<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CHEMICAL LOGISTICS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5169 76-0547326
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
808 TRAVIS, SUITE 1135
HOUSTON, TEXAS 77002
(713) 228-1555
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
FRANCIS S. KALMAN
CHIEF FINANCIAL OFFICER
808 TRAVIS, SUITE 1135
HOUSTON, TEXAS 77002
(713) 228-1555
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
copy to:
<TABLE>
<S> <C>
MELISSA M. BALDWIN GENE J. OSHMAN
ANDREWS & KURTH L.L.P. BAKER & BOTTS, L.L.P.
600 TRAVIS, SUITE 4200 910 LOUISIANA
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 220-4200 (713) 229-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value................................ $58,880,000 $17,370
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
---------------------
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.
- --------------------------------------------------------------------------------
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
, 1998
3,200,000 SHARES
(Logo)
CHEMICAL LOGISTICS CORPORATION
COMMON STOCK
------------------
All of the 3,200,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby are being offered by Chemical Logistics
Corporation (the "Company"). The Company was founded in July 1997 to acquire
nine companies engaged in the chemical distribution business (the "Founding
Companies") and has conducted no operations to date. Prior to this offering,
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price will be between $ and $ per
share. For information relating to factors to be considered in determining the
initial public offering price, see "Underwriting." The Company intends to make
application to list the Common Stock on The New York Stock Exchange under the
symbol "CLS." Of the net proceeds to the Company from the sale of the Common
Stock offered hereby, approximately $31.1 million will be paid to the
stockholders of the Founding Companies in connection with the acquisition of the
Founding Companies. See "Use of Proceeds."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C> <C> <C>
Per Share.............................. $ $ $
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Total(2)............................... $ $ $
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</TABLE>
(1) Before deducting expenses of the offering payable by the Company estimated
at $4,300,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 480,000 shares of Common Stock solely to cover
over-allotments, if any. To the extent the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See
"Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of such shares of Common Stock will be made at the offices of BT Alex.
Brown Incorporated, Baltimore, Maryland, on or about , 1998.
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SANDERS MORRIS MUNDY
The date of this Prospectus is , 1998.
<PAGE> 3
[GRAPHICS]
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
Concurrently with and as a condition to the consummation of the offering
made hereby (the "Offering"), Chemical Logistics Corporation plans to acquire,
in separate transactions (collectively, the "Acquisitions"), for consideration
including cash and shares of its Common Stock (the "Acquisitions
Consideration"), the following nine entities engaged in the chemical
distribution business: G. S. Robins & Company ("Robins"), Industrial Chemicals,
Inc. ("Industrial"), Southwest Solvents & Chemicals and certain of its
affiliated entities ("Southwest Solvents"), Chemical Solvents, Inc. and one
affiliated entity ("Chemical Solvents"), Tilley Chemical Company, Inc. and one
affiliated entity ("Tilley"), Cron Chemical Corporation and certain of its
affiliated entities ("Cron"), Brown Chemical Company, Inc. and one affiliated
entity ("Brown"), Tarr, Inc. and certain of its affiliated entities ("Tarr") and
American Chemicals Co., Inc. ("American") (the foregoing companies referred to
herein as the "Founding Companies"). Unless otherwise indicated, references
herein to "CLC" mean Chemical Logistics Corporation, and references to the
"Company" mean CLC and the Founding Companies collectively.
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information and share and per share data in this
Prospectus (i) have been adjusted for (a) the Acquisitions, (b) the effects of
certain pro forma adjustments to the historical financial statements, (c) the
consummation of the Offering and (d) a 16.59366-for-1 stock split of the Common
Stock effected in July 1998, and (ii) assume that the Underwriters'
over-allotment option is not exercised.
THE COMPANY
CLC was founded in July 1997 to create a premier national chemical
distribution company with a wide range of value-added services, broad line of
product offerings and extensive geographic coverage, and to participate in the
consolidation of the chemical distribution industry. The Company operates an
extensive sales and distribution network focused primarily in the United States,
with 41 facilities serving 47 states, and distributes a broad line of chemicals
to over 10,000 customers in a number of industries including paint and coatings,
water treatment, pharmaceuticals, oil and gas, chemical processing, textiles,
food and beverage, fragrances, cosmetics, soaps and detergents, semiconductor,
mining and metal treatment, pulp and paper, ink, rubber and plastics. The
customers range in size from small manufacturing facilities to national and
multinational corporations such as McCormick & Company, Incorporated, The
Procter & Gamble Company and Archer-Daniels-Midland Company. In addition to
providing basic customer services such as the warehousing, transporting,
blending, packaging and labeling of chemicals, the Company also provides value-
added services requiring specialized facilities and expertise such as quality
assurance and laboratory analysis, contract drumming, specialized packaging and
bagging, bar coding, integrated supply (including inventory management, remote
tank monitoring and just-in-time delivery) and export containerization.
Concurrently with the closing of the Offering, CLC will acquire the nine
Founding Companies with pro forma combined 1997 revenues of $366 million, making
the Company one of the largest chemical distribution companies in North America.
The Founding Companies have been in existence for 49 years on average, and the
continuing senior executive officers of the Founding Companies have an average
of 25 years experience in the industry. One of these executives currently serves
as president of the industry's trade association, the National Association of
Chemical Distributors ("NACD"), and principals of four of the Founding Companies
currently serve on the 13-member Board of Directors of the NACD. Additionally,
one principal has served as president of the Chemical Education Foundation and
two principals currently serve as trustees of this foundation.
Based on industry data, the Company believes that sales by chemical
distribution companies in the United States were approximately $18 billion in
1997. The chemical distribution industry is becoming an increasingly important
component of the U.S. chemical supply chain as chemical manufacturers and end
users demand greater product and service capability from chemical distribution
companies and aggressively reduce their overall number of distributor
relationships in order to control costs. At the same time, and in common
1
<PAGE> 5
with certain other U.S. distribution industries, chemical distribution companies
are facing increasing costs for technology, infrastructure and regulatory
compliance. In this evolving, competitive environment, the Company believes that
its size, wide range of value-added services, broad line of product offerings
and extensive geographic coverage will allow it to be an industry leader.
The chemical distribution industry is highly fragmented. The Company
believes, based on industry data, that there are more than 1,000 chemical
distribution businesses in the United States consisting of a small number of
regional or national companies and a much larger number of relatively small,
owner-operated businesses that have limited access to capital and that offer a
limited range of services. At this time, many of these companies are not in
direct competition with the Company due to differences in services and products
offered. The Company believes that the fragmented nature of the industry
presents substantial consolidation and growth opportunities for relatively large
companies with a disciplined acquisition program, a decentralized operating
strategy and access to financial resources.
STRATEGY
The Company plans to achieve its goal of becoming a premier, broad line
national chemical distribution company by accelerating internal growth, by
implementing its operating strategy and by expanding through acquisitions. The
key elements of the Company's strategy are as follows:
Internal Growth Strategy. The Company intends to pursue internal growth by
promoting national account sales, cross selling its expanded product lines and
services and implementing best practices across the Founding Companies. The
Company believes that significant demand exists from large multi-location
companies to utilize the services of a limited number of chemical distribution
companies capable of providing comprehensive chemical product sourcing and
services on a regional or national basis. The Company intends to leverage its
sales and distribution network across the United States to obtain additional
business from existing customers that operate on a regional and national basis,
as well as new business from multi-location companies that previously could not
be serviced by the Founding Companies individually. Also, the Company believes
it will be able to expand sales to existing customers and to obtain new
customers by offering a broader line of products than has been offered by the
Founding Companies individually, complemented by a broader array of specialized
services. In addition, the Company intends to implement a company-wide marketing
program and to foster a culture of cooperation and teamwork that emphasizes the
dissemination of best practices among its local management teams.
Operating Strategy. The key elements of the Company's operating strategy
are to centralize certain corporate functions in order to obtain operating
efficiencies and to maintain a decentralized operating management in order to
continue to provide superior customer service; to provide value-added services
and become more integrated into the customers' internal use and handling of
chemical products; and to implement a company-wide management information
system. At the corporate level, the Company will consolidate functions such as
risk management and insurance, finance and accounting and employee benefits to
eliminate duplicative administrative and other costs that otherwise would be
incurred at each of its operating locations. At the operating subsidiary level,
the Company will adopt a regional approach to the U.S. chemical distribution
market by creating four U.S. geographic regions that in most cases will be
managed by selected Founding Company principals. The Company will employ a
decentralized management structure that focuses management of each operating
subsidiary on day-to-day operating matters, maintaining existing and building
new customer and supplier relationships, as well as assisting in the
identification of potential acquisition candidates. Also, the Company will
continue to develop and provide value-added services designed to meet each
customer's needs, thereby expanding product sales. Following the Offering, the
Company expects to use the Chempax(TM) management information system, which is
currently used by a majority of the Founding Companies, as the Company's primary
management information system. The Company's objective over time is to implement
a centralized, real time management information system linking all stocking
locations, chemical terminal locations, warehouses and sales offices with
Company management.
2
<PAGE> 6
Acquisition Strategy. The Company believes that the U.S. chemical
distribution industry presents significant consolidation opportunities, with
over 350 companies it views currently as potential acquisition candidates. The
Company intends to pursue an aggressive but disciplined acquisition program to
acquire chemical distribution companies in order to increase sales to industries
and markets currently served by the Company; to enter new industries and
markets; to develop new relationships with domestic and international chemical
suppliers; and to expand its range of products and services. The Company
believes that the senior management of the Founding Companies will be
instrumental in identifying and completing future acquisitions, as several of
the principals of the Founding Companies have held leadership roles in various
industry organizations and have developed extensive relationships with NACD
members.
The Company believes that the prominence and operating strength of the
Founding Companies and the experience of its senior management will provide the
Company with significant competitive advantages as it pursues its strategy.
THE OFFERING
Common Stock offered
hereby..................... 3,200,000 shares
Common Stock to be
outstanding after the
Offering(1).............. 12,194,531 shares
Use of proceeds............ To pay the cash portion of the purchase price for
the Founding Companies, to pay certain indebtedness
of the Founding Companies, to pay expenses incurred
in connection with the organization of CLC and the
Offering and for general corporate purposes. See
"Use of Proceeds."
Proposed NYSE trading
symbol..................... CLS
- ---------------
(1) Includes (i) 6,543,329 shares to be issued to the owners of the Founding
Companies, (ii) 3,200,000 shares to be sold in the Offering, (iii) 656,697
shares issued to the management and directors of CLC, (iv) 1,570,441 shares
issued to the principals of Bellmeade Capital Partners, L.L.C. ("BCP") and
(v) 224,064 shares issued to or held by consultants to and employees of BCP.
Excludes options to purchase approximately 1,070,000 shares which are
expected to be granted upon consummation of the Offering. See "Management,"
"Certain Transactions" and "Description of Capital Stock."
RISK FACTORS
Prospective investors should carefully consider all information set forth
in this Prospectus and, in particular, should evaluate the specific factors set
forth under "Risk Factors" for risks involved with an investment in the Common
Stock.
3
<PAGE> 7
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CLC will acquire the Founding Companies simultaneously with, and as a
condition to, the consummation of the Offering. For financial statement
presentation purposes, CLC has been identified as the "accounting acquiror." The
following summary pro forma combined financial data present certain data for the
Company, as adjusted for (i) the effects of the Acquisitions, (ii) the effects
of certain other pro forma adjustments to the historical financial statements
and (iii) the consummation of the Offering and the application of the net
proceeds therefrom. The unaudited pro forma combined statement of operations
data assume that the Acquisitions, Offering and related transactions were closed
on January 1, 1997 and are not necessarily indicative of the results that the
Company would have obtained had these events actually then occurred or of the
Company's future results. During the periods presented below, the Founding
Companies were not under common control or management and, therefore, the data
presented may not be comparable to or indicative of post-combination results to
be achieved by the Company. The summary pro forma combined financial data are
based on preliminary estimates, available information and certain assumptions
that Company management deems appropriate and should be read in conjunction with
the other financial information included elsewhere in this Prospectus. See
"Selected Financial Data," the Unaudited Pro Forma Combined Financial Statements
and notes thereto, and the historical financial statements for the Founding
Companies and the notes thereto, all included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
-------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 365,910 $ 89,503
Cost of sales........................................... 293,017 71,504
----------- -----------
Gross profit............................................ 72,893 17,999
----------- -----------
Operating and delivery expenses......................... 22,861 5,753
Selling, general and administrative expenses(1)......... 30,092 8,014
Goodwill amortization(2)................................ 1,917 479
Depreciation............................................ 4,639 1,249
----------- -----------
Income from operations.................................. 13,384 2,504
Interest and other income (expense), net(3)............. (1,222) (269)
----------- -----------
Income before income taxes.............................. 12,162 2,235
Income tax expense(4)................................... 5,698 1,047
----------- -----------
Net income.............................................. $ 6,464 $ 1,188
=========== ===========
Net income per share.................................... $ 0.53 $ 0.10
=========== ===========
Shares used in computing pro forma net income per
share(5)............................................. 12,194,531 12,194,531
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998(6)(7)
--------------------------------
PRO FORMA
COMBINED AS ADJUSTED(8)
--------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital/(deficit)................................. $(20,245)(9) $ 23,044
Total assets.............................................. 193,493 191,269
Long-term debt, net of current maturities................. 15,579 18,759
Total stockholders' equity................................ 73,577 113,917
</TABLE>
4
<PAGE> 8
- ---------------
(1) The pro forma combined statement of operations data reflect an aggregate of
approximately $3.4 million and $0.4 million for the year ended December 31,
1997 and the three months ended March 31, 1998, respectively, in pro forma
reductions in salary, bonus and benefits to the owners of the Founding
Companies to which they have agreed prospectively. Additionally, the data
reflect the reversal of the nonrecurring portion of the noncash compensation
charge of $5.0 million recognized by CLC for the quarter ended March 31,
1998 related to the issuance of Common Stock to management. See "Certain
Transactions."
(2) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period and computed on the basis described in
the notes to the Unaudited Pro Forma Combined Financial Statements.
(3) Includes the elimination of interest expense of $0.1 million and $20,000 for
the year ended December 31, 1997 and the three months ended March 31, 1998,
respectively, due to the planned repayment of certain of the Founding
Companies' existing debt, net of additional interest expense related to new
debt incurred by CLC.
(4) Assumes all pretax income before nondeductible goodwill is subject to a 41%
overall tax rate.
(5) Includes (i) 6,543,329 shares to be issued to the owners of the Founding
Companies, (ii) 3,200,000 shares to be sold in the Offering, (iii) 656,697
shares issued to the management and directors of CLC, (iv) 1,570,441 shares
issued to the principals of BCP and (v) 224,064 shares issued to or held by
consultants to and employees of BCP. Excludes options to purchase
approximately 1,070,000 shares, which are expected to be granted upon
consummation of the Offering.
(6) Reflects the Acquisitions and related transactions as if they had occurred
on March 31, 1998 as described in the notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data is based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial information and historical financial
statements, and notes thereto, included elsewhere in this Prospectus.
(7) A number of the Founding Companies have historically elected S Corporation
status for tax purposes. Prior to the Acquisitions, these Founding Companies
will make distributions to their stockholders totaling approximately $8.7
million. In order to fund these distributions, the Founding Companies will
borrow approximately $8.7 million.
(8) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom and the additional borrowings to repay and refinance
certain indebtedness of the Founding Companies. See "Use of Proceeds" and
"Certain Transactions."
(9) Includes $31.1 million payable to owners of the Founding Companies,
representing the cash portion of the Acquisitions Consideration.
5
<PAGE> 9
SUMMARY INDIVIDUAL FOUNDING COMPANY HISTORICAL FINANCIAL DATA
The following table presents certain summary historical statement of
operations data of the Founding Companies for each of their three most recent
fiscal years and for the three months ended March 31, 1997 and 1998. The
historical statement of operations data below has not been adjusted for the pro
forma adjustments related to contractually agreed reductions in salaries and
benefits, or any other pro forma adjustments, reflected in the Unaudited Pro
Forma Combined Financial Statements included elsewhere in this Prospectus. The
statement of operations data presented below has been audited for certain of the
Founding Companies and certain of the periods as reflected in the historical
financial statements of such Founding Companies, included elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS(1) MARCH 31,(2)
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ROBINS
Net sales................................................. $58,236 $59,387 $61,445 $14,936 $14,323
Gross profit.............................................. 11,126 11,087 12,270 2,814 2,565
Income from operations.................................... 1,903 1,283 2,258 269 44
INDUSTRIAL
Net sales................................................. $42,880 $44,726 $51,599 $11,724 $12,436
Gross profit.............................................. 9,406 9,726 12,051 2,696 2,767
Income from operations.................................... 647 421 1,119 14 240
SOUTHWEST SOLVENTS
Net sales................................................. $50,621 $46,642 $47,219 $10,951 $11,170
Gross profit.............................................. 8,537 8,504 8,429 2,077 2,111
Income from operations.................................... 415 684 883 395 331
CHEMICAL SOLVENTS
Net sales................................................. $45,406 $40,874 $41,164 $ 9,730 $ 9,896
Gross profit.............................................. 11,981 10,576 10,831 2,647 2,931
Income from operations.................................... 2,807 1,636 1,788 167 483
TILLEY
Net sales................................................. $36,707 $38,281 $40,715 $10,165 $ 9,816
Gross profit.............................................. 5,966 5,989 6,693 1,669 1,709
Income from operations.................................... 1,356 1,189 1,818 472 454
CRON
Net sales................................................. $38,432 $41,760 $38,755 $ 9,199 $11,094
Gross profit.............................................. 5,996 6,893 6,197 1,413 1,637
Income from operations.................................... 1,195 1,514 846 88 350
BROWN
Net sales................................................. $30,996 $33,767 $34,311 $ 8,707 $ 9,160
Gross profit.............................................. 5,287 5,592 5,950 1,531 1,668
Income from operations.................................... 689 943 1,061 295 385
TARR
Net sales................................................. $30,097 $32,216 $31,662 $ 7,864 $ 6,183
Gross profit.............................................. 5,485 6,516 6,707 1,704 1,551
Income from operations.................................... 354 586 579 282 89
AMERICAN
Net sales................................................. $19,241 $19,370 $19,040 $ 4,989 $ 4,547
Gross profit.............................................. 2,992 3,160 3,411 938 825
Income from operations.................................... 22 59 588 147 169
</TABLE>
- ---------------
(1) The fiscal years presented are the years ended December 31, 1995, 1996 and
1997, except for Industrial for which the fiscal years presented are the
years ended February 29, 1996, February 28, 1997 and 1998; Tilley for which
the fiscal years presented are the years ended October 31, 1995, 1996 and
1997; Cron for which the fiscal years presented are the years ended
September 30, 1995, 1996 and 1997; and American for which the fiscal years
presented are the years ended June 30, 1996 and 1997, and the year ended
March 31, 1998.
(2) The periods presented above are for the three months ended March 31, 1997
and 1998, except for Industrial for which the periods presented are for the
three months ended May 31, 1997 and 1998.
6
<PAGE> 10
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
purchasing the shares of Common Stock offered hereby. Information contained in
this Prospectus is based on beliefs of, and information currently available to,
the Company's management as well as estimates and assumptions made by the
Company's management, and may contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). When used in this Prospectus, words such as "may," "will," "expect,"
"intend," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology, as they relate to the
Company or the Company's management, identify forward-looking statements. The
following matters and certain other factors noted throughout this Prospectus
constitute cautionary statements identifying important factors with respect to
any such forward-looking statements, including certain risks and uncertainties
that could cause actual results to differ materially from those in such
forward-looking statements.
