, INC. AND SUBSIDIARIES AS
OF DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,254
<SECURITIES> 0
<RECEIVABLES> 15,596
<ALLOWANCES> (182)
<INVENTORY> 0
<CURRENT-ASSETS> 21,068
<PP&E> 11,504
<DEPRECIATION> 4,920
<TOTAL-ASSETS> 42,054
<CURRENT-LIABILITIES> 25,028
<BONDS> 0
0
0
<COMMON> 1,529
<OTHER-SE> 12,390
<TOTAL-LIABILITY-AND-EQUITY> 42,054
<SALES> 92,616
<TOTAL-REVENUES> 92,616
<CGS> 71,693
<TOTAL-COSTS> 87,160
<OTHER-EXPENSES> (442)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,569
<INCOME-PRETAX> 4,329
<INCOME-TAX> 1,574
<INCOME-CONTINUING> 2,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 2.755
<EPS-DILUTED> 0
</TABLE>