ABSENCE OF COMBINED OPERATING HISTORY
CLC was organized in July 1997 but has conducted no operations, other than
in connection with the Offering and the Acquisitions, and generated no revenue
to date. CLC has entered into agreements to acquire the Founding Companies
simultaneously with, and as a condition to, the closing of the Offering. The
Founding Companies have been operating as separate entities and there can be no
assurance that the Company will be able to integrate the operations of these
businesses successfully or to institute the necessary systems and procedures,
including accounting and financial reporting systems, to manage the combined
enterprise on a profitable basis. In addition, there can be no assurance that
the recently assembled management group will be able to oversee the combined
enterprise and effectively implement the Company's operating or growth
strategies. The pro forma combined financial results of the Founding Companies
cover periods during which the Founding Companies and CLC were not under common
control or management and, therefore, may not be indicative of the Company's
future financial or operating results. The success of the Company will depend on
management's ability to integrate the Founding Companies and other future
acquisitions into one organization in a profitable manner. The inability of the
Company to successfully integrate the Founding Companies and to coordinate and
integrate certain operational, administrative, banking, insurance and accounting
functions and computer systems would have a material adverse effect on the
Company's financial condition and results of operations.
RISKS RELATED TO ACQUISITION STRATEGY
The Company's strategy for growth significantly relies on the acquisition
of additional chemical distribution companies. The Company expects to face
competition for acquisition candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition prices. There can
be no assurance that the Company will be able to identify, acquire or profitably
manage additional businesses or to integrate successfully any acquired
businesses into the Company without substantial costs, delays or other
operational or financial difficulties. Further, acquisitions (including the
acquisitions of the Founding Companies) involve a number of special risks,
including failure of the acquired businesses to achieve expected results,
diversion of management's attention, failure to retain key personnel, customers
and suppliers of the acquired businesses and contingent and latent risks
(including environmental risks) associated with the past operations of, and
other unanticipated problems, events or liabilities arising from the acquired
businesses, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
recourse against the owners of the Founding Companies or of other acquired
businesses may be limited. In addition, there can be no assurance that the
Founding Companies or other businesses acquired in the future will achieve
anticipated net sales and earnings or that the Company will achieve any or all
of the other goals of its acquisition strategy. Acquisitions accounted for as
purchases may result in substantial annual noncash amortization charges for
goodwill and other intangible assets in the Company's statements of operations.
See "Business -- Strategy."
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RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES
Although the Company intends to seek to improve the profitability of the
Founding Companies and any subsequently acquired businesses by various means,
including realizing efficiencies and centralizing certain administrative
functions, there can be no assurance that the Company will be able to do so. The
Company does not currently sell all products or provide all services at each of
its locations and there can be no assurance regarding when, if ever, it will do
so. The Company's ability to maintain or increase the profitability of the
Founding Companies and any subsequently acquired businesses will be affected by
various factors, including demand for the Company's products and services, the
Company's ability to expand the range of products and services offered by each
Founding Company and by any subsequently acquired businesses and the Company's
ability to enter new markets successfully. Many of these factors are beyond the
control of the Company, and there can be no assurance that the Company's
strategies will be successful or that it will be able to generate cash flow
adequate to support its operations and internal growth. A key component of the
Company's strategy is to operate the Founding Companies and subsequently
acquired businesses on a decentralized basis, with local management retaining
responsibility for day-to-day operations, maintaining existing and building new
customer and supplier relationships, profitability and the growth of the
business. If proper business controls are not implemented or if management of
the Founding Companies and subsequently acquired businesses are not successful
in adopting an integrated operating approach, this decentralized operating
strategy could result in inconsistent operating, administrative and financial
practices at the Founding Companies and subsequently acquired businesses and the
Company's overall profitability could be adversely affected. The chemical
distribution industry is subject to technological change, product innovation and
substitution, and enhancement and changes in supplier and customer requirements.
The operations of the Company may be affected by these changes. The Company's
failure to anticipate or respond to these developments may have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Strategy."
MANAGEMENT OF GROWTH
The Company expects to grow both internally and through acquisitions.
Management expects to expend significant time and effort in evaluating,
completing and integrating acquisitions and opening new facilities. The Company
may not be able to bid on certain national sales account opportunities if it
does not continue to add new geographic locations. There can be no assurance
that the Company's systems, procedures and controls will be adequate to support
the Company's operations as they expand. Any future growth also will impose
significant additional responsibilities on members of senior management,
including the need to identify, recruit and integrate new senior level managers
and executives. There can be no assurance that such additional managers and
executives will be identified and retained by the Company. To the extent that
the Company is unable to manage its growth efficiently and effectively, or is
unable to attract and retain additional qualified managers and executives, the
Company's financial condition and results of operations could be materially
adversely affected. See "Business -- Strategy."
INTEGRATION OF AND RELIANCE ON COMPUTER SYSTEMS
The Company's success will be dependent in part on its ability to
coordinate and integrate the management and information systems ("MIS") of the
Founding Companies that are used for ordering products, recording and analyzing
financial results, controlling inventory and performing other important
functions. There can be no assurance that the Company will be able to coordinate
and integrate the MIS economically or that the Company will not experience
delays, disruptions and unanticipated expenses in doing so. Any such event could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company will not be able to fully achieve certain
contemplated operating efficiencies and competitive advantages until it has
fully coordinated and integrated the MIS. Until the Company establishes
coordinated and integrated MIS, which may not occur for several years, it will
rely primarily on the separate systems of the Founding Companies. After the MIS
are integrated, the Company will rely heavily on them in its daily operations.
Consequently, any interruption in the operation of the MIS may have a material
adverse effect on the Company's business, financial condition and results of
operations. Also, the total future cost to the Company associated with
evaluating and modifying its computer systems to
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address potential year 2000 compliance issues has not been determined. There can
be no assurance as to the ultimate effect of year 2000 compliance issues on the
Company or that such issues will not have a material adverse effect on the
Company's financial condition and results of operations.
COMPETITION
The Company is engaged in a highly fragmented and competitive industry.
Competition is based primarily on service, product pricing, quality and
geographic coverage. The Company competes with a large number of chemical
distribution companies on a national, regional and local basis, as well as
chemical traders and brokers and chemical manufacturers, some of which may have
greater financial resources and greater geographic coverage than the Company and
some of which are public companies or divisions of public companies. The Company
may also face competition for acquisition candidates from these companies, some
of which have been active in the acquisition market for chemical distribution
businesses. Other smaller chemical distribution companies may also seek
acquisitions from time to time. See "Business -- Competition." There can be no
assurance that such competition will not have a material adverse effect on the
Company's financial condition and results of operations.
ACQUISITION FINANCING
The Company's acquisition strategy will require substantial capital. The
Company intends to use its Common Stock for a portion of the consideration for
some or all future acquisitions. If the Common Stock does not maintain a
sufficient valuation or potential acquisition candidates are unwilling to accept
Common Stock as part of the consideration for the sale of their businesses, the
Company may be required to utilize more of its cash resources, if available, in
order to pursue its acquisition program. If the Company does not have sufficient
cash resources, its growth could be limited unless it is able to obtain
additional capital through future debt or equity financings. Using cash or debt
to complete acquisitions and finance internal growth could substantially limit
the Company's financial flexibility, and using equity may result in dilution of
the ownership interests of the then-existing stockholders of the Company. There
can be no assurance that the Company will be able to obtain financing if and
when it is needed or that, if available, it will be available on terms the
Company deems acceptable. As a result, the Company might be unable to pursue its
acquisition strategy successfully. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Combined Liquidity and Capital
Resources" and "Business -- Strategy."
RELIANCE ON INDUSTRIES SUBJECT TO FLUCTUATING DEMAND
Certain of the Company's products are sold to customers in industries and
markets that experience cyclicality or significant fluctuations in demand based
on economic conditions, energy prices, consumer demand, changing supplier and
customer practices, environmental regulations, weather conditions and other
factors beyond the control of the Company. No assurance can be given that the
Company will be able to increase or maintain its level of sales particularly in
periods of economic stagnation or downturn.
POTENTIAL COSTS OF ENVIRONMENTAL COMPLIANCE
The Company is subject to federal, state, local and foreign environmental
laws, rules, regulations, and ordinances, including those concerning emissions
and discharges, and the generation, handling, storage, transportation,
treatment, disposal and import and export of hazardous materials ("Environmental
Laws"). The operation of the Company's facilities and the distribution of
chemical products entail risks under Environmental Laws, many of which provide
for substantial remediation costs in the event of discharges of contaminants and
fines and sanctions for violations. In addition, compliance with existing and
future Environmental Laws may require significant capital expenditures by the
Company. There can be no assurance that past or future operations will not
result in the Company incurring material environmental liabilities and costs or
that compliance with Environmental Laws will not require material capital
expenditures by the Company, each of which could have a material adverse effect
on the Company's results of operations and financial condition. At some of the
Company's sites, surface or subsurface contamination has been established, the
full extent of which is unknown. No assurance can be given that material
liabilities will not be incurred in
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the future as a result of the existing contamination. In addition, although the
Company intends to conduct appropriate due diligence with respect to
environmental matters in connection with future acquisitions, there can be no
assurance that the Company will be able to identify or be indemnified for all
potential environmental liabilities relating to any acquired business. Although
the Company has obtained insurance and indemnities for certain contamination
conditions, such insurance and indemnities are limited. See
"Business -- Environmental and Health Regulation" and "Business -- Risk
Management and Insurance."
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year because of a number of factors, including the
timing of future acquisitions, fluctuations in the demand for its distribution
services and competitive factors. Additionally, the Company's distribution
activities involve chemical products the prices of which fluctuate over time.
Future price fluctuations may have a negative impact on the Company and its
results of operations. Accordingly, quarterly comparisons of the Company's
revenues and operating results for a period should not be relied on as an
indication of future performance, and the results of any period may not be
indicative of results to be expected for future periods. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the completion of the Acquisitions and the Offering, the
Company's executive officers and directors, former stockholders of the Founding
Companies and persons affiliated with some or all of the above will beneficially
own approximately 74% of the total outstanding shares of Common Stock
(approximately 71% if the Underwriters' over-allotment option is exercised in
full). These persons, if acting in concert, will be able to continue to exercise
control over the Company's affairs, to elect the Board of Directors and to
control the disposition of any matter submitted to a vote of stockholders. See
"Principal Stockholders."
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
Of the net proceeds of the Offering, $31.1 million will be paid as the cash
portion of the purchase price for the Founding Companies. Some of the recipients
of these funds will become directors of the Company or holders of more than 5%
of the Common Stock. See "Principal Stockholders." Prior to the Acquisitions,
the Founding Companies will borrow an aggregate of approximately $8.7 million to
fund substantially all of the S Corporation Distributions. The Company intends
to assume or refinance through its revolving credit facility substantially all
of the indebtedness of the Founding Companies. Additionally, BCP has agreed to
advance to CLC, until the consummation of the Acquisitions and the Offering,
such funds as are necessary to pay the transaction costs associated with the
Acquisitions and the Offering. BCP will be reimbursed from the proceeds of the
Offering in respect of such expenses. As of July 15, 1998, BCP had advanced the
Company approximately $1.8 million for such expenses. See "Use of Proceeds" and
"Certain Transactions."
OPERATING HAZARDS
The Company's operations are subject to the numerous hazards associated
with the handling, transportation, blending, storage, sale, ownership and other
activities relating to chemicals. These hazards include, but are not limited to,
storage tank or pipeline leaks and ruptures, explosions, fires, chemical spills,
discharges or releases of toxic substances or gases, mechanical failures,
transportation accidents, any of which could materially and adversely affect the
Company. These hazards can cause personal injury and loss of life, severe damage
to or destruction of property and equipment, environmental damage and may result
in suspension of operations. The Company will maintain insurance coverage in the
amounts and against the risks it believes are in accordance with industry
practice, but this insurance will not cover all types or amounts of liabilities.
No assurance can be given either that (i) this insurance will be adequate to
cover all losses or liabilities the Company may incur in its operations or (ii)
the Company will be able to maintain insurance of the types or at levels that
are adequate or at reasonable rates.
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NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK
Prior to the Offering, no public market for the Common Stock has existed,
and the initial public offering price, which will be determined by negotiation
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
See "Underwriting" for the factors to be considered in determining the initial
public offering price. The Company intends to make application to list the
Common Stock on the NYSE, but no assurance can be given that an active trading
market for the Common Stock will develop or, if developed, continue after the
Offering. The market price of the Common Stock after the Offering may be subject
to significant fluctuations from time to time in response to numerous factors,
including variations in the reported financial results of the Company from both
prior results and anticipated results and changing conditions in the economy in
general or in the industrial sector in particular. In addition, the stock
markets experience significant price and volume volatility from time to time
which may affect the market price of the Common Stock for reasons unrelated to
the Company's performance.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers and senior management and other key personnel of the Founding
Companies. Furthermore, the Company will be dependent on the senior management
of companies that may be acquired in the future. Although the Company will enter
into an employment agreement with each of the Company's executive officers,
there can be no assurance that any individual will continue in such capacity for
any particular period of time. The loss of key personnel, or the inability to
hire and retain qualified employees, could have an adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
RISKS ASSOCIATED WITH DISTRIBUTION SUPPLY CONTRACTS
The products distributed by the Company are obtained through supply
relationships with chemical producers. Typically, the Company's supply contracts
have one-year terms with evergreen provisions that automatically renew the
contracts for additional one-year terms unless notice of termination is provided
(which notice may be, under certain agreements, as short as 30 days). In
addition, many of the Company's supply contracts are subject to termination as a
result of a change in control, including the Acquisitions. The Company has
long-established relationships with many of its suppliers. There can be no
assurance, however, that the Company's relationships or agreements with such
suppliers will not be terminated and, if terminated, that they can be replaced.
There also can be no assurance that manufacturers will be willing to extend
their current relationship with a Founding Company to other Founding Companies
or the Company as a whole.
SHARES ELIGIBLE FOR FUTURE SALE
As of July 15, 1998, 2,401,202 shares of Common Stock were issued and
outstanding. Simultaneously with the closing of the Offering, the stockholders
of the Founding Companies will receive, in the aggregate, 6,543,329 shares of
Common Stock as a portion of the consideration for their businesses.
Additionally, prior to the closing of the Offering, the Company expects to issue
50,000 shares of Common Stock to newly hired management personnel. None of these
8,994,531 shares of Common Stock was or will be issued in a transaction
registered under the Securities Act, and, accordingly, such shares may not be
sold except in transactions registered under the Securities Act or pursuant to
an exemption from registration, including the exemptions contained in Rules 144
and 701 under the Securities Act. In addition, the owners of the Founding
Companies, management, the principals of BCP and certain consultants have agreed
with the Company not to sell, contract to sell or otherwise dispose of any
shares of Common Stock received as consideration in the Acquisitions for a
period of two years following receipt thereof. When these shares become
saleable, the market price of the Common Stock could be materially adversely
affected by the sale of substantial amounts of the shares in the public market.
The current stockholders of the Company (including the stockholders of the
Founding Companies) have certain piggy-back registration rights with respect to
their shares.
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Upon the closing of the Offering, the Company will have outstanding options
to purchase up to a total of approximately 1,070,000 shares of Common Stock
issued pursuant to the Company's 1998 Stock Plan (the "Plan"). A total of 15% of
the Company's outstanding shares will be issuable pursuant to the Plan. The
Company intends to file a registration statement covering all the shares subject
to these options under the Securities Act. See "Management -- 1998 Stock Plan."
The Company currently intends to file a registration statement covering up
to an additional 5,000,000 shares of Common Stock under the Securities Act for
its use in connection with future acquisitions. These shares generally will be
freely tradeable after their issuance by persons not affiliated with the Company
unless the Company contractually restricts their resale.
The Company has agreed not to offer, sell or otherwise dispose of any
shares of Common Stock or other securities convertible into or exchangeable or
exercisable for shares of Common Stock for a period of 180 days after the date
of this Prospectus, except as consideration for acquisitions of businesses or on
exercise of options granted under the Plan, without the prior written consent of
BT Alex. Brown Incorporated. All directors, officers and current stockholders of
the Company and persons acquiring shares of Common Stock in connection with the
Acquisitions have agreed not to (i) offer, pledge, sell or otherwise dispose of
any shares of Common Stock, (ii) enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
shares of Common Stock owned by such person or (iii) request the registration
for the offer or sale of Common Stock for a period of 180 days without the prior
written consent of BT Alex. Brown Incorporated.
There can be no assurance that the resale or the availability for sale of
the shares of Common Stock eligible for future sale will not have an adverse
effect on the prevailing market price of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation, Bylaws,
employment agreements and employee benefit plans contain provisions which may
have the effect of delaying, deferring or preventing a change in control of the
Company. For example, the Company's Amended and Restated Certificate of
Incorporation and Bylaws provide for, among other things, a classified Board of
Directors, the prohibition of stockholder action by written consent and the
affirmative vote of at least 66 2/3% of all outstanding shares of Common Stock
to approve the removal of directors from office. The Company's Board of
Directors has the authority to issue shares of preferred stock in one or more
series and to fix the rights and preferences of the shares of any such series
without stockholder approval. Any series of preferred stock is likely to be
senior to the Common Stock with respect to dividends, liquidation rights and,
possibly, voting. In addition, the Board of Directors may issue certain rights
pursuant to the rights plan authorized by the Amended and Restated Certificate
of Incorporation. The ability to issue preferred stock or rights could have the
effect of discouraging unsolicited acquisition proposals. The Company's employee
stock option plans contain provisions that allow for, among others, the
acceleration of vesting or payment of awards granted under such plans in the
event of a "change of control," as defined in such plans. In addition, the
Company has entered into employment agreements with certain executive officers
and key employees allowing for cash payments under certain circumstances
following a change in control, as defined, of the Company.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate dilution in the net tangible book value of their shares of $11.94 per
share (assuming an initial public offering price of $15.00 per share). See
"Dilution." In the event the Company issues additional shares of Common Stock in
the future, including shares which may be issued in connection with acquisitions
or other public or private financings, purchasers of Common Stock in the
Offering may experience further dilution in the net tangible book value per
share of the Common Stock. See "Dilution."
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SIGNIFICANT MATERIALITY OF GOODWILL
The Company's balance sheet immediately following the Offering and
consummation of the Acquisitions will include an amount designated as "goodwill"
that represents 40.1% of total assets and 67.2% of stockholders' equity.
Goodwill arises when an acquiror pays more for a business than the fair value of
the tangible and separately measurable intangible net assets. Generally accepted
accounting principles require that this and all other intangible assets be
amortized over the period benefited. Management has determined that the period
benefited by the goodwill will be no less than 40 years. If management were not
to separately recognize a material intangible asset having a benefit period less
than 40 years, or were not to give effect to shorter benefit periods of factors
giving rise to a material portion of the goodwill, earnings reported in periods
immediately following the acquisition would be overstated. In later years, the
Company would be burdened by a continuing charge against earnings without the
associated benefit to income valued by management in arriving at the
consideration paid for the businesses. Earnings in later years also could be
significantly affected if management determined then that the remaining balance
of goodwill was impaired. Management has reviewed with its independent
accountants all of the factors and related future cash flows which it considered
in arriving at the amount incurred to acquire each of the Founding Companies.
Management concluded that the anticipated future cash flows associated with
intangible assets recognized in the acquisitions will continue indefinitely, and
there is no persuasive evidence that any material portion will dissipate over a
period shorter than 40 years.
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THE COMPANY
CLC was founded in July 1997 to create a premier national chemical
distribution company with a wide range of value-added services, broad line of
product offerings and extensive geographic coverage, and to participate in the
consolidation of the chemical distribution industry. Concurrently with and as a
condition to the closing of the Offering, CLC will acquire the nine Founding
Companies. For 1997, the Founding Companies, which have been in business for an
average of 49 years, had pro forma combined annual revenues of approximately
$366 million with sales in 47 states. The Acquisitions Consideration to be paid
by the Company consists of approximately $31.1 million in cash and 6,543,329
shares of Common Stock. The Acquisitions Consideration was determined by
negotiations among CLC and representatives of the Founding Companies. See
"Certain Transactions." A brief description of each of the Founding Companies is
set forth below.
ROBINS. Robins, a distributor of a broad line of organic and inorganic
chemicals, was founded in 1923 and is headquartered in St. Louis, Missouri.
Robins operates through nine distribution and storage facilities located in
Illinois, Missouri and Kansas. Robins has approximately 120 employees, including
22 sales personnel and 17 customer representatives, and operates a fleet of 15
tractors and 45 trailers. A tenth facility, which is located in Cedar Rapids,
Iowa, is under construction and will be leased by Robins beginning in the third
quarter of 1998. Robins had revenues of approximately $61.4 million for the year
ended December 31, 1997. Robins services over 1,200 customers, distributing over
1,500 products to a customer base including the food processing, water
treatment, paint and coatings, pharmaceuticals, compounding, ice melt and
chemical processing industries. Recently, Robins has increased its mixing,
blending and formulating capabilities to meet market demand. G. Stephen Robins,
president of Robins, will sign a three-year employment agreement to continue in
his position as president of Robins following the consummation of the Offering.
In addition, Mr. Robins will become a director of the Company following the
consummation of the Offering.
INDUSTRIAL. Industrial, a distributor of mainly inorganic chemicals, was
founded in 1970 and is headquartered in Birmingham, Alabama. Industrial operates
through seven distribution and storage facilities located in Alabama and
Georgia. It also operates a liquid and dry blending and packaging facility in
Birmingham, and a custom dry packaging facility in Mobile, Alabama. Industrial
has approximately 111 employees, including 19 sales personnel and seven customer
service representatives and operates a fleet of eight tractors, 30 trailers and
21 other trucks. Industrial had revenues of approximately $51.6 million for the
fiscal year ended February 28, 1998. Industrial services over 2,500 customers,
distributing over 1,500 products to a customer base including the pulp and
paper, textile, water treatment, chemical manufacturing and food processing
industries. Value-added services provided include just-in-time inventory
services and a variety of custom specifications, including blending and
packaging, sampling, labeling, segregated storage and special delivery
requirements. William L. Welch, President of Industrial, will sign a three-year
employment agreement to continue in his position as president of Industrial
following the consummation of the Offering. In addition, Mr. Welch will become a
director of the Company following the consummation of the Offering.
SOUTHWEST SOLVENTS. Southwest Solvents, a distributor of a broad line of
organic and inorganic chemicals, began business in 1970 and is headquartered in
Houston, Texas. Southwest Solvents operates through seven distribution and
storage facilities in Texas and California. Southwest Solvents has approximately
95 employees, including 19 sales personnel and four customer service
representatives and operates a fleet of 21 tractors, 29 trailers, five other
trucks, and ten railcars. Southwest Solvents had revenues of approximately $47.2
million for the year ended December 31, 1997. Southwest Solvents services over
1,600 customers, distributing over 2,500 products to a customer base including
the paint, coatings and adhesives, oilfield service, printing, general
manufacturing, compounding, electronics and cosmetics industries. Value-added
services provided include export containerization and contract drumming for
chemical manufacturers and exporters. James M. Clepper, CEO of Southwest
Solvents, will sign a three-year employment agreement to serve as President and
Chief Operating Officer of the Company following the consummation of the
Offering. In addition, Mr. Clepper will become a director of the Company
following the consummation of the Offering.
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CHEMICAL SOLVENTS. Chemical Solvents, a distributor of liquid organic
chemicals, was incorporated in 1970 and is headquartered in Cleveland, Ohio.
Chemical Solvents operates through its distribution and storage facilities
located in Cleveland. Chemical Solvents has approximately 113 employees,
including nine sales personnel and four customer service representatives and
operates a fleet of 11 tractors, 13 trailers, five other trucks, and one
railcar. Chemical Solvents had revenues of approximately $41.2 million for the
year ended December 31, 1997. Chemical Solvents services over 750 customers,
distributing over 450 products to a customer base including the metal finishing,
paint and coatings, adhesives and sealants, aerosol packaging, automotive,
chemical processing and plastics and rubber industries. Value-added services
provided include storage and repackaging, recycling and chemical waste disposal,
equipment cleaning supply, wastewater treatment and disposal and coating
stripping services. Bill Garrett, currently executive vice president of Chemical
Solvents, will sign a three-year employment agreement to serve as president of
Chemical Solvents following the consummation of the Offering. Ed Pavlish,
currently president of Chemical Solvents, will sign a consulting agreement with
Chemical Solvents following the consummation of the Offering.
TILLEY. Tilley, a distributor of a broad line of organic and inorganic
chemicals, began business in 1952 and is headquartered in Baltimore, Maryland.
Tilley operates through its distribution and storage facilities located in
Baltimore. Tilley has approximately 47 employees, including seven sales
personnel and three customer service representatives and operates a fleet of
nine tractors, 15 trailers, and six other trucks. Tilley had revenues of
approximately $40.7 million for the fiscal year ended October 31, 1997. Tilley
services over 600 customers, distributing over 1,200 products to a customer base
including the food and beverage, pharmaceutical, photographic and chemical
process industries as well as other diverse industrial markets. Value-added
services provided include export packaging, contract packaging, remote tank
monitoring and supply chain management. John Tilley, president of Tilley, will
sign a three-year employment agreement to continue in his position as president
of Tilley following the consummation of the Offering. In addition, Mr. Tilley
will become a director of the Company following the consummation of the
Offering.
CRON. Cron, a distributor of a broad line of organic and inorganic
chemicals, whose predecessor began business in 1936, maintains headquarters in
Houston, Texas and New Orleans, Louisiana. Cron operates through four
distribution and storage facilities located in Houston and Dallas, Texas, and
New Orleans and Lafayette, Louisiana. Cron has approximately 59 employees,
including 15 sales personnel and seven customer service representatives and
operates a fleet of nine tractors and 16 trailers. Cron had revenues of
approximately $38.8 million for the fiscal year ended September 30, 1997. Cron
services over 1,500 customers, distributing over 700 products to a customer base
including the paint and coatings, plastics, inks, construction, food, adhesive,
oil field services, chemical compounding, chemical process, metals and oil field
production industries. Value-added services provided include custom blending and
packing of chemical raw material and 24-hour oil field product availability
services provided by Cron. Jim Sette, president of Cron Chemical Corporation,
will sign a three-year employment agreement to continue in his position
following the consummation of the Offering.
BROWN. Brown, a distributor of various dry and liquid inorganic and organic
chemicals, was founded in 1936 and is headquartered in Oakland, New Jersey.
Brown operates through two distribution and storage facilities located in New
Jersey. Brown has approximately 28 employees, including five sales personnel and
four customer service representatives and operates a fleet of six tractors, 13
trailers, and two other trucks. Brown had revenues of approximately $34.3
million for the year ended December 31, 1997. Brown services approximately 1,000
customers, distributing over 1,500 products to a customer base including the
pharmaceutical, food, flavors, fragrances, personal care, cosmetics and
photographic industries. Value-added services provided include contract
warehousing, custom packaging, limited blending, remote tank monitoring systems
and vendor managed inventory programs. Doug Brown, president of Brown, will sign
a three-year employment agreement to serve as Chief Information Officer of the
Company and president of Brown following the consummation of the Offering. In
addition, Doug Brown will become a director of the Company following the
consummation of the Offering.
TARR. Tarr, a distributor of liquid organic chemicals and petroleum
products, whose predecessor began business in 1945, is headquartered in
Portland, Oregon. Tarr operates through nine distribution and storage facilities
located in Oregon, Washington and Arizona. Tarr has approximately 72 employees,
including
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13 sales personnel and five customer service representatives and operates a
fleet of 16 other trucks, five tractors and 12 trailers. Tarr had revenues of
approximately $31.7 million for the year ended December 31, 1997. Tarr services
over 6,500 customers, distributing over 3,900 products to a customer base
including the paint and coatings, print, metals, transportation, compounding and
semiconductor industries. Value-added services provided include blending, custom
packaging and commercial fueling facilities and services. Skip Tarr, president
of Tarr, will sign a three-year employment agreement to continue in his position
as president of Tarr following the consummation of the Offering.
AMERICAN. American, a distributor of liquid organic chemicals, was founded
in 1940 and is headquartered in South Kearny, New Jersey. American operates
through its distribution and storage facilities located in South Kearny.
American has approximately 20 employees, including six sales personnel and two
customer service representatives and operates a fleet of four tractors, 14
trailers, and two other trucks. American had revenues of approximately $19.4
million for the fiscal year ended June 30, 1997. American services over 200
customers, distributing over 350 products to a customer base including the paint
and coatings, inks, flavor and fragrance, pharmaceutical and chemical process
industries. Value-added services provided include blending, custom packaging and
customer maintained inventories. Stephen B. Fiverson, president of American,
will sign a three-year employment agreement to continue in his position as
president of American following the consummation of the Offering. In addition,
Mr. Fiverson will become a director of the Company following the consummation of
the Offering.
Chemical Logistics Corporation was incorporated in Delaware in July 1997.
Its executive offices are located at 808 Travis, Suite 1135, Houston, Texas
77002, and its telephone number is (713) 228-1555.
16
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (assuming an initial public offering price of $15.00 per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company, a portion of which have been
or will be funded by advances from BCP and reimbursed from the proceeds of the
Offering) are estimated to be approximately $40.3 million (approximately $47.0
million if the Underwriters' over-allotment option is exercised in full).
Of the $40.3 million net proceeds, the Company estimates that approximately
$31.1 million will be used to pay the cash portion of the Acquisitions
Consideration, all of which will be paid to former stockholders and other equity
owners of the Founding Companies. In addition, approximately $9.2 million of the
remaining net proceeds will be used to repay various outstanding indebtedness of
the Founding Companies at the closing of the Offering that bear interest at
rates ranging from 8.0% to 10.0% and mature at various dates through October
2004. Such indebtedness may include notes payable to fund a portion of the S
Corporation Distributions. After consummation of the Offering and the
Acquisitions and after giving effect to the application of the proceeds
described above and to an anticipated draw down on the Company's currently
proposed bank line of credit (described below) to refinance the Founding
Companies' indebtedness, the Company expects to have a total of $27.5 million in
debt outstanding.
The Company has reached an agreement in principle to obtain a bank line of
credit for $100 million to finance future acquisitions, to refinance existing
indebtedness of the individual Founding Companies and of companies acquired in
the future and for general corporate purposes. The line of credit will be
subject to customary drawing conditions and the completion of negotiations with
the lenders, the execution of appropriate loan documentation and the
consummation of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Combined Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company currently intends to retain its future earnings, if any, to
finance the growth, development and expansion of its business and, accordingly,
does not currently intend to declare or pay any dividends on the Common Stock
for the foreseeable future. The declaration, payment and amount of future
dividends, if any, will be at the discretion of the Company's 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 capital requirements and expansion plans,
the income tax laws then in effect and the requirements of Delaware law. In
addition, the Company's currently proposed credit facility will prohibit the
payment of dividends by the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Combined Liquidity and
Capital Resources."
Prior to the Acquisitions, certain of the Founding Companies will make the
S Corporation Distributions to their stockholders in the amount of approximately
$8.7 million.
17
<PAGE> 21
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and the capitalization of (i) the Company on a pro forma combined
basis after giving effect to the Acquisitions, the S Corporation Distributions
and related transactions and (ii) the Company on a pro forma basis, as adjusted
to give effect to the Offering and the application of the estimated net proceeds
therefrom and the repayment and refinancing of certain indebtedness of the
Founding Companies. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Combined Liquidity and Capital Resources" and the
Unaudited Pro Forma Combined Financial Statements of the Company and the notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 4,662 $ 2,074
Current maturities of long-term debt(1)..................... 21,776 8,694
Long-term debt, net of current maturities(2)................ 15,579 18,759
-------- --------
Stockholders' equity:
Preferred Stock: $0.01 par value, 10,000,000 shares,
authorized; no shares issued and outstanding........... -- --
Common Stock: $0.01 par value, 50,000,000 shares
authorized; 8,994,531 issued and outstanding, pro forma
combined; and 12,194,531 shares issued and outstanding,
as adjusted(3)......................................... 89 121
Additional paid-in capital................................ 78,757 119,065
Retained deficit(4)....................................... (5,269) (5,269)
-------- --------
Total stockholders' equity........................ 73,577 113,917
-------- --------
Total capitalization.............................. $110,932 $141,370
======== ========
</TABLE>
- ---------------
(1) Includes the Company's line of credit and current payables to related
parties. See detail of related party amounts in the individual Founding
Company financial statements and accompanying notes thereto.
(2) Includes long-term obligations and long-term payables to related parties.
See detail of related party amounts in the individual Founding Company
financial statements and accompanying notes thereto.
(3) Excludes shares related to approximately 1,070,000 stock options which are
expected to be granted upon consummation of the Offering.
(4) Results from the noncash compensation charge related to the issuance of
Common Stock to management.
18
<PAGE> 22
DILUTION
At March 31, 1998, after giving effect to the Acquisitions as if they had
occurred at such date, the deficit in pro forma combined net tangible book value
of the Company was approximately $(3.0) million, or approximately $(0.34) per
share. The deficit in pro forma combined net tangible book value is equal to the
aggregate net tangible book value (tangible assets less total liabilities) of
the Company after giving effect to the Acquisitions. The number of shares used
for the per share calculation includes the 8,994,531 shares outstanding after
the Acquisitions, but prior to the Offering. After giving effect to the
Acquisitions and the sale by the Company of the 3,200,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $15.00 per share
and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company), the pro forma combined net tangible
book value of the Company would have been $37.3 million, or $3.06 per share.
This represents an immediate increase in pro forma net tangible book value of
$3.40 per share to existing stockholders and an immediate dilution in net
tangible book value of $11.94 per share to new investors purchasing the shares
of Common Stock in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
Pro forma combined net tangible book value per share prior
to the Offering........................................ $(0.34)
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 3.40
------
Pro forma combined net tangible book value per share after
the Offering.............................................. 3.06
------
Dilution in net tangible book value per share to new
investors................................................. $11.94
======
</TABLE>
The following table sets forth on a pro forma basis, after giving effect to
the Acquisitions as of March 31, 1998, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by (i) existing stockholders and
(ii) the new investors purchasing Common Stock from the Company in the Offering
at the assumed initial offering price of $15.00 per share (before deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL
--------------------- CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT(1) PERCENT PER SHARE
----------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders and
owners of Founding
Companies................... 8,994,531 73.7% $(3,030,000) (6.7)% $(0.34)
New investors................. 3,200,000 26.3 48,000,000 106.7 15.00
----------- ----- -----------
Total............... $12,194,531 100.0% $44,970,000 100.0%
=========== ===== =========== =====
</TABLE>
- ---------------
(1) The total consideration paid represents the combined stockholders' equity of
the Founding Companies before the Offering, reduced to reflect: (i) the cash
portion of the Acquisitions Consideration and (ii) S Corporation
Distributions of $8.7 million.
19
<PAGE> 23
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CLC will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. The following selected historical
financial data for CLC as of December 31, 1997 have been derived from audited
financial statements of CLC included elsewhere in this Prospectus. The selected
historical financial data for March 31, 1998 and for the three months ended
March 31, 1998 have been derived from the unaudited financial statements of CLC
which have been prepared on the same basis as the audited financial statements
and, in the opinion of Company management, reflect all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of such data.
The results of operations for the three months ended March 31, 1998 should not
be regarded as indicative of the results that may be expected for the full year.
The summary unaudited pro forma combined financial data below present
certain data for the Company, adjusted for (i) the Acquisitions, (ii) the
effects of certain other pro forma adjustments to the historical financial
statements and (iii) the consummation of the Offering and the application of the
net proceeds therefrom. The summary pro forma combined statement of operations
data assume that the Acquisitions, Offering and related transactions were closed
on January 1, 1997, and are not necessarily indicative of the results that the
Company would have obtained had these events actually occurred at that date or
indicative of the Company's future results. During the periods presented below,
the Founding Companies were not under common control or management and,
therefore, the data presented may not be comparable to or indicative of
post-combination results to be achieved by the Company. The summary pro forma
combined financial data are based on preliminary estimates, available
information and certain assumptions that management deems appropriate and should
be read in conjunction with the other financial information included elsewhere
in this Prospectus. See the Unaudited Pro Forma Combined Financial Statements
and the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JULY 15, 1997)
THROUGH THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA (CLC):
Net sales................................................. $ -- $ --
Selling, general and administrative expenses.............. 17 5,252
---- -------
Loss from operations...................................... (17) (5,252)
---- -------
Net loss.................................................. $(17) $(5,252)
==== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
---------------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
-------------------- ---------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA (THE COMPANY):
Net sales............................................... $ 365,910 $ 89,503
Cost of sales........................................... 293,017 71,504
---------- ----------
Gross profit............................................ 72,893 17,999
---------- ----------
Operating and delivery expenses......................... 22,861 5,753
Selling, general and administrative expenses(1)......... 30,092 8,014
Goodwill amortization(2)................................ 1,917 479
Depreciation............................................ 4,639 1,249
---------- ----------
Income from operations.................................. 13,384 2,504
Interest and other income (expense), net(3)............. (1,222) (269)
---------- ----------
Income before income taxes.............................. 12,162 2,235
Income tax expense...................................... 5,698 1,047
---------- ----------
Net income.............................................. 6,464 1,188
---------- ----------
Net income per share.................................... $ 0.53 $ 0.10
========== ==========
Shares used in computing pro forma net income per
share(5)............................................. 12,194,531 12,194,531
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
MARCH 31, 1998(6)(7)
-----------------------------
PRO FORMA
COMBINED AS ADJUSTED(8)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA (THE COMPANY):
Working capital/(deficit)................................. $(20,245)(9) $ 23,044
Total assets.............................................. 193,493 191,269
Long-term debt, net of current maturities................. 15,579 18,759
Total stockholders' equity........................ 73,577 113,917
</TABLE>
- ---------------
(1) The pro forma combined statement of operations data reflect an aggregate of
approximately $3.4 and $0.4 million for the year ended December 31, 1997 and
the three months ended March 31, 1998, respectively, in pro forma reductions
in salary, bonus and benefits of the owners of the Founding Companies to
which they have agreed prospectively. Additionally reflects the reversal of
the nonrecurring portion of the noncash compensation charge of $5.0 million
recognized by CLC for the quarter ended March 31, 1998 related to the
issuance of Common Stock to management. See "Certain Transactions."
(2) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period and computed on the basis described in
the notes to the Unaudited Pro Forma Combined Financial Statements.
(3) Includes the elimination of interest expense of $0.1 million and $20,000 for
the year ended December 31, 1997 and the three months ended March 31, 1998,
respectively, due to the planned repayment of certain of the Founding
Companies' existing debt, net of additional interest expense related to new
debt incurred by CLC.
(4) Assumes all pretax income before nondeductible goodwill is subject to a 41%
overall tax rate.
(5) Includes (i) 6,543,329 shares to be issued to the owners of the Founding
Companies, (ii) 3,200,000 shares to be sold in the Offering, (iii) 656,697
shares issued to the management and directors of CLC, (iv) 1,570,441 shares
issued to the principals of BCP and (v) 224,064 shares issued to or held by
consultants to and employees of BCP. Excludes options to purchase
approximately 1,070,000 shares, which are expected to be granted upon
consummation of the Offering.
(6) Reflects the Acquisitions and related transactions as if they had occurred
on March 31, 1998 as described in the notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data is based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial information and historical financial
statements, and notes thereto, included elsewhere in this Prospectus.
(7) A number of the Founding Companies have historically elected S Corporation
status for tax purposes. Prior to the Acquisitions, these Founding Companies
will make distributions to their stockholders totaling approximately $8.7
million. In order to fund these distributions, the Founding Companies will
borrow approximately $8.7 million.
(8) Reflects the closing of the Offering and the Company's application of the
net proceeds therefrom and the additional borrowings to repay and refinance
certain indebtedness of the Founding Companies. See "Use of Proceeds" and
"Certain Transactions."
(9) Includes $31.1 million payable to owners of the Founding Companies,
representing the cash portion of the Acquisitions Consideration.
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues are derived primarily from the sale of dry and
liquid chemicals to industrial and commercial customers. Net sales are
recognized on shipment of the product to the customer. The Company's customers
represent a number of industries including paint and coatings, water treatment,
pharmaceuticals, oil and gas, chemical processing, textiles, food and beverage,
fragrances, cosmetics, soaps and detergents, semiconductor, mining and metal
treatment, pulp and paper, ink, rubber and plastics. In addition, the Company
not only provides basic customer services such as the warehousing, transporting,
blending, packaging and labeling of chemicals, but also provides value-added
services requiring specialized facilities and expertise such as quality
assurance and laboratory analysis, contract drumming, specialized packaging and
bagging, bar coding, integrated supply (including inventory management, remote
tank monitoring and just-in-time delivery) and export containerization.
Cost of sales consists primarily of materials, products purchased for
resale, freight and obsolescence. Operating and delivery costs consist primarily
of processing, storing and delivering of products. Selling, general and
administrative expenses consist primarily of cost for compensation and related
benefits, advertising, facility rent and utilities, communications and
professional fees. Senior executive management of the Founding Companies have
agreed to reductions in their compensation and related benefits totaling $3.4
and $0.4 million, on a pro forma basis for the 12 months ended December 31,
1997, and the three months ended March 31, 1998, respectively, in connection
with the Acquisitions. These reductions are in accordance with the terms of
employment agreements. Such reductions in salaries, bonuses and benefits have
been reflected as a pro forma adjustment in the Pro Forma Combined Statement of
Operations.
The Founding Companies have operated throughout the periods presented as
independent, privately owned entities, and their results of operations reflect
varying tax structures (S Corporations or C Corporations) which have influenced
the historical level of owners' compensation. Gross profit margins and selling,
general and administrative expenses as a percentage of revenues may not be
comparable among the individual Founding Companies.
The Company believes that it will realize savings from consolidation of
insurance programs and other general and administrative expenses. Offsetting
these savings will be costs related to the Company's new corporate management,
being a public company and integrating the Acquisitions. None of these savings
or incremental costs are reflected in the Pro Forma or Historical Combined
Statement of Operations.
Prior to the consummation of the Offering, the Company will have sold an
aggregate of 656,697 shares of Common Stock to management and has recorded
nonrecurring, noncash compensation charges of $5.2 million through March 31,
1998 and has recorded additional nonrecurring, noncash compensation charges of
approximately $1.4 million through June 30, 1998 related to such sales. These
nonrecurring compensation charges are not included in the Unaudited Pro Forma
Combined Financial Statements.
In July 1996, the Securities and Exchange Commission 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 acquisition
accounting. Under the purchase method, CLC has been designated as the accounting
acquiror. For the remaining companies, $76.6 million, representing the excess of
the fair value of the Acquisitions Consideration received over the fair value of
the net assets to be acquired, will be recorded as "goodwill" on the Company's
balance sheet. Goodwill will be amortized as a noncash charge to the statement
of operations over a 40-year period. The pro forma impact of this amortization
expense, which is nondeductible for tax purposes, is $1.9 million per year on an
after-tax basis. The amount of goodwill to be recorded and the related
amortization expense will depend in part on the actual Offering price. See
"Certain Transactions -- Organization of the Company."
22
<PAGE> 26
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has experienced modest seasonal declines in sales during first
and fourth quarters due to weather and a variance in number of delivery days.
The Company's volume of business may be adversely affected by a decline in the
purchases of chemicals as a result of regional or national downturns in economic
conditions. Quarterly results may also be materially affected by the timing of
acquisitions and the timing and magnitude of acquisition assimilation costs.
Accordingly, the operating results for any three-month period are not
necessarily indicative of the results that may be achieved for any subsequent
fiscal quarter or for a full fiscal year.
SUPPLEMENTAL UNAUDITED COMBINED FINANCIAL INFORMATION
The following supplemental unaudited combined financial information for the
periods presented does not purport to present the results of the combined
Founding Companies in accordance with generally accepted accounting principles,
but represents merely a summation of the revenues, cost of sales and gross
profit of the individual Founding Companies on a historical basis and excludes
the effects of the pro forma adjustments that are included in the Pro Forma
Combined Financial Statements appearing elsewhere in this Prospectus. Selling,
general and administrative expenses for periods prior to the Acquisitions
reflect the effects of distributions to the owners of the Founding Companies.
The data will not be comparable to, and may not be indicative of, the Company's
post-combination results of operations because (i) the Founding Companies were
not under common control or management and had different tax structures
(generally, S Corporations or C Corporations) during the periods presented, (ii)
the Company will use the purchase method to establish a new basis of accounting
to record the Acquisitions, (iii) the Company will incur incremental costs for
its corporate management and the costs of being a public company and (iv) the
combined data do not reflect the potential benefits and cost savings the Company
expects to realize when operating as a combined entity.
The following table sets forth certain supplemental unaudited combined
financial information for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------ -------------------------------------
1995(1) 1996(1) 1997(1) 1997(2) 1998(2)
------------------ ------------------ ------------------ ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $352,616 100.0% $357,023 100.0% $365,911 100.0% $88,264 100.0% $88,626 100.0%
Costs and expenses --
Cost of sales........... 285,841 81.1 288,979 81.0 293,373 80.2 70,774 80.2 70,864 80.0
Operating and delivery
expenses.............. 21,658 6.1 21,797 6.1 22,863 6.2 5,667 6.4 5,562 6.3
Selling, general and
administrative
expenses.............. 31,690 9.0 33,450 9.4 34,133 9.3 8,533 9.7 8,471 9.6
Depreciation............ 4,039 1.1 4,482 1.3 4,603 1.3 1,160 1.3 1,185 1.3
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Income from operations.... $ 9,388 2.7% $ 8,315 2.2% $ 10,939 3.0% $2,130 2.4% $2,544 2.8%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
</TABLE>
- ---------------
(1) The fiscal years presented are the years ended December 31, 1995, 1996 and
1997, except for Industrial for which the fiscal years presented are the
years ended February 29, 1996, and February 28, 1997 and 1998; Tilley for
which the fiscal years presented are the years ended October 31, 1995, 1996
and 1997; Cron for which the fiscal years presented are the fiscal years
ended September 30, 1995, 1996 and 1997; and American for which the fiscal
years presented are the years ended June 30, 1996 and 1997, and the year
ended March 31, 1998.
(2) The three-month information presented is for the three months ended March
31, 1997 and 1998, except for Industrial for which the information is for
the three-month periods ended May 31, 1997 and 1998.
Combined results for the three months ended March 31, 1998, compared to the
three months ended March 31, 1997
Net Sales. Net sales increased $0.3 million, or 0.4%, from $88.3 million to
$88.6 million for the three months ended March 31, 1998. This increase was due
to a general increase in sales volumes.
23
<PAGE> 27
Cost of Sales. Cost of sales increased $0.1 million, or 0.1%, from $70.8
million for the three months ended March 31, 1997, to $70.9 million for the
three months ended March 31, 1998. As a percentage of net sales, cost of sales
decreased from 80.2% for the three months ended March 31, 1997, to 80.0% for the
three months ended March 31, 1998.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$105,000 to $5.6 million for the three months ended March 31, 1998. As a
percentage of net sales, operating and delivery expenses decreased from 6.4% for
the three months ended March 31, 1997, to 6.3% for the three months ended March
31, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $62,000, or 0.7%, from $8,533,000 for the
three months ended March 31, 1997, to $8,471,000 for the three months ended
March 31, 1998. As a percentage of net sales, selling, general and
administrative expenses decreased from 9.7% for the three months ended March 31,
1997, to 9.6% for the three months ended March 31, 1998.
Combined results for the year ended December 31, 1997, compared to the year
ended December 31, 1996
Net Sales. Net sales increased $8.9 million, or 2.5%, from $357.0 million
in 1996 to $365.9 million in 1997 due to a general increase in sales volumes.
Cost of Sales. Cost of sales increased $4.4 million, or 1.5%, from $289.0
million in 1996 to $293.4 million in 1997. The increase in cost of sales was
primarily due to an increase in sales, partially offset by a decline in the
average cost of purchased product. As a percentage of net sales, cost of sales
decreased from 81.0% in 1996 to 80.2% in 1997.
Operating and Delivery Expenses. Operating and delivery expenses increased
$1.1 million, or 4.9%, from $21.8 million in 1996 to $22.9 million in 1997. As a
percentage of net sales, operating and delivery expenses increased from 6.1% in
1996 to 6.2% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.7 million, or 2.0%, from $33.4 million in
1996 to $34.1 million in 1997. As a percentage of net sales, selling, general
and administrative expenses decreased from 9.4% in 1996 to 9.3% in 1997.
Combined results for the year ended December 31, 1996, compared to the year
ended December 31, 1995
Net Sales. Net sales increased $4.4 million, or 1.2%, from $352.6 million
for the year ended December 31, 1995, to $357.0 million for the year ended
December 31, 1996. This increase was due to a general increase in sales volumes.
Cost of Sales. Cost of sales increased $3.1 million, or 1.1%, from $285.8
million for the year ended December 31, 1995, to $289.0 million for the year
ended December 31, 1996. As a percentage of net sales, cost of sales decreased
from 81.1% for the year ended December 31, 1995, to 81.0% for the year ended
December 31, 1996, principally due to a change in product mix.
Operating and Delivery Expenses. Operating and delivery expenses increased
$0.1 million from $21.7 million for the year ended December 31, 1995, to $21.8
million for the year ended December 31, 1996. As a percentage of net sales,
operating and delivery expenses remained constant at 6.1% for 1995 and 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million, or 5.6%, from $31.7 million for
the year ended December 31, 1995, to $33.5 million for the year ended December
31, 1996. This increase was primarily due to a higher volume of net sales. As a
percentage of net sales, selling, general and administrative expenses increased
from 9.0% for the year ended December 31, 1995, to 9.4% for the year ended
December 31, 1996.
24
<PAGE> 28
COMBINED LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997, and March 31, 1998, was $25.4 million
and $23.7 million, respectively. The Company's principal capital requirements
are to fund its working capital and the purchase and improvement of facilities,
machinery and equipment. Historically, these requirements have been met by cash
flows generated from operations and borrowings under bank credit facilities.
Net cash provided by operating activities for 1997 and the three months
ended March 31, 1998, was $12.1 million and $2.4 million, respectively. These
changes were principally due to increased earnings, partially offset by funding
working capital requirements for accounts receivable, inventories and accounts
payable. Net cash used in investing activities for 1997 and the three months
ended March 31, 1998, was $5.9 million and $0.2 million, respectively. The
increase in investing activities was primarily related to capital expenditures
of $6.1 million and $0.7 million for 1997 and for the three months ended March
31, 1998, respectively. Net cash used in financing activities for 1997 and the
three months ended March 31, 1998, was $3.9 million and $2.0 million,
respectively. The net cash used in financing activities resulted primarily from
bank borrowings, offset by dividends paid to shareholders of the Founding
Companies.
The Company has entered into a preliminary agreement with a commercial bank
under which it expects to enter into a credit facility effective concurrently
with the closing of the Offering. According to the proposed terms of the
agreement, the credit facility will be a three-year revolving credit facility of
up to $100 million to be used to finance acquisitions, to refinance existing
indebtedness of the individual Founding Companies and of companies acquired in
the future and for general corporate purposes. The amounts borrowed under the
proposed credit facility will bear interest at an annual rate equal to either
(a) the London Interbank Offered Rate ("LIBOR") plus 1.0% to 1.625%, as
determined by the ratio of the Company's total funded debt to EBITDA (as defined
in the credit facility) or (b) the higher of (i) the bank's prime rate and (ii)
the Federal Funds rate plus 0.5%, plus up to an additional 0.625% as determined
by the ratio of the Company's total funded debt to EBITDA. Commitment fees of
0.25% to 0.375% (based on the same ratio of the Company's total funded debt to
EBITDA) are due on any unused borrowing capacity under the proposed credit
facility. The Company's existing and future subsidiaries will guarantee the
repayment of all amounts due under the facility, and the facility will be
secured by the capital stock of these subsidiaries and the accounts receivable
and inventory of the Company and these subsidiaries. The credit facility will
require the consent of the lenders for acquisitions exceeding a certain level of
consideration, prohibit the payment of cash dividends by the Company, restrict
the ability of the Company to incur other indebtedness and require the Company
to comply with certain financial covenants. Availability of the credit facility
will be subject to customary drawing conditions, completion of negotiations with
the lenders and execution of definitive loan documentation. Following the
consummation of the Offering, approximately $27.5 million of borrowings of the
Founding Companies are expected to be repaid with borrowings under the proposed
credit facility.
The Company anticipates that its cash flows from operations will provide
sufficient cash to enable the Company to meet its working capital needs, debt
service requirements and planned capital expenditures. Capital expenditures for
1997 and the three months ended March 31, 1998 were $6.1 million and $0.7
million respectively.
The Company has incurred and anticipates that in the future it will incur
certain costs necessary to comply with environmental regulations. See
"Business -- Environmental and Health Regulation."
The Company intends to pursue attractive acquisition opportunities. The
timing, size or success of any acquisition effort and the associated potential
capital commitments cannot be predicted. The Company expects to fund future
acquisitions primarily from working capital, cash flow from operations and
borrowings, including any unborrowed portion of the proposed credit facility, as
well as issuances of additional equity.
Due to the relatively low levels of inflation experienced in 1995, 1996 and
1997, inflation did not have a significant effect on the results of the combined
Founding Companies in those fiscal years.
YEAR 2000
The Founding Companies have begun the process of identifying, evaluating
and modifying computer systems in order to address potential year 2000
compliance issues. Some of the Founding Companies' operating and financial
systems are already compliant. The Founding Companies' remaining operating and
25
<PAGE> 29
financial systems are expected to be brought into compliance in phases in order
to be compliant by the year 2000. The total future cost associated with
potential year 2000 compliance issues has not been determined; however,
management believes that it will not have a material adverse effect on the
financial position or results of operations.
ROBINS RESULTS OF OPERATIONS
Robins commenced business in 1923 and has several offices located
throughout the Midwest United States, including its headquarters in St. Louis,
Missouri. Robins operates through nine distribution and storage facilities
located in Illinois, Missouri and Kansas and is principally engaged in the
wholesale distribution of a broad line of organic and inorganic chemicals to
customers in those states. A tenth facility, which is located in Cedar Rapids,
Iowa, is under construction and will be leased by Robins beginning in the third
quarter of 1998. Robins has approximately 120 employees.
The following table sets forth selected historical results of operations
for Robins (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------- -------------------------------------
1995 1996 1997 1997 1998
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $58,236 100.0% $59,387 100.0% $61,445 100.0% $14,936 100.0% $14,323 100.0%
Costs and expenses --
Cost of sales............... 47,110 80.9 48,300 81.3 49,176 80.0 12,122 81.2 11,758 82.1
Operating and delivery
expenses.................. 3,741 6.4 3,540 6.0 4,126 6.7 1,065 7.1 952 6.6
Selling, general and
administrative expenses... 5,033 8.6 5,774 9.7 5,321 8.7 1,318 8.8 1,384 9.7
Depreciation................ 449 0.8 490 0.8 564 0.9 162 1.1 184 1.3
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations........ $ 1,903 3.3% $ 1,283 2.2% $ 2,258 3.7% $ 269 1.8% $ 45 0.3%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Results for the three months ended March 31, 1998, compared to the three
months
ended March 31, 1997
Net Sales. Net sales decreased $0.6 million, or 4.1%, from $14.9 million
for the three months ended March 31, 1997, to $14.3 million for the three months
ended March 31, 1998. This decrease was due to lower sales of calcium chloride
(ice melt) because of a mild winter.
Cost of Sales. Cost of sales decreased $0.4 million, or 3.0%, from $12.1
million for the three months ended March 31, 1997, to $11.8 million for the
three months ended March 31, 1998. The decline in cost of sales is a result of
the lower calcium chloride sales. As a percentage of net sales, cost of sales
increased from 81.2% for the three months ended March 31, 1997, to 82.1% for the
three months ended March 31, 1998, primarily due to an increase in direct sales
as a percentage of total sales, which have a lower margin.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$0.1 million, or 10.6%, from $1.1 million for the three months ended March 31,
1997, to $1.0 million for the three months ended March 31, 1998. As a percentage
of net sales, operating and delivery expenses decreased from 7.1% for the three
months ended March 31, 1997, to 6.6% for the three months ended March 31, 1998.
This percentage decrease was primarily due to operational efficiencies and the
reduction of some direct sales volumes which had higher delivery costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.1 million, or 5.0%, from $1.3 million for
the three months ended March 31, 1997, to $1.4 million for the three months
ended March 31, 1998. As a percentage of net sales, selling, general and
administrative expenses increased from 8.8% for the three months ended March 31,
1997, to 9.7% for the three months ended March 31, 1998. This increase was
primarily due to start-up costs related to the opening of a new location in
Cedar Rapids, Iowa.
26
<PAGE> 30
Results for the year ended December 31, 1997, compared to the year ended
December 31, 1996
Net Sales. Net sales increased $2.1 million, or 3.5%, from $59.4 million in
1996 to $61.5 million in 1997. The increase in net sales was primarily due to a
$1.5 million contract for a blended product that was obtained in March 1997.
Cost of Sales. Cost of sales increased $0.9 million, or 1.8%, from $48.3
million in 1996 to $49.2 million in 1997. The increase in cost of sales was
primarily due to the related increase in sales. As a percentage of net sales,
cost of sales decreased from 81.3% in 1996 to 80.0% in 1997, primarily due to
the blended product business, which generally had a higher margin.
Operating and Delivery Expenses. Operating and delivery expenses increased
$0.6 million, or 16.6%, from $3.5 million in 1996 to $4.1 million in 1997. As a
percentage of net sales, operating and delivery expenses increased from 6.0% in
1996 to 6.7% in 1997, primarily resulting from a customer-requested billing
change which required the delivery charges to be paid by Robins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.5 million, or 7.8%, from $5.8 million in
1996 to $5.3 million in 1997. This decrease was primarily due to the 1996 buyout
of an officer, shareholder and director and the reorganization of the sales
department. As a percentage of net sales, selling, general and administrative
expenses decreased from 9.7% in 1996 to 8.7% in 1997.
Results for the year ended December 31, 1996, compared to the year ended
December 31, 1995
Net Sales. Net sales increased $1.2 million, or 2.0%, from $58.2 million in
1995 to $59.4 million in 1996. The increase in net sales was primarily due to an
additional sales location opened in Kansas City, Missouri, and a sales
distribution warehouse added in St. Louis, Missouri.
Cost of Sales. Cost of sales increased $1.2 million, or 2.5%, from $47.1
million in 1995 to $48.3 million in 1996, primarily as a result of the increase
in sales. As a percentage of net sales, cost of sales increased from 80.9% in
1995 to 81.3% in 1996.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$0.2 million, or 5.4%, from $3.7 million in 1995 to $3.5 million in 1996. The
decrease in operating and delivery expenses was primarily due to increased
savings from the usage of common carriers instead of in-house transportation in
situations where costs could be saved. As a percentage of net sales, operating
and delivery decreased from 6.4% in 1995 to 6.0% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.7 million, or 14.7%, from $5.0 million in
1995 to $5.8 million in 1996. This increase was primarily attributable to
severance payments made in connection with the buyout of an officer, shareholder
and director. As a percentage of net sales, selling, general and administrative
expenses increased from 8.6% in 1995 to 9.7% in 1996.
ROBINS LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997, and March 31, 1998, was $9.3 million
and $8.5 million, respectively. Robins' principal capital requirements are to
fund its working capital and the purchase and improvement of facilities,
machinery and equipment. Historically, these requirements have been met by cash
flows generated from operations.
Net cash provided by operating activities for 1997 and the three months
ended March 31, 1998, was $3.8 million and $0.8 million, respectively. These
changes were principally due to changes in earnings and working capital
requirements for accounts receivable, inventories and accounts payable. Net cash
(used in) provided by investing activities for 1997 and the three months ended
March 31, 1998, was $(1.2) million and $0.4 million, respectively. These
investing activities primarily related to capital expenditures and investments
in and dispositions of certificates of deposit. Net cash used in financing
activities for 1997 and the three
27
<PAGE> 31
months ended March 31, 1998, was $1.8 million and $0.7 million, respectively.
Robins paid dividends in 1997 and the first quarter of 1998 of $1.4 million and
$0.7 million, respectively.
Robins has a revolving unsecured bank credit facility that provides for
borrowings of up to $2.5 million and is payable on demand. At December 31, 1997,
$2.5 million was available for borrowings from the credit facility. Robins
anticipates that its cash flows from operations will be sufficient to meet its
working capital and debt service requirements. Capital expenditure requirements
are expected to be funded from cash provided by operations and supplemented as
necessary with borrowings from banks or other lenders.
INDUSTRIAL RESULTS OF OPERATIONS
Industrial commenced business in 1970 and has several offices located in
the southeastern United States, including its headquarters in Birmingham,
Alabama. Industrial operates through seven distribution and storage facilities
located in Alabama and Georgia and is a distributor of mainly inorganic
chemicals. The majority of its customers are in the southeastern United States.
Industrial has approximately 111 employees.
The following table sets forth selected historical results of operations
for Industrial (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED MAY 31,
--------------------------------------------------------- -------------------------------------
FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998 1997 1998
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $42,880 100.0% $44,726 100.0% $51,599 100.0% $11,724 100.0% $12,436 100.0%
Costs and expenses --
Cost of sales............... 33,474 78.1 35,000 78.3 39,547 76.6 9,028 77.0 9,669 77.8
Operating and delivery
expenses.................. 2,863 6.7 2,952 6.6 3,739 7.2 746 6.4 779 6.3
Selling, general and
administrative expenses... 5,095 11.9 5,451 12.2 6,366 12.3 1,754 15.0 1,602 12.9
Depreciation................ 801 1.9 902 2.0 828 1.6 182 1.5 146 1.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations........ $ 647 1.4% $ 421 .9% $ 1,119 2.3% $ 14 .1% $ 240 1.8%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Results for the three months ended May 31, 1998, compared to the three months
ended May 31, 1997
Net Sales. Net sales increased $0.7 million, or 6.1%, from $11.7 million
for the three months ended May 31, 1997, to $12.4 million for the three months
ended May 31, 1998. The increase in net sales was primarily due to the
introduction of a new line of water treatment products.
Cost of Sales. Cost of sales increased $0.6 million, or 7.1%, from $9.0
million for the three months ended May 31, 1997, to $9.7 million for the three
months ended May 31, 1998. As a percentage of net sales, cost of sales increased
from 77.0% for the three months ended May 31, 1997, to 77.8% for the three
months ended May 31, 1998.
Operating and Delivery Expenses. Operating and delivery expenses increased
$33,000, or 4.4%, from $746,000 for the three months ended May 31, 1997, to
$779,000 for the three months ended May 31, 1998. As a percentage of sales,
operating and delivery expenses decreased from 6.4% for the three months ended
May 31, 1997, to 6.3% for the three months ended May 31, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.2 million, or 8.7%, from $1.8 million for
the three months ended May 31, 1997, to $1.6 for the three months ended May 31,
1998. As a percentage of net sales, selling, general and administrative expenses
decreased from 15.0% for the three months ended May 31, 1997, to 12.9% for the
three months ended May 31, 1998. The decrease was primarily due to executive
bonuses which were not paid during the three months ended May 31, 1998.
Results for the year ended February 28, 1998, compared to the year ended
February 28, 1997
Net Sales. Net sales increased $6.9 million, or 15.4%, from $44.7 million
in 1997 to $51.6 million in 1998. The increase was primarily due to increased
sales of the new line of water treatment products.
28
<PAGE> 32
Cost of Sales. Cost of sales increased $4.5 million, or 13.0%, from $35.0
million in 1997 to $39.5 million in 1998. The increase in cost of sales was
primarily due to the related increase in sales. As a percentage of net sales,
cost of sales decreased from 78.3% in 1997 to 76.6% in 1998, primarily due to a
change in product mix.
Operating and Delivery Expenses. Operating and delivery expenses increased
$0.8 million, or 26.7%, from $3.0 million in 1997 to $3.7 million in 1998. As a
percentage of net sales, operating and delivery expenses increased from 6.6% in
1997 to 7.2% in 1998, primarily due to increases in salaries for warehouse
personnel and drivers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.9 million, or 16.8%, from $5.5 million in
1997 to $6.4 million in 1998. This increase was primarily due to an overall
increase in salaries. As a percentage of net sales, selling, general and
administrative expenses increased from 12.2% in 1997 to 12.3% in 1998.
Results for the year ended February 28, 1997, compared to the year ended
February 29, 1996
Net Sales. Net sales increased $1.8 million, or 4.3%, from $42.9 million in
1996 to $44.7 million in 1997. This increase was primarily due to additional
sales to new customers.
Cost of Sales. Cost of sales increased $1.5 million, or 4.6%, from $33.5
million in 1996 to $35.0 million in 1997, primarily due to the increase in net
sales. As a percentage of net sales, cost of sales increased from 78.1% in 1996
to 78.3% in 1997.
Operating and Delivery Expenses. Operating and delivery expenses increased
$0.1 million, or 3.1%, from $2.9 million in 1996 to $3.0 million in 1997. As a
percentage of net sales, operating and delivery expenses decreased from 6.7% in
1996 to 6.6% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.4 million, or 7.0%, from $5.1 million in
1996 to $5.5 million in 1997. This increase was primarily due to an overall
increase in salaries. As a percentage of net sales, selling, general and
administrative expenses increased from 11.9% in 1996 to 12.2% in 1997.
INDUSTRIAL LIQUIDITY AND CAPITAL RESOURCES
Working capital at February 28, 1998, and May 31, 1998, was $0.6 million
and $0.9 million, respectively. Industrial's principal capital requirements are
to fund its working capital and the purchase and improvement of facilities,
machinery and equipment. Historically, these requirements have been met by cash
flows generated from operations and borrowings under bank credit facilities and
from affiliated parties.
Net cash provided by operating activities for 1998 and the three months
ended May 31, 1998, was $0.8 million and $0.3 million, respectively. These
changes were principally due to changes in earnings and working capital
requirements for accounts receivable, inventories and accounts payable. Net cash
used in investing activities for 1998 and the three months ended May 31, 1998,
was $0.7 million and $0.1 million, respectively. The investing activities
primarily related to capital expenditures. Net cash used in financing activities
for 1998 and the three months ended May 31, 1998, was $0.1 million and $0.3
million, respectively. Industrial paid dividends in 1998 and the three months
ended May 31, 1998, of $1.0 million and $0.1 million, respectively.
Industrial has a revolving unsecured bank credit facility that provides for
borrowings of up to $1.75 million and expires in December 1998. At February 28,
1998, approximately $0.1 million was available for borrowings from the credit
facility. Industrial anticipates that its cash flows from operations will be
sufficient to meet its working capital and debt service requirements. Capital
expenditure requirements are expected to be funded from cash provided by
operations and supplemented as necessary with borrowings from banks or other
lenders.
29
<PAGE> 33
SOUTHWEST SOLVENTS RESULTS OF OPERATIONS
Southwest Solvents commenced business in 1970. Southwest Solvents is
headquartered in Houston, Texas, and has approximately 95 employees. Southwest
Solvents operates through seven distribution and storage facilities located in
Texas and California and is a distributor of a broad line of organic and
inorganic chemicals. Southwest Solvents' primary operations supply Texas,
Louisiana and California.
The following table sets forth selected historical results of operations
for Southwest Solvents (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------- -------------------------------------
1995 1996 1997 1997 1998
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $50,621 100.0% $46,642 100.0% $47,219 100.0% $10,951 100.0% $11,170 100.0%
Costs and expenses --
Cost of sales.............. 42,084 83.1 38,138 81.8 38,791 82.1 8,874 81.0 9,060 81.1
Operating and delivery
expenses................. 2,437 4.8 2,677 5.7 2,433 5.2 519 4.7 632 5.6
Selling, general and
administrative
expenses................. 4,861 9.6 4,292 9.2 4,341 9.2 955 8.7 948 8.5
Depreciation............... 823 1.6 852 1.8 772 1.6 208 1.9 199 1.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations....... $ 416 0.9% $ 683 1.5% $ 882 1.9% $ 395 3.7% $ 331 3.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Results for the three months ended March 31, 1998, compared to the three
months ended March 31, 1997
Net Sales. Net sales increased $0.2 million, or 2.0%, from $11.0 million
for the three months ended March 31, 1997, to $11.2 million for the three months
ended March 31, 1998, due to sales to new customers and the relative strength of
the coating, pigments and paints market.
Cost of Sales. Cost of sales increased $0.2 million, or 2.1%, from $8.9
million for the three months ended March 31, 1997, to $9.1 million for the three
months ended March 31, 1998. As a percentage of net sales, cost of sales
increased from 81.0% for the three months ended March 31, 1997, to 81.1% for the
three months ended March 31, 1998.
Operating and Delivery Expenses. Operating and delivery expenses increased
$0.1 million, or 21.8%, from $0.5 million for the three months ended March 31,
1997, to $0.6 million for the three months ended March 31, 1998. As a percentage
of net sales, operating and delivery expenses increased from 4.7% for the three
months ended March 31, 1997, to 5.6% for the three months ended March 31, 1998.
This increase was primarily due to changes in the sales mix necessitating
greater use of common carriers at a higher cost than the in-house fleet.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $7,000, or 0.7%, from $955,000 for the three
months ended March 31, 1997, to $948,000 for the three months ended March 31,
1998. As a percentage of net sales, selling, general and administrative expenses
decreased from 8.7% for the three months ended March 31, 1997, to 8.5% for the
three months ended March 31, 1998.
Results for the year ended December 31, 1997, compared to the year ended
December 31, 1996
Net Sales. Net sales increased $0.6 million, or 1.2%, from $46.6 million in
1996 to $47.2 million in 1997, due to an increase in the number of active
customer accounts and the addition of new products.
Cost of Sales. Cost of sales increased $0.7 million, or 1.7%, from $38.1
million in 1996 to $38.8 million in 1997. As a percentage of net sales, cost of
sales increased from 81.8% in 1996 to 82.1% in 1997. The increase in cost of
sales was primarily due to a change in product mix.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$0.2 million, or 9.1%, from $2.7 million in 1996 to $2.4 million in 1997. As a
percentage of net sales, operating and delivery expenses
30
<PAGE> 34
decreased from 5.7% in 1996 to 5.2% in 1997. This decrease was primarily due to
a reduction in contract drumming services which allowed for the elimination of a
plant shift.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $49,000, or 1.1%, from $4,292,000 in 1996 to
$4,341,000 in 1997. As a percentage of net sales, selling, general and
administrative expenses remained constant at 9.2% in 1996 and 1997.
Results for the year ended December 31, 1996, compared to the year ended
December 31, 1995
Net Sales. Net sales decreased $4.0 million, or 7.9%, from $50.6 million in
1995 to $46.6 million in 1996, primarily due to the loss of a major customer
seeking a chemical distributor with national coverage.
Cost of Sales. Cost of sales decreased $4.0 million, or 9.4%, from $42.1
million in 1995 to $38.1 million in 1996. The decrease in cost of sales was
primarily the result of the loss of a major customer. As a percentage of net
sales, cost of sales decreased from 83.1% in 1995 to 81.8% in 1996, primarily
due to the margins associated with the customer discussed above.
Operating and Delivery Expenses. Operating and delivery expenses increased
$0.2 million, or 9.8%, from $2.4 million in 1995 to $2.7 million in 1996. The
increase in operating and delivery expenses was primarily due to adding a plant
shift to accommodate contract drumming services. As a percentage of net sales,
operating and delivery expenses increased from 4.8% in 1995 to 5.7% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.6 million, or 11.7%, from $4.9 million in
1995 to $4.3 million in 1996. This decrease was primarily attributable to
insurance premium reductions and a smaller executive bonus. As a percentage of
net sales, selling, general and administrative expenses decreased from 9.6% in
1995 to 9.2% in 1996.
SOUTHWEST SOLVENTS LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997, and March 31, 1998, was $1.5 million
and $1.8 million, respectively. Southwest Solvents, principal capital
requirements are to fund its working capital and the purchase and improvement of
facilities, machinery and equipment. Historically, these requirements have been
met by cash flows generated from operations and borrowings under bank credit
facilities.
Net cash provided by (used in) operating activities for 1997 and the three
months ended March 31, 1998, was $0.4 million and $(0.5) million, respectively.
These changes were principally due to changes in earnings and working capital
requirements for accounts receivable, inventories and accounts payable. Net cash
used in investing activities for 1997 and the three months ended March 31, 1998,
was $0.1 million and $0.1 million, respectively. The investing activities
primarily related to capital expenditures for the construction of a new chemical
lab and the refurbishment of existing plant facilities. Net cash provided by
(used in) financing activities for 1997 and the three months ended March 31,
1998, was $(0.5) million and $0.5 million, respectively. Southwest Solvents paid
dividends in 1997 of $0.3 million. Borrowings during 1997 and the three months
ended March 31, 1998 were primarily made to fund working capital requirements
for accounts receivable, inventories, accounts payable and accrued liabilities.
Southwest Solvents has two revolving credit lines and a term loan
outstanding subject to a common credit facility secured by accounts receivable
and inventory. One revolving credit line provides for borrowings of up to $3.0
million and expires in July 1999. The second revolving credit line provides for
individual borrowings for purchases of equipment of up to $0.5 million which
expire in January 2001 and December 2002. The term loan provided borrowings of
$3.1 million related to a plant acquisition and refurbishment and expires in
July 1999. At March 31, 1998, approximately $2.4 million was available for
borrowing under the two credit lines. Southwest Solvents anticipates that its
cash flows from operations will be sufficient to meet its working capital and
debt service requirements. Capital expenditure requirements are expected to be
funded from cash provided by operations and supplemented as necessary with
borrowings from banks.
31
<PAGE> 35
CHEMICAL SOLVENTS RESULTS OF OPERATIONS
Chemical Solvents commenced business in 1970. Chemical Solvents is
headquartered in Cleveland, Ohio, and has approximately 113 employees. Chemical
Solvents operates through one main distribution facility in Ohio and is a
distributor of liquid organic chemicals as well as a processor of wastewater and
wash solvents. Chemical Solvents' primary operations supply Ohio, Michigan and
Pennsylvania.
The following table sets forth selected historical results of operations
for Chemical Solvents (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------- -----------------------------------
1995 1996 1997 1997 1998
----------------- ----------------- ----------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $45,406 100.0% $40,874 100.0% $41,164 100.0% $9,730 100.0% $9,896 100.0%
Costs and expenses --
Cost of sales............. 33,425 73.6 30,298 74.1 30,334 73.7 7,082 72.8 6,965 70.4
Operating and delivery
expenses................ 4,667 10.3 4,109 10.1 4,352 10.6 1,392 14.3 1,291 13.0
Selling, general and
administrative
expenses................ 3,917 8.6 3,992 9.8 3,819 9.3 858 8.8 919 9.3
Depreciation.............. 590 1.3 839 2.0 871 2.1 231 2.4 238 2.4
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Income from operations...... $2,807 6.2% $1,636 4.0% $1,788 4.3% $ 167 1.7% $ 483 4.9%
======= ===== ======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
Results for the three months ended March 31, 1998, compared to the three
months ended March 31, 1997
Net Sales. Net sales increased $0.2 million, or 1.7%, from $9.7 million for
the three months ended March 31, 1997, to $9.9 million for the three months
ended March 31, 1998. This increase was due to a warm winter that positively
impacted the wastewater and waste solvent business.
Cost of Sales. Cost of sales decreased $0.1 million, or 1.7%, from $7.1
million for the three months ended March 31, 1997, to $7.0 million for the three
months ended March 31, 1998. As a percentage of net sales, cost of sales
decreased from 72.8% for the three months ended March 31, 1997, to 70.4% for the
three months ended March 31, 1998. The decrease is due to a larger percentage of
sales being derived from service activity during the first three months of 1998.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$0.1 million, or 7.3%, from $1.4 million for the three months ended March 31,
1997, to $1.3 million for the three months ended March 31, 1998. As a percentage
of net sales, operating and delivery expenses decreased from 14.3% for the three
months ended March 31, 1997, to 13.0% for the three months ended March 31, 1998.
This percentage decrease was primarily due to a combination of lower fuel costs
and more effective control of plant labor and maintenance expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $61,000, or 7.1%, from $858,000 for the three
months ended March 31, 1997, to $919,000 for the three months ended March 31,
1998. This increase was primarily due to an overall increase in salaries. As a
percentage of net sales, selling, general and administrative expenses increased
from 8.8% for the three months ended March 31, 1997, to 9.3% for the three
months ended March 31, 1998.
Results for the year ended December 31, 1997, compared to the year ended
December 31, 1996
Net Sales. Net sales increased $0.3 million, or 0.7%, from $40.9 million in
1996 to $41.2 million in 1997. The increase in net sales was primarily due to an
increase in the mix of sales generated by services compared to the previous
year.
Cost of Sales. Cost of sales increased approximately $36,000, or 0.1%, from
$30,298,000 in 1996 to $30,334,000 in 1997. As a percentage of net sales, cost
of sales decreased from 74.1% in 1996 to 73.7% in 1997, primarily due to an
increase in sales generated by services.
32
<PAGE> 36
Operating and Delivery Expenses. Operating and delivery expenses increased
$0.2 million, or 5.9%, from $4.1 million in 1996 to $4.4 million in 1997. This
increase is consistent with the increase in net sales. As a percentage of net
sales, operating and delivery expenses increased from 10.1% in 1996 to 10.6% in
1997. The increase is due to wages related to the new water treatment facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.2 million, or 4.3%, from $4.0 million in
1996 to $3.8 million in 1997. As a percentage of net sales, selling, general and
administrative expenses decreased from 9.8% in 1996 to 9.3% in 1997.
Results for the year ended December 31, 1996, compared to the year ended
December 31, 1995
Net Sales. Net sales decreased $4.5 million, or 10.0%, from $45.4 million
in 1995 to $40.9 million in 1996. This decrease is primarily due to the loss of
freon product business due to new regulations which prohibit the manufacturing
of freon.
Cost of Sales. Cost of sales decreased $3.1 million, or 9.4%, from $33.4
million in 1995 to $30.3 million in 1996, primarily as a result of the loss of
freon product business. As a percentage of net sales, cost of sales increased
from 73.6% in 1995 to 74.1% in 1996.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$0.6 million, or 12.0%, from $4.7 million in 1995 to $4.1 million in 1996. The
decrease in operating and delivery expenses was due to the loss of the freon
product business. As a percentage of net sales, operating and delivery expenses
decreased from 10.3% in 1995 to 10.1% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.1 million, or 1.9%, from $3.9 million in
1995 to $4.0 million in 1996. This increase was primarily attributable to salary
increases. As a percentage of net sales, selling, general and administrative
expenses increased from 8.6% in 1995 to 9.8% in 1996.
CHEMICAL SOLVENTS LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997, and March 31, 1998, was $2.4 million
and $2.7 million, respectively. Chemical Solvents' principal capital
requirements are to fund its working capital and the purchase and improvement of
facilities, machinery and equipment. Historically, these requirements have been
met by cash flows generated from operations and borrowings under bank credit
facilities. Chemical Solvents has incurred and anticipates that in the future it
will incur certain costs necessary to comply with environmental regulations. See
"Business -- Environmental and Health Regulation."
Net cash provided by operating activities for 1997 and the three months
ended March 31, 1998, was $2.3 million and $0.5 million, respectively. These
changes were principally due to changes in earnings and depreciation. Net cash
used in investing activities for 1997 and the three months ended March 31, 1998,
was $1.4 million and $0.1 million, respectively. The investing activities were
primarily related to capital expenditures for a drum storage warehouse which was
started in 1997. Net cash used in financing activities for 1997 and the three
months ended March 31, 1998, was $0.9 million and $0.3 million, respectively.
Chemical Solvents paid dividends in 1997 and the first quarter of 1998 of $0.7
million and $0.3 million, respectively. Borrowings during the three months ended
March 31, 1998, were made to fund working capital requirements for inventories,
accounts payable and accrued liabilities.
Chemical Solvents has an unsecured bank credit facility that provides for
borrowings of up to $6.0 million and expires in April 1999. At March 31, 1998,
approximately $3.0 million was available for borrowings from the credit
facility. Chemical Solvents anticipates that its cash flows from operations will
be sufficient to meet its working capital and debt service requirements. Capital
expenditure requirements are expected to be funded from cash provided by
operations and supplemented as necessary with borrowings from banks or other
lenders.
33
<PAGE> 37
TILLEY RESULTS OF OPERATIONS
Tilley commenced business in 1952. Tilley is headquartered in Baltimore,
Maryland, and has approximately 47 employees. Tilley operates through
distribution and storage facilities located in Baltimore and is a distributor of
a broad line of organic and inorganic chemicals. Tilley's primary operations
supply the Mid-Atlantic region of the United States.
The following table sets forth selected historical results of operations
for Tilley (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, FIVE MONTHS ENDED MARCH 31,
--------------------------------------------------------- -------------------------------------
1995 1996 1997 1997 1998
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $36,707 100.0% $38,281 100.0% $40,715 100.0% $16,229 100.0% $15,791 100.0%
Costs and expenses --
Cost of sales............... 30,742 83.8 32,292 84.4 34,022 83.6 13,541 83.4 13,055 82.6
Operating and delivery
expenses.................. 1,055 2.9 1,024 2.7 1,050 2.6 432 2.6 467 3.0
Selling, general and
administrative expenses... 3,134 8.5 3,339 8.7 3,381 8.3 1,359 8.4 1,357 8.6
Depreciation and
amortization.............. 421 1.1 437 1.1 444 1.1 174 1.1 187 1.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations........ $ 1,355 3.7% $ 1,189 3.1% $ 1,818 4.4% $ 723 4.5% $ 725 4.6%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Results for the five months ended March 31, 1998, compared to the five months
ended March 31, 1997
Net Sales. Net sales decreased $0.4 million, or 2.7%, from $16.2 million
for the five months ended March 31, 1997, to $15.8 million for the five months
ended March 31, 1998, primarily due to price decreases in some product lines.
Cost of Sales. Cost of sales decreased $0.5 million, or 3.6%, from $13.5
million for the five months ended March 31, 1997, to $13.1 million for the five
months ended March 31, 1998. As a percentage of net sales, cost of sales
decreased from 83.4% for the five months ended March 31, 1997, to 82.6% for the
five months ended March 31, 1998, principally due to more favorable supplier
pricing in the oil and lubricant segment combined with increased sales of higher
profit products in the chemical segment.
Operating and Delivery Expenses. Operating and delivery expenses increased
$35,000, or 8.1%, from $432,000 for the five months ended March 31, 1997, to
$467,000 for the five months ended March 31, 1998. As a percentage of net sales,
operating and delivery expenses increased from 2.6% for the five months ended
March 31, 1997, to 3.0% for the five months ended March 31, 1998. This
percentage increase was primarily due to wage increases and increased costs
related to facility maintenance and repairs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $2,000, or 0.1%, from $1,359,000 for the five
months ended March 31, 1997, to $1,357,000 for the five months ended March 31,
1998. As a percentage of net sales, selling, general and administrative expenses
increased from 8.4% for the five months ended March 31, 1997, to 8.6% for the
five months ended March 31, 1998. This increase was primarily due to the largely
fixed nature of these expenses.
Results for the year ended October 31, 1997, compared to the year ended October
31, 1996
Net Sales. Net sales increased $2.4 million, or 6.4%, from $38.3 million in
1996 to $40.7 million in 1997, primarily due to an increase in volume of sales
in the oil and lubricant segment.
Cost of Sales. Cost of sales increased $1.7 million, or 5.4%, from $32.3
million in 1996 to $34.0 million in 1997. As a percentage of net sales, cost of
sales decreased from 84.4% in 1996 to 83.6% in 1997.
Operating and Delivery Expenses. Operating and delivery expenses increased
$26,000, or 2.5%, from $1,024,000 in 1996 to $1,050,000 in 1997. This increase
is consistent with the increase in net sales. As a percentage of net sales,
operating and delivery expenses decreased from 2.7% in 1996 to 2.6% in 1997.
34
<PAGE> 38
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $42,000, or 1.3%, from $3,339,000 in 1996 to
$3,381,000 in 1997. As a percentage of net sales, selling, general and
administrative expenses decreased from 8.7% in 1996 to 8.3% in 1997.
Results for the year ended October 31, 1996, compared to the year ended
October 31, 1995
Net Sales. Net sales increased $1.6 million, or 4.3%, from $36.7 million in
1995 to $38.3 million in 1996, primarily due to an increase in the volume of
sales to existing customers and the addition of new customers.
Cost of Sales. Cost of sales increased $1.6 million, or 5.0%, from $30.7
million in 1995 to $32.3 million in 1996, primarily due to the increase in sales
as discussed above. As a percentage of net sales, cost of sales increased from
83.8% in 1995 to 84.4% in 1996, primarily as a result of changes in product mix.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$31,000, or 2.9%, from $1,055,000 in 1995 to $1,024,000 in 1996. The decrease in
operating and delivery expenses was primarily due to reductions in outside
freight costs. As a percentage of net sales, operating and delivery expenses
decreased from 2.9% in 1995 to 2.7% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.2 million, or 6.5%, from $3.1 million in
1995 to $3.3 million in 1996. This increase was primarily attributable to salary
increases and overall inflation adjustments. As a percentage of net sales,
selling, general and administrative expenses increased from 8.5% in 1995 to 8.7%
in 1996.
TILLEY LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 31, 1997, and March 31, 1998, was $3.5 million
and $3.8 million, respectively. Tilley's principal capital requirements are to
fund its working capital and the purchase and improvement of facilities,
machinery and equipment. Historically, these requirements have been met by cash
flows generated from operations and borrowings under bank credit facilities.
Net cash provided by operating activities for 1997 and the five months
ended March 31, 1998, was $1.0 million and $0.8 million, respectively. These
changes were principally due to changes in earnings and depreciation. Net cash
used in investing activities for 1997 and the five months ended March 31, 1998,
was $0.7 million and $0.1 million, respectively. These investing activities
primarily relate to the replacement of delivery and handling equipment and plant
renovations and repairs. Net cash used in financing activities for 1997 and the
five months ended March 31, 1998, was $0.3 million and $0.7 million,
respectively. Tilley paid dividends of $0.2 million both in 1997 and for the
five months ended March 31, 1998. Borrowings during the five months ended March
31, 1998, were made to fund working capital requirements and capital
expenditures.
Tilley has two secured bank credit facilities. One facility provides for
total borrowings of up to $3.2 million and expires in March 1999. The other
facility provides for borrowings of up to $0.5 million and does not have an
expiration date, but will continue until all of Tilley's indebtedness thereunder
has been paid in full and the parties terminate this agreement in writing. At
March 31, 1998, approximately $3.2 million was available from the credit
facilities. Tilley anticipates that its cash flows from operations will be
sufficient to meet its working capital and debt service requirements. Capital
expenditure requirements are expected to be funded from cash provided by
operations and supplemented as necessary with borrowings from banks or other
lenders.
CRON RESULTS OF OPERATIONS
The predecessor entity of Cron began business in 1936. Cron maintains
headquarters in Houston, Texas, and New Orleans, Louisiana. Cron has
approximately 59 employees. Cron operates through two distribution facilities in
Texas and two distribution facilities in Louisiana and is a distributor of a
broad line of organic and inorganic chemicals. Cron's primary operations supply
Texas, Oklahoma and Louisiana.
35
<PAGE> 39
The following table sets forth selected historical results of operations
for Cron (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------- -------------------------------------
1996 1997 1997 1998
----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $41,760 100.0% $38,755 100.0% $17,993 100.0% $20,601 100.0%
Costs and expenses --
Cost of sales...................... 34,866 83.5 32,557 84.0 15,127 84.1 17,492 84.9
Operating and delivery expenses.... 1,754 4.2 1,680 4.4 847 4.7 783 3.8
Selling, general and administrative
expenses......................... 3,276 7.9 3,268 8.4 1,603 8.9 1,536 7.5
Depreciation....................... 349 .8 404 1.0 207 1.1 204 1.0
------- ----- ------- ----- ------- ----- ------- -----
Income from operations............... $ 1,515 3.6% $ 846 2.2% $ 209 1.2% $ 586 2.8%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Results for the six months ended March 31, 1998, compared to the six months
ended March 31, 1997
Net Sales. Net sales increased $2.6 million, or 14.5%, from $18.0 million
for the six months ended March 31, 1997, to $20.6 million for the six months
ended March 31, 1998. The increase was primarily due to improved market
conditions in Cron's service areas, particularly in the oilfield service sector
in southern Louisiana and in the paint and coatings sector in Dallas.
Cost of Sales. Cost of sales increased $2.4 million, or 15.6%, from $15.1
million for the six months ended March 31, 1997, to $17.5 million for the six
months ended March 31, 1998. As a percentage of net sales, cost of sales
increased from 84.1% for the six months ended March 31, 1997, to 84.9% for the
six months ended March 31, 1998.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$64,000, or 7.6%, from $847,000 for the six months ended March 31, 1997, to
$783,000 for the six months ended March 31, 1998. As a percentage of net sales,
operating and delivery expenses decreased from 4.7% for the six months ended
March 31, 1997, to 3.8% for the six months ended March 31, 1998. This percentage
decrease was primarily due to reduced rental charges for large-capacity
containers resulting from improved management of Cron's tank inventory.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.1 million, or 4.2%, from $1.6 million for
the six months ended March 31, 1997, to $1.5 million for the six months ended
March 31, 1998. This decrease was primarily due to reduced staffing, resulting
in a decrease in salaries and related costs. As a percentage of net sales,
selling, general and administrative expenses decreased from 8.9% for the six
months ended March 31, 1997, to 7.5% for the six months ended March 31, 1998.
Results for the year ended September 30, 1997, compared to the year ended
September 30, 1996
Net Sales. Net sales decreased $3.0 million, or 7.2%, from $41.8 million in
1996 to $38.8 million in 1997. The decrease in net sales was primarily due to
decreased market demand in Cron's service area, supplier decisions not to meet
competitive market prices and supply problems with key vendors.
Cost of Sales. Cost of sales decreased $2.3 million, or 6.6%, from $34.9
million in 1996 to $32.6 million in 1997. The decrease in cost of sales was
primarily due to the decrease in net sales. As a percentage of net sales, cost
of sales increased from 83.5% in 1996 to 84.0% in 1997 primarily due to the mix
of products sold.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$0.1 million, or 4.2%, from $1.8 million in 1996 to $1.7 million in 1997. As a
percentage of net sales, operating and delivery expenses increased from 4.2% in
1996 to 4.4% in 1997.
36
<PAGE> 40
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $8,000, or 0.2%, from $3,276,000 in 1996 to
$3,268,000 in 1997. As a percentage of net sales, selling, general and
administrative expenses increased from 7.9% in 1996 to 8.4% in 1997.
CRON LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1997, and March 31, 1998, was $2.9 million
and $2.5 million, respectively. Cron's principal working capital requirements
are to fund its working capital and the purchase and improvement of facilities.
Historically, these requirements have been met by cash flows generated from
operations and borrowings from the parent company of Cron.
Net cash provided by operating activities for 1997 and the six months ended
March 31, 1998, was $1.4 million and $0.5 million, respectively. These changes
were principally due to changes in earnings and working capital requirements for
accounts receivable, inventories and accounts payable. Net cash used in
investing activities for 1997 and the six months ended March 31, 1998, was $0.4
million and $0.1 million, respectively. These investing activities primarily
related to capital expenditures. Net cash used in financing activities for 1997
and the six months ended March 31, 1998, was $0.8 million and $0, respectively.
Cron paid dividends in 1997 of $0.8 million.
Cron anticipates that its cash flows from operations will be sufficient to
meet its working capital and debt service requirements. Capital expenditure
requirements are expected to be funded from cash provided by operations and
supplemented as necessary with borrowings from banks or other lenders.
BROWN RESULTS OF OPERATIONS
Brown commenced business in 1936. Brown is headquartered in Oakland, New
Jersey, and has approximately 28 employees. Brown operates through two
distribution and storage facilities located in New Jersey and is a distributor
of various dry and liquid inorganic and organic chemicals. Brown's primary
operations supply the northeastern United States.
The following table sets forth selected historical results of operations
for Brown (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------- -----------------------------------
1996 1997 1997 1998
----------------- ----------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $33,767 100.0% $34,311 100.0% $8,707 100.0% $9,159 100.0%
Costs and expenses --
Cost of sales........................... 28,176 83.4 28,361 82.7 7,175 82.4 7,492 81.8
Operating and delivery expenses......... 1,532 4.5 1,514 4.4 378 4.3 388 4.2
Selling, general and administrative
expenses.............................. 2,856 8.5 3,097 9.0 791 9.1 821 9.0
Depreciation............................ 261 .8 278 .8 68 .8 73 .8
------- ----- ------- ----- ------ ------ ------ -----
Income from operations.................... $ 942 2.8% $ 1,061 3.1% $ 295 3.4% $ 385 4.2%
======= ===== ======= ===== ====== ====== ====== =====
</TABLE>
Results for the three months ended March 31, 1998, compared to the three
months ended March 31, 1997
Net Sales. Net sales increased $0.5 million, or 5.2%, from $8.7 million for
the three months ended March 31, 1997, to $9.2 million for the three months
ended March 31, 1998, due to a general increase in sales volumes.
Cost of Sales. Cost of sales increased $0.3 million, or 4.4%, from $7.2
million for the three months ended March 31, 1997, to $7.5 million for the three
months ended March 31, 1998. As a percentage of net sales, cost of sales
decreased from 82.4% for the three months ended March 31, 1997, to 81.8% for the
three months ended March 31, 1998.
37
<PAGE> 41
Operating and Delivery Expenses. Operating and delivery expenses increased
$10,000, or 2.6%, from $378,000 for the three months ended March 31, 1997, to
$388,000 for the three months ended March 31, 1998. As a percentage of net
sales, operating and delivery expenses decreased from 4.3% for the three months
ended March 31, 1997, to 4.2% for the three months ended March 31, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $30,000, or 3.8%, from $791,000 for the three
months ended March 31, 1997, to $821,000 for the three months ended March 31,
1998. As a percentage of net sales, selling, general and administrative expenses
decreased from 9.1% for the three months ended March 31, 1997, to 9.0% for the
three months ended March 31, 1998.
Results for the year ended December 31, 1997, compared to the year ended
December 31, 1996
Net Sales. Net sales increased $0.5 million, or 1.6%, from $33.8 million in
1996 to $34.3 million in 1997 due to a general increase in sales volumes.
Cost of Sales. Cost of sales increased $0.2 million, or 0.7%, from $28.2
million in 1996 to $28.4 million in 1997. The increase in cost of sales was
primarily due to the increase in sales volumes, partially offset by a decline in
the average cost of purchased product. As a percentage of net sales, cost of
sales decreased from 83.4% in 1996 to 82.7% in 1997 due to a decline in the
average cost of purchased product.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$18,000, or 1.2%, from $1,532,000 in 1996 to $1,514,000 in 1997. As a percentage
of net sales, operating and delivery expenses decreased from 4.5% in 1996 to
4.4% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.2 million, or 8.4%, from $2.9 million in
1996 to $3.1 million in 1997. This increase was primarily due to an increase in
officer bonuses. As a percentage of net sales, selling, general and
administrative expenses increased from 8.5% in 1996 to 9.0% in 1997.
BROWN LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997, and March 31, 1998, was $2.3 million
and $2.4 million, respectively. Brown's principal capital requirements are to
fund its working capital and the purchase and improvement of facilities,
machinery and equipment. Historically, these requirements have been met by cash
flows generated from operations and borrowings under bank credit facilities.
Net cash provided by (used in) operating activities for 1997 and the three
months ended March 31, 1998, was $2.2 million and $(0.3) million, respectively.
These changes were principally due to changes in earnings and working capital
requirements for accounts receivable, inventories and accounts payable. Net cash
used in investing activities for 1997 and the three months ended March 31, 1998,
was $0.4 million and $0.1 million, respectively. These investing activities
primarily related to capital expenditures. Net cash used in financing activities
for 1997 and the three months ended March 31, 1998, was $0.3 million and $0.1
million, respectively. During 1997, Brown repaid a portion of the borrowings
outstanding under its revolving bank credit facility.
Brown has a revolving bank credit facility that provides for borrowings of
up to $1.0 million and expires in September 1998. At March 31, 1998,
approximately $1.0 million was available for borrowings from the credit
facility. Brown anticipates that its cash flows from operations will be
sufficient to meet its working capital and debt service requirements. Capital
expenditure requirements are expected to be funded from cash provided by
operations and supplemented as necessary with borrowings from banks and other
lenders.
TARR RESULTS OF OPERATIONS
The predecessor business of Tarr was founded in 1945. Tarr is headquartered
in Portland, Oregon, and has approximately 72 employees. Tarr operates through
nine distribution and storage facilities located in Oregon, Washington and
Arizona and is a distributor of liquid organic chemicals and petroleum products.
Tarr's primary operations supply the Northwest region of the United States and
Arizona.
38
<PAGE> 42
The following table sets forth selected historical results of operations
for Tarr (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------- ------------------------------------
1997 1997 1998
----------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................ $31,662 100.0% $7,864 100.0% $6,183 100.0%
Costs and expenses --
Cost of sales.................. 24,956 78.8 6,160 78.3 4,632 74.9
Operating and delivery
expenses.................... 2,910 9.2 679 8.6 648 10.5
Selling, general and
administrative expenses..... 2,798 8.8 643 8.2 697 11.3
Depreciation................... 420 1.3 99 1.2 118 1.9
------- ----- ------ ----- ------ -----
Income from operations........... $ 578 1.9% $ 283 3.7% $ 88 1.4%
======= ===== ====== ===== ====== =====
</TABLE>
Results for the three months ended March 31, 1998, compared to the three
months ended
March 31, 1997
Net Sales. Net sales decreased $1.7 million, or 21.4%, from $7.9 million
for the three months ended March 31, 1997, to $ 6.2 million for the three months
ended March 31, 1998. This decrease was due to the loss of a supplier and a
major customer in 1997 and reductions in the sales prices of products.
Cost of Sales. Cost of sales decreased $1.5 million, or 24.8%, from $6.2
million for the three months ended March 31, 1997, to $4.6 million for the three
months ended March 31, 1998. The decrease in the cost of sales was principally
due to lower sales attributable to the loss of a supplier and a major customer
as mentioned above and decreases in prices of fuel and solvents. As a percentage
of net sales, cost of sales increased from 78.3% for the three months ended
March 31, 1997, to 74.9% for the three months ended March 31, 1998, primarily
due to a loss of a major customer the sales to which were at lower-than-average
gross margins.
Operating and Delivery Expenses. Operating and delivery expenses decreased
$31,000, or 4.6%, from $679,000 for the three months ended March 31, 1997, to
$648,000 for the three months ended March 31, 1998. As a percentage of net
sales, operating and delivery expenses increased from 8.6% for the three months
ended March 31, 1997, to 10.5% for the three months ended March 31, 1998. This
percentage increase was primarily due to the fixed nature of certain of these
costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $54,000, or 8.4%, from $643,000 for the three
months ended March 31, 1997, to $697,000 for the three months ended March 31,
1998. As a percentage of net sales, selling, general and administrative expenses
increased from 8.2% for the three months ended March 31, 1997, to 11.3% for the
three months ended March 31, 1998. This increase was primarily due to an
increase in insurance expenses.
TARR LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997, and March 31, 1998, was $(0.6)
million and $(0.7) million, respectively. Tarr's principal capital requirements
are to fund its working capital and the purchase and improvement of facilities,
machinery and equipment. Historically, these requirements have been met by cash
flows generated from operations and borrowings under bank credit facilities.
Net cash provided by operating activities for 1997 and the three months
ended March 31, 1998, was $0.1 million and $0.9 million, respectively. These
changes were principally due to changes in earnings and working capital
requirements for accounts receivable, inventories and accounts payable. Net cash
used in investing activities for 1997 and the three months ended March 31, 1998,
was $1.0 million and $0.2 million, respectively. The investing activities
related principally to capital expenditures to purchase property and
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<PAGE> 43
equipment and construct various facilities. Net cash provided by (used in)
financing activities for the year ended December 31, 1997, and the three months
ended March 31, 1998, was $0.9 million and $(0.7) million, respectively. Tarr
paid dividends in 1997 of $0.6 million. Long-term borrowings in 1997 were to
purchase property and equipment and construct various facilities.
Tarr has a line of credit with a bank that provides for $2,850,000 of
available credit, payable upon demand, expiring in February 1999. The line of
credit bears interest at 0.5% plus prime and is secured by accounts receivable,
inventories and the personal guarantee of a Tarr stockholder. Borrowings
outstanding under the line of credit were $2,850,000 at December 31, 1997. Tarr
anticipates that its cash flows from operations will be sufficient to meet its
working capital and debt service requirements. Capital expenditure requirements
are expected to be funded from cash provided by operations and supplemented as
necessary with borrowings from banks or other lenders.
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BUSINESS
GENERAL
CLC was founded in July 1997 to create a premier national chemical
distribution company with a wide range of value-added services, broad line of
product offerings and extensive geographic coverage, and to participate in the
consolidation of the chemical distribution industry. The Company operates an
extensive sales and distribution network focused primarily in the United States,
with 41 facilities serving 47 states, and distributes a broad line of chemicals
to over 10,000 customers in a number of industries including paint and coatings,
water treatment, pharmaceuticals, oil and gas, chemical processing, textiles,
food and beverage, fragrances, cosmetics, soaps and detergents, semiconductor,
mining and metal treatment, pulp and paper, ink, rubber and plastics. In
addition to providing basic customer services such as the warehousing,
transportation, blending, packaging and labeling of chemicals, the Company also
provides value-added services requiring specialized facilities and expertise
such as quality assurance and laboratory analysis, contract drumming,
specialized packaging and bagging, bar coding, integrated supply (including
inventory management, remote tank monitoring and just-in-time delivery) and
export containerization.
Concurrently with the closing of the Offering, CLC will acquire the nine
Founding Companies with pro forma combined 1997 revenues of $366 million, making
the Company one of the largest chemical distribution companies in North America.
The Founding Companies have been in existence for 49 years on average, and the
continuing senior executive officers of the Founding Companies have an average
of 25 years' experience in the industry.
The chemical distribution industry is becoming an increasingly important
component of the U.S. chemical supply chain as chemical manufacturers and end
users demand greater product and service capability from chemical distribution
companies and aggressively reduce their overall number of distributor
relationships in order to control costs. At the same time, and in common with
certain other U.S. distribution industries, chemical distribution companies are
facing increasing costs for technology, infrastructure and regulatory
compliance. In this evolving, competitive environment, the Company believes that
its size, wide range of value-added services, broad line of product offerings
and extensive geographic coverage will allow it to be an industry leader.
INDUSTRY OVERVIEW
Based on industry data, the Company believes that sales by chemical
distribution companies in the United States were approximately $18 billion in
1997. Purchasing Magazine, which conducts an annual survey of the chemical
distribution industry, estimates the top 100 chemical distribution companies
generated approximately $11.5 billion in sales for 1997. Based on this survey,
the Company's 1997 pro forma combined revenues of $366 million would have made
it the seventh largest chemical distribution company in the United States in
1997.
The U.S. chemical distribution industry has grown more quickly than the
overall U.S. economy over the past 10 years. According to an industry consultant
to the NACD, average annual revenue growth for the industry over the last 10
years was 6.7%. By comparison, the upper quartile of NACD members, as determined
by revenue size, achieved average annual revenue growth over the past 10 years
of 10.2%.
The chemical distribution industry has been affected by the following
important trends: (i) the increased outsourcing by manufacturers of chemical
distribution functions; (ii) the substantial reduction by end users in the
number of chemical distributors from which they purchase chemicals; (iii) the
increased importance to chemical distribution companies of size and significant
geographic coverage; and (iv) the trend toward integrated supply relationships
between chemical distributors and end users. The Company believes these trends
will continue.
Increased Outsourcing by Manufacturers. As chemical manufacturers have
emphasized their core competencies of manufacturing and marketing, they have
outsourced to chemical distribution companies an increasing amount of the
overall chemical distribution function, which includes buying, storing,
blending,
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packaging and transporting chemicals to customers. In addition, chemical
manufacturers have increasingly sought to use chemical distribution companies,
as opposed to their own sales force and other employees, to market and
distribute their chemical products where to do so would potentially increase
revenues and/or reduce costs.
Reduction of Distributor Relationships by End Users. Chemical users have
aggressively sought to reduce the number of distributors from which they buy in
order to achieve operating efficiencies and to reduce costs, while demanding
increased value-added services such as inventory management and logistical
support. In addition, multi-location customers prefer to purchase from chemical
distributors on a national basis and have excluded smaller, regional
distributors from bidding on these larger supply contract opportunities.
Increased Importance of Size and Geographic Coverage. The costs to chemical
distributors of obtaining and maintaining the necessary technology to do
business, and to comply with tightening industry and regulatory environmental,
safety and health standards, are increasing. In this environment of increased
costs, coupled with the trends described above favoring larger chemical
distributors able to provide extensive value-added services, those chemical
distribution companies that lack the necessary size and financial resources are
at a competitive disadvantage. In addition, both chemical manufacturers and
multi-location end users are increasingly seeking to deal with larger chemical
distribution companies with extensive geographic coverage in order to ensure
product quality and reduce costs. This ultimately reduces the number of
distributor relationships.
Demand for Integrated Supply. Chemical users increasingly prefer to deal
with chemical distribution companies that can offer an integrated approach to
providing chemical products and services. Such an approach would include, for
example, providing inventory management; chemical product stewardship; product
labeling, bar coding, quality assurance testing and other services to chemical
users as part of the overall chemical distribution function.
The industry survey conducted by Purchasing Magazine reflects the higher
revenue growth achieved by the larger chemical distribution companies. According
to survey data, the top 12 chemical distribution companies in the U.S. grew by
12.5% in revenue terms in 1997. By contrast, revenues for those companies ranked
between 13-50 and 51-100 grew by 4.2% and 3.8%, respectively.
The chemical distribution industry is highly fragmented. The Company
believes, based on industry data, that there are more than 1,000 chemical
distribution businesses in the United States consisting of a small number of
regional or national companies and a much larger number of relatively small,
owner-operated businesses that have limited access to capital and that offer a
limited range of services. At this time, many of these companies are not in
direct competition with the Company due to differences in products distributed
or in the nature of their businesses. The Company believes that the fragmented
nature of the industry presents substantial consolidation and growth
opportunities for relatively large companies with a disciplined acquisition
program, a decentralized operating strategy and access to financial resources.
The Company also believes that the prominence and operating strength of the
Founding Companies and the experience of its executive management will provide
the Company with significant competitive advantages to capitalize on these
opportunities.
STRATEGY
As a result of the Acquisitions and the Offering, the Company believes it
has the size, scale of operations and resources necessary to compete effectively
on a national basis in the consolidating chemical distribution industry. The
Company plans to achieve its goal of becoming a premier national chemical
distribution company by accelerating internal growth, implementing its operating
strategy and expanding through acquisitions.
INTERNAL GROWTH STRATEGY
The Company intends to pursue internal growth by (i) promoting national
account sales, (ii) cross selling its expanded product lines and services and
(iii) implementing best practices across the Founding Companies.
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Promoting National Account Sales. The Company believes that significant
demand exists from large multi-location national companies to utilize the
services of a limited number of chemical distribution companies capable of
providing comprehensive chemical product sourcing and services on a regional or
national basis. The Company intends to leverage its sales and distribution
network across the United States to obtain additional business from existing
customers that operate on a regional and national basis, as well as new business
from multi-location companies that previously could not be serviced by the
Founding Companies individually.
Cross Selling the Expanded Product Lines and Services of the Combined
Entity. The Company believes it will be able to expand sales to existing
customers and to obtain new customers by offering a broader line of products and
a broader array of specialized services than has been offered by the Founding
Companies individually.
Aggressive Implementation of Best Practices. The Company intends to
implement a company-wide marketing program and to foster a culture of
cooperation and teamwork that emphasizes the dissemination of best practices
among its local management teams. The Company will identify and share best
practices among the Founding Companies to leverage the technical strengths of
the individual Founding Companies.
OPERATING STRATEGY
The key elements of the Company's operating strategy are (i) to centralize
certain corporate functions in order to obtain operating efficiencies and to
maintain a decentralized operating management in order to continue to provide
superior customer service; (ii) to provide value-added services and become more
integrated into the customers' internal use and handling of chemical products;
and (iii) to implement a company-wide management information system.
Centralize Corporate Functions and Decentralize Operating Management. At
the corporate level, the Company will consolidate functions such as risk
management and insurance, finance and accounting, management information systems
and employee benefits to eliminate duplicative administrative and other costs
that otherwise would be incurred at each of its operating locations. The
anticipated operating efficiencies should provide the Company an advantage over
smaller regional and local competitors. At the operating subsidiary level, the
Company will adopt a regional approach to the U.S. chemical distribution market
by creating four U.S. geographic regions that in most cases will be managed by
selected Founding Company principals. The Company will employ a decentralized
management structure that focuses management of each operating subsidiary on
day-to-day operating matters, maintaining existing and building new customer and
supplier relationships, as well as assisting in the identification of potential
acquisition candidates. The Company believes that its decentralized management
philosophy will continue to provide superior customer service by allowing local
management the flexibility to implement policies and make decisions based on
first-hand assessments of the needs and desires of individual customers.
Provide Value-Added Services. The Company currently seeks, and following
the consummation of the Offering will continue to seek to develop and provide
value-added services designed to meet each customer's needs and to offer an
integrated supply approach to providing chemical products and services, thereby
expanding product sales. Examples of such services currently provided by the
Company to its customers are quality assurance and laboratory analysis, contract
drumming, specialized packaging and bagging, bar coding, integrated supply
(including inventory management, remote tank monitoring and just-in-time
delivery) and export containerization.
Implement Company-Wide Management Information System. Following the
Offering, the Company expects to use the Chempax(TM) management information
system, which is currently used by a majority of the Founding Companies as the
Company's primary management information system. The Company's objective over
time is to implement a centralized, real time management information system
linking all stocking locations, chemical terminal locations, warehouses and
sales offices with Company management. Such a management information system will
assist the Company in achieving desired productivity levels and operating
efficiency goals, as well as allow centralized management of key functions
including inventory control, accounts receivable and accounts payable
management, purchasing, pricing and product transport.
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The Company's management information system will be designed to allow the
preparation of financial and operating reports on a daily, company-wide basis.
ACQUISITION STRATEGY
The Company believes that the U.S. chemical distribution industry presents
significant consolidation opportunities, with over 350 U.S. companies it views
currently as potential acquisition candidates. The Company intends to pursue an
aggressive but disciplined acquisition program to acquire chemical distribution
companies in order to increase sales to industries and markets currently served
by the Company; to enter new industries and markets; to develop new
relationships with domestic and international chemical suppliers; and to expand
its range of products and services. In the past several months, the Company has
contacted the owners of numerous U.S. chemical distribution companies. A
significant percentage of these owners have expressed interest in discussing the
sale of their businesses to the Company. Currently, however, the Company is not
engaged in any material negotiations with such owners, and the Company does not
have any agreements, understandings, arrangements or commitments to effect any
acquisitions other than the acquisitions of the Founding Companies.
The Company believes that the senior management of the Founding Companies
will be instrumental in identifying and completing future acquisitions. Several
of the principals of the Founding Companies have held leadership roles in the
NACD. One of these principals, G. Stephen Robins, currently serves as president
of the NACD, and principals of four of the Founding Companies currently serve on
the 13-member Board of Directors of the NACD. Additionally, one principal has
served as president of the Chemical Educational Foundation and two principals
currently serve as trustees of this foundation. These leadership positions have
enabled these individuals to develop relationships with most of the principals
of the approximately 350 NACD member companies, which are among the potential
acquisition candidates of the Company. The Company expects that the visibility
of these individuals and the Company within the industry will increase the
industry profile of the Company and its acquisition program.
Expand within Existing Markets. The Company intends to explore acquisition
opportunities in the geographic and industry markets it already serves as well
as the geographic and industry markets served by businesses the Company acquires
in the future. Once the Company has entered a specific market, it will seek to
acquire other well-established companies in that particular market to deepen its
market penetration and expand the range of products and services offered to
customers. The Company will also pursue "tuck-in" acquisitions of smaller
companies whose operations can be integrated into and leveraged with an existing
operation.
Enter New Markets. The Company intends to expand into geographic markets
and industries not currently served by the Founding Companies by selectively
acquiring well-established chemical distribution companies that meet the
Company's acquisition criteria, as outlined below, and can serve as platforms
for future growth in that market or industry.
The Company has developed a set of financial, geographic and management
criteria designed to assist management in the evaluation of acquisition
candidates. These criteria comprise a variety of factors, including, but not
limited to, (i) historical and projected financial performance, (ii) internal
rate of return and return on assets, (iii) experience and reputation of the
candidate's management and operations, (iv) composition and size of the
candidate's customer base and supplier base, (v) whether the geographic location
of the candidate will enhance or expand the Company's market area or ability to
attract other acquisition candidates, (vi) whether the acquisition will augment
or increase the Company's market share and/or increase the Company's ability to
serve its existing customer base, (vii) potential synergies gained by combining
the acquisition candidate with the Company's existing operations and (viii)
liabilities, contingent or otherwise, of the candidate.
The Company believes that it is an attractive acquiror in part because of
(i) the Company's strategy for creating a leading national chemical distribution
company, (ii) the Company's potential to acquire businesses for cash and
publicly traded stock, (iii) the Company's increased industry and corporate
profile and access to financial resources as a public company, (iv) the
potential for increased future profitability of acquirees due to
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economies of scale, centralized administrative functions, enhanced systems
capabilities and access to increased corporate resources and (v) the ability of
the acquirees' management to remain in the business due to the Company's
decentralized operating structure.
As consideration for future acquisitions, the Company expects to utilize a
combination of cash, Common Stock and debt. The purchase price for each future
acquisition will vary. Following the Offering, the Company intends to register
5,000,000 additional shares of Common Stock under the Securities Act, which will
be offered in connection with future acquisitions.
PRODUCTS AND SERVICES
The Company distributes thousands of different chemicals for use in a wide
variety of industries. The Company distributes liquid, dry, organic, inorganic,
commodity and specialty chemicals. In connection with the distribution of
chemicals, the Company also provides a broad range of value-added services to
its customers. The customers' demand for these services is driven by the
reduction in costs achievable through the use of such services. These
value-added services also benefit the Company by further integrating the Company
into its customers' processes. Following is a description of certain of these
services:
Warehousing and Repackaging of Bulk Chemicals. The Company's role as a
distribution company is to acquire large amounts of chemicals from suppliers and
store them at their facilities in a manner so that they can be shipped quickly
to customers in smaller quantities. By providing this service, the Company
enables its customers to reduce inventory costs.
Blending. In some instances, the Company performs blending services for
customers. In these instances, the customer provides the Company with the
specifications of the blended product and the Company mixes two or more
chemicals for the customer. The end product is then shipped to the customer. By
outsourcing blending, customers are able to reduce inventory costs by buying
only the exact amount of chemicals needed to fill the blended product order.
Examples of blends prepared by the Company for customers are paint and lacquer
thinners used in the coatings industry and blanket and roller wash solutions
used in the printing industry.
Quality Assurance and Laboratory Analysis. Generally, the Company tests
incoming liquid chemicals from suppliers to ensure that what is received is
consistent with the product specifications. Additionally, upon the request from
a customer, the Company can test chemicals and certify their quality prior to
their shipment to the customer. This service helps to prevent the loss of time
and money that would otherwise occur when customers reject chemicals upon their
delivery at their facility, as well as assist the customer with its quality
control requirements.
Bar Coding and Labeling. Certain customers use bar coding or special labels
to track or identify their chemicals within their own facilities. The Company,
when provided with the necessary information, can apply these items to the drums
or bags of chemicals before they are shipped to the customer. By having the
Company provide this service, the customer eliminates the time and expense of
performing this task and is able to identify and track their chemicals as soon
as they arrive at their facility.
Export Containerization. In certain areas, the Company provides export
services for its suppliers. This involves packaging bulk chemicals, putting the
packaged chemicals into containers for export, preparing the containers for
shipping and then delivering the containers to the terminal from where they will
be shipped.
Contract Bagging and Drumming. Certain chemical manufacturers have
outsourced some of the actual bagging and drumming of their products. The
Company receives a fee for these services and does not take title to the
chemicals. The chemicals are shipped in bulk to the Company's facilities, where
they are placed into the bags or drums provided by the manufacturer and then
returned to the supplier or shipped to the manufacturer's customers.
Inventory Management. The Company is able to aid customers in reducing
their inventory costs by providing a variety of inventory management services.
The Company offers just-in-time deliveries to certain
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customers through the use of techniques such as remote tank monitoring and order
placement through Internet electronic mail.
Employee Training. Pursuant to Department of Transportation and OSHA
regulations the Company is required to conduct training courses for certain of
its employees throughout the year. Often, the Company will invite customers to
send employees to this training at little or no cost.
On a more limited basis, the Company provides other services including
hazardous waste management and commercial fueling services.
CUSTOMERS
The Company has over 10,000 customers, representing a broad range of
industries including paint and coatings; water treatment; pharmaceuticals; oil
and gas; chemical processing; textiles; food and beverage; fragrances;
cosmetics, soaps and detergents; semiconductor; mining and metal treatment; pulp
and paper; ink; rubber and plastics. The customers range in size from small
manufacturing facilities to national and multinational corporations such as
McCormick & Company, Incorporated, The Procter & Gamble Company and
Archer-Daniels-Midland Company. For the 12 months ended December 31, 1997, the
Company sold products to over 450 customers who purchased at least $75,000 of
products with no single customer accounting for more than 3% of the Company's
pro forma combined net sales. As is typical in the chemical distribution
industry, the Company has few supply contracts with its customers, but relies on
established customer relationships to generate sales. The Company will seek to
serve a larger number and wider variety of customers and pursue national account
sales as part of its internal growth strategy.
SALES AND MARKETING
Due to the varied service capabilities and geographical locations of the
Founding Companies, there have been several marketing strategies used to serve
customers. The Company plans to integrate the various strategies into a
corporate sales strategy that is implemented on a regional basis. Each of the
four regions will have a regional sales manager reporting to the regional
president. The Company believes that this regional strategy will allow it to
maintain a high level of service to its existing customers, as well as readily
identify new customers and sales opportunities.
The Company has approximately 24 sales managers, 76 outside sales
representatives, 15 product specialists and 53 customer service representatives.
Within the sales force, there are two groups of personnel -- outside sales
representatives and product specialists. The outside sales representatives call
on customers for commodity and basic chemical sales. In situations that require
technical assistance or the sale of certain speciality products, the outside
sales representative is assisted by a product specialist. Furthermore, where
cross selling opportunities of speciality products exist, the product
specialists will share the techniques and product knowledge among the Founding
Companies. Both groups of salespeople present the array of value-added services
available from the Company. Customer service representatives interact with the
customer at the time of order placement or, in the absence of the sales
representatives, when the customer has questions relating to product, delivery
and/or services. The customer service representatives office in each Founding
Company and generally are the customer contact at the time of order placement.
The Company anticipates that in the future, most customer service functions will
be performed on a regional basis.
The Company will focus on its various local and regional markets, but also
intends to pursue national account sales that are inclined to work with a fewer
number of distributors to achieve significant cost savings. The Company also
believes that, due to its size, it can help these multi-location customers
improve the quality and reliability of their supply and improve the efficiency
and effectiveness of their manufacturing processes.
DELIVERY
The Company utilizes rail and trucks to deliver products to its customers
with the method of transport depending upon urgency, delivery frequency,
destination, customer preference and cost. The majority of the Company's
products are shipped to customers via trucks that are operated by Company
employees. The
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Company operates a fleet consisting of 48 owned and 40 leased tractors, 157
owned and 30 leased trailers and 34 owned and 23 leased other trucks. The
Company also currently leases 11 railcars. The Company primarily uses its own
fleet rather than common carriers to deliver products to customers; however, the
Company does utilize common carriers to transport chemicals from manufacturers
to the Company's distribution facilities.
SUPPLIERS
The chemicals sold by the Company are manufactured by over 350 suppliers,
both domestic and international. The Company primarily purchases these chemicals
directly from manufacturers. During the twelve months ended December 31, 1997,
the Company purchased no more than 5% of its chemicals from any single source.
The Company's decision to purchase from a specific supplier is based on existing
relationships, cost, depth of product offerings, product specifications, quality
and reliability of delivery. For certain specialty chemicals, certain Founding
Companies have exclusive rights to distribute a product within a specified
region. Although the Company has a wide variety of contracts, many of which can
be terminated by the supplier on relatively short notice, the Company believes
that the historic relationship with each supplier is more important than these
contracts to continued supply.
By increasing its supplier base, the Company believes that it will be able
to offer more products to its existing customers. The Company believes that it
is not materially dependent on any single supplier and that it currently
maintains good relationships with its suppliers.
PROPERTIES
The Company's primary warehouses, sales facilities and administrative
offices are listed below, subject to consolidation of certain facilities to
achieve operating efficiencies and subject to the execution of leases with
certain owners of the Founding Companies in connection with the Acquisitions and
the consummation of the Offering:
<TABLE>
<CAPTION>
APPROXIMATE GALLONS OF OWNED
LOCATION TYPE SQUARE FOOTAGE STORAGE OR LEASED
-------- ---- -------------- ---------- ---------
<S> <C> <C> <C> <C>
Birmingham, AL....... Office 7,500 -- Owned
Birmingham, AL....... Warehouse/Office 76,853 -- Owned
Bulk Storage (wet) -- 116,000
Bulk Storage (dry) -- 72,000
Dothan, AL........... Warehouse/Office 9,862 -- Owned
Mobile, AL........... Warehouse/Office 19,738 -- Owned
Montgomery, AL....... Warehouse/Office 20,324 -- Owned
Phoenix, AZ.......... Warehouse/Office/Bulk Storage 70,700 122,000 Leased
Dalton, GA........... Warehouse/Office 13,914 -- Leased
East Point, GA....... Warehouse/Office 21,182 -- Owned
Decatur, IL.......... Warehouse/Office 23,600 -- Owned
E. St. Louis IL...... Warehouse/Office/Bulk (dry) 21,000 454,000 Owned
E. St. Louis, IL..... Warehouse/Office/Bulk Storage (dry) 59,500 8,000 Owned
Mt. Vernon, IL....... Warehouse/Office 14,000 -- Owned
Quincy, IL........... Warehouse/Office 20,000 -- Owned
Kansas City, KS...... Warehouse/Office 15,000 -- Owned
Lafayette, LA........ Warehouse/Office 13,000 85,000 Leased
New Orleans, LA...... Warehouse/Office 23,669 275,000 Owned
Baltimore, MD........ Warehouse/Office 80,500 134,000 Owned
Springfield, MO...... Warehouse/Office 15,000 -- Leased
St. Louis, MO........ Warehouse/Bulk Storage 70,000 128,000 Owned
St. Louis, MO........ Warehouse/Office 40,000 -- Leased
Oakland, NJ.......... Warehouse/Office 49,200 -- Leased
Paterson, NJ......... Warehouse/Bulk Storage 21,400 97,000 Leased
S. Kearny, NJ........ Warehouse/Office 41,300 687,500 Leased
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE GALLONS OF OWNED
LOCATION TYPE SQUARE FOOTAGE STORAGE OR LEASED
-------- ---- -------------- ---------- ---------
<S> <C> <C> <C> <C>
Cleveland, OH........ Warehouse/Office 47,600 741,000 Owned
Cornelius, OR........ Bulk Storage -- 66,000 Owned
Portland, OR......... Warehouse/Office/Bulk Storage 21,600 215,000 Owned
Tualatin, OR......... Bulk Storage -- 16,000 Leased
Wilsonville, OR...... Bulk Storage -- 20,000 Owned
Buda, TX............. Warehouse/Bulk Storage 11,600 20,000 Owned
Corpus Christi, TX... Warehouse 10,000 -- Owned
Dallas, TX........... Bulk Storage 50,000 55,000 Owned
Dallas, TX........... Warehouse/Office/Bulk Storage 29,050 611,000 Owned
Dallas, TX........... Warehouse/Office/Bulk Storage 11,414 547,000 Owned
Houston, TX.......... Warehouse/Office 45,000 -- Owned
Houston, TX.......... Warehouse/Office/Bulk Storage 47,400 1,281,000 Owned
Vidor, TX,........... Warehouse 7,000 -- Owned
Auburn, WA........... Warehouse/Office 12,900 -- Leased
Vancouver, WA........ Warehouse/Office/Bulk Storage 2,500 15,000 Owned
Vancouver, WA........ Bulk Storage -- 13,000 Owned
Washougal, WA........ Bulk Storage -- 16,000 Leased
</TABLE>
SAFETY AND TRAINING
The Company's business requires the handling of chemicals and exposure to
conditions that can be dangerous. Eight of the Founding Companies are currently
members (and one is in the process of applying for membership) of the NACD,
which has established the Responsible Distribution Process ("RDP"). RDP
establishes proper operating practices, documents policies and has become the
standard within the industry, setting the level at which a company measures its
commitment to chemical product stewardship. Adopting RDP is a condition of
membership in the NACD, and member compliance is verified by Underwriters
Laboratories. Although the Company is committed to chemical product stewardship
and the proper handling, use, transportation and disposal of chemical products,
it has been and is subject to claims by employees, customers and third parties
for property damage and personal injuries resulting from use of, and exposure
to, the Company's products. Following completion of the Offering, management
intends to expand throughout the Company existing training and educational
programs, as well as comprehensive safety policies and regulations, by sharing
best practices throughout its operations to complement RDP.
MANAGEMENT INFORMATION SYSTEMS
Each of the Founding Companies operates a management information system
that is used to purchase, monitor and distribute inventory throughout facilities
and enables the Founding Companies to manage inventory costs effectively and
achieve appropriate inventory turnover rates. The management information system
includes computerized order entry, sales analysis, inventory status, delivery
scheduling, customer invoicing, vendor payments and financial statement
preparation. The management information system is designed to improve
productivity for both the Company and its customers. Currently, five of the nine
Founding Companies use Chempax(TM) as their management information system. In
connection with developing its internal company-wide management information
system following the Offering, the Company intends to convert the other four
Founding Companies' management information systems to Chempax(TM). Once the
conversion is made, the Company's consolidated management information system
will operate over a wide area network providing real-time information to
operating locations and management for monitoring of sales activities, credit
approval, inventory levels, stock balancing, vendor returns, order fulfillment
and other key measures of both operating and financial performance.
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COMPETITION
The Company is engaged in a highly fragmented and competitive industry,
with approximately 1,000 chemical distribution companies currently operating in
the United States. At this time, the Company does not compete directly with all
of these companies due to differences in products distributed or in the nature
of their businesses. Competition is based primarily on service, product pricing,
quality and geographic coverage. The Company competes with a large number of
chemical distribution companies on a regional and local basis and a smaller
number of national distribution companies, some of which may have greater
financial resources than the Company and some of which are divisions of public
companies. The Company also competes with manufacturers who sell to end users
and to a limited extent with chemical brokers. The Company may also face
competition for acquisition candidates from these companies, some of which have
acquired chemical distribution companies during the past decade. Other smaller
chemical distribution companies may also seek acquisitions from time to time.
The Company believes that it will be able to compete effectively because of
its significant number of locations, geographic coverage, knowledgeable and
trained sales force, integrated computer systems, modern equipment, broad line
of products and value-added services, long-term customer relationships,
long-term supplier relationships, combined purchasing volume, experienced
operations employees and operational economies of scale. The Company intends to
seek to differentiate itself from the competition in terms of service and
quality by investing in systems and equipment and by offering a broad range of
products and services, as well as through its entrepreneurial culture and
decentralized structure.
EMPLOYEES
As of March 31, 1998, the Company had approximately 665 employees, 641 of
whom were full-time and 24 of whom were part-time. The Company is a party to
three collective bargaining agreements covering approximately 79 employees. The
Company believes that its relationship with its employees is good.
ENVIRONMENTAL AND HEALTH REGULATION
The Company's operations are subject to extensive federal, state and local
laws and regulations, many of which are designed to control operational
practices in an effort to protect employee safety, public health, and the
environment. Different regulatory agencies have jurisdiction over the Company.
Regulatory agencies or governmental entities that may have jurisdiction over the
Company include, at the federal level, the Bureau of Alcohol, Tobacco, and
Firearms; the Department of Transportation; the Environmental Protection Agency;
the Food and Drug Administration; and the Occupational Safety and Health
Administration. Numerous other laws and regulations may be applicable to and
numerous state and local agencies also have jurisdiction over the Company. The
applicability of the various laws and regulations and the jurisdiction of the
various governmental entities are dependent upon the services performed and the
substances handled by the Company. Regulations relating to the Company are
subject to change and the Company cannot predict the effect of future
regulations.
Existing environmental conditions at some of the Company's sites, including
subsurface contamination, may result in material claims, regulatory actions or
liabilities. At some of the Company's sites, surface or subsurface contamination
has been established, the full extent of which is unknown. No assurance can be
given that material liabilities will not be incurred in the future as a result
of such contamination. Previous operations at the Company's facilities may have
caused other environmental conditions, the extent or existence of which the
Company is unaware.
Various federal, state and local laws and regulations regulating the
protection of human health and the environment affect the Company's operations
and costs. The Company will maintain an environmental compliance program and
intends to address environmental and health issues identified as a result of its
compliance program. The Company intends to standardize programs to detect and
respond to any leaks or spills of regulated hazardous substances and to correct
any identified regulatory deficiencies. While the Company does not believe that
any noncompliance with applicable environmental laws and regulations on the part
of its operations and facilities is materially adverse to its financial position
taken as a whole, there can be no assurance that material costs and liabilities
will not be incurred in the future. It is also possible that future
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developments, such as increasingly strict environmental laws, regulations and
enforcement policies, could result in material costs and liabilities in the
future. Compliance with additional and more stringent environmental laws and
regulations could also require the Company to incur material capital costs. Non-
compliance with existing or future environmental regulations could result in
material fines, injunctions, or cease and desist orders against the Company and
liabilities to third parties. Permits held by the Company may be subject to
modification, renewal, or revocation by governmental entities. The loss of or
detrimental modification of these permits could have a material adverse effect
on the Company's operations.
A risk typically associated with the chemical industry in general and the
Company's operations in particular is the possibility of chemical exposure
claims or pollution claims from employees or nearby landowners or residents. For
example, environmental conditions at nearby businesses could affect the
Company's facilities, resulting in a need to address the presence of
environmental conditions at or beneath the Company's affected facilities. It is
also possible that environmental conditions at or beneath the Company's
facilities could impact nearby properties or residents. As the Company addresses
environmental conditions, it may attempt to utilize risk reduction response
measures that may be allowed by law. In some circumstances, these risk reduction
measures may allow residual contamination to remain in place at the Company's
facilities. Such residual contamination may later need to be addressed should a
legal or regulatory requirement be imposed. In other cases, changes in site
conditions, such as the direction of groundwater flow, could change the risk
analysis and cause the need for environmental response measures.
Solid and Hazardous Waste. Some of the Company's operations generate
hazardous and non-hazardous wastes that are subject to the federal Resource,
Conservation and Recovery Act ("RCRA") and comparable state statutes. These
statutes regulate the treatment, storage, disposal, recycling and transportation
of hazardous waste as well as some non-hazardous wastes. The Chemical Solvents
facilities on Jennings Road and on Dennison Road in Cleveland, Ohio are subject
to RCRA permitting and regulatory requirements which entail significant
compliance costs. In addition, the Jennings Road facility is subject to a RCRA
Facility Investigation ("RFI") to identify whether any contamination exists.
Certain general areas of concern have been identified, and Chemical Solvents is
negotiating with EPA on the proposed scope of work. The Company is unable to
reasonably estimate what corrective action measures may be required as a result
of the RFI. However, the Company estimates that performance of the RFI alone may
cost up to $250,000. This liability is subject to the Environmental Indemnity
described in "Certain Transactions." The hazardous waste recycling and disposal
business includes significant environmental and regulatory risks.
CERCLA. The Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability
without regard to fault or the legality of the original conduct, on certain
classes of persons that contributed to a site that released or threatens to
release a hazardous substance to the environment. These persons include the
owner or operator of a site and companies that disposed or arranged for the
disposal of the hazardous substance found at a site. CERCLA also authorizes EPA
and, in some cases, third parties to take actions in response to threats to the
public health or the environment and to seek to recover from responsible classes
of persons the costs they incur. In the course of its operations, the Company
has generated and will generate wastes that fall within CERCLA's definition of
"hazardous substances." Certain state laws impose similar liabilities to CERCLA.
Under CERCLA and similar state laws, a liable party may be held responsible for
the costs of investigating and remediating a contaminated site and for any
associated natural resource damages. Such liability is strict in nature and
typically joint and several. There can be no assurance that the Company would be
insulated from the Founding Companies' CERCLA liabilities.
Industrial has received a Potentially Responsible Party ("PRP") notice from
EPA with respect to the THAN Superfund site near Montgomery, Alabama. EPA
presently is enforcing the cleanup against the two primarily liable PRPs.
Industrial previously leased a part of this site from one of the primarily
liable PRPS, who has indemnified Industrial from this liability. This PRP,
however, has advised Industrial that it intends to pursue Industrial for any
contribution Industrial may have made to the contamination at the site. Based
upon its investigation of the site and the fact that EPA is not enforcing
cleanup obligations against Industrial, the Company believes that its
contribution, if any, to the site will not be material.
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Chemical Solvents has received a PRP notice for the Granville Solvents
Superfund site in Granville, Ohio. Chemical Solvents anticipates, based upon the
existing adjusted allocation formula for the site, that it will owe
approximately $322,000, although there can be no assurance as to the ultimate
costs incurred at the site or as to the amount of costs for which the Company
will be responsible.
Chemical Solvents also has received a PRP notice for the New Lyme Superfund
site near Cleveland, Ohio. EPA completed remediation at the New Lyme site at a
cost of approximately $26 million. The PRP group made a settlement offer to EPA
of $12 million together with anticipated future costs, $33,000 of which was from
Chemical Solvents. EPA has not responded to the offer. While there can be no
assurance as to the ultimate outcome, the Company believes that Chemical
Solvents is a de minimis contributor to the site.
Robins received a CERCLA 104(e) request for information regarding the Great
Lakes Container Corp. Superfund site in St. Louis, Missouri. Robins believes
that it only purchased drums from this site and therefore denies any liability.
EPA's present removal action budget is less than $2 million at the site,
although there can be no assurance as to the total expenditures ultimately made
at the site.
Each of these Superfund sites is subject to the Environmental Indemnity.
See "Certain Transactions."
Air Quality. Certain operations of the Company are subject to local, state
and federal regulations for the control of emissions from sources of air
pollution. Legal and regulatory requirements in this area are increasing,
particularly under the 1990 Clean Air Act Amendments. EPA is developing a new
Maximum Achievable Control Technology requirement ("MACT") for liquid organic
blenders and manufacturers. While the Company believes that its facilities will
be exempt from this MACT requirement, there can be no assurance of the eventual
outcome of the EPA's rulemaking process.
Water. The Federal Water Pollution Control Act regulates the discharge of
pollutants into streams, groundwater, wetlands, or other surface waters from
industrial sources. In certain situations, the act requires the Company to
secure discharge permits, conduct sampling and monitoring, and to reduce the
quantity of pollutant loading in the discharges and imposes certain liabilities
for failing to obtain and violating permits.
Emergency Planning and Community Right to Know Act. EPCRA requires the
Company to file chemical handling information with local and state emergency
planning authorities. EPCRA also establishes an enforceable reporting scheme
that applies in the event of a hazardous chemical release to the environment.
OSHA and Local Codes. The Company's operations are subject to the
requirements of the federal Occupational Safety and Health Act ("OSHA") and
comparable state statutes. The OSHA hazard communication standard requires that
certain information be organized and maintained about hazardous materials used
or produced in operations. Certain of this information must be provided to
employees, state and local government authorities and citizens. OSHA also
regulates workplace safety and exposure to toxic chemicals in the workplace.
The Company's facilities in Patterson and Oakland, New Jersey are subject
to the requirements of the New Jersey Industrial Site Recovery Act ("ISRA"),
which requires state review and approval of environmental investigation and
remediation plans prior to the transfer of certain types of industrial and
commercial properties. The Company does not believe that compliance with ISRA
will entail material costs, although there can be no assurances as to the actual
amount of any such costs.
Local fire codes regulate site conditions, such as the placement of storage
tanks at Company facilities. At Chemical Solvents' Jennings Road facility, the
local fire department has directed that a tank placement issue be addressed. The
Company believes that the costs associated with this issue will be approximately
$200,000.
RISK MANAGEMENT AND INSURANCE
The primary risks in the Company's operations include bodily injury,
property damage and injured workers' compensation. The Company maintains
automobile and general liability insurance for third party bodily injury and
property damage and workers' compensation coverage which it considers
appropriate to insure against these risks, subject to self-insured amounts.
After the consummation of the Offering, the
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Company intends to consolidate the purchase of insurance, which management
believes will result in savings from the amounts paid by the Founding Companies
prior to the Acquisitions.
In addition, the Company faces the risk of environmental contamination to
the properties it owns and leases. Effective upon the consummation of the
Acquisitions, CLC, each Founding Company and the stockholders of each Founding
Company will obtain environmental insurance for certain legal liabilities and
environmental pollution (the "Environmental Insurance"). Coverage will be
included for (i) cleanup of both on-site and off-site unknown pre-existing and
new pollution conditions that exceed regulatory action levels; (ii) third-party
liability, both on-site and off-site, for unknown pre-existing and/or new
pollution conditions emanating on, from or under each Founding Company's sites
(such as groundwater contamination); (iii) pre-existing unknown conditions of
the Founding Companies; and (iv) non-owned disposal sites that are identified to
the insurance carrier. Coverage will not be provided for pollution conditions or
liabilities which have been identified by CLC's environmental consultant in the
Phase I environmental reports prepared in connection with the Acquisitions.
The Environmental Insurance will be for a term of five years from the
consummation of the Acquisitions, will provide coverage of $25 million per
incident with an aggregate limit of $70 million and will cover each Founding
Company and their properties and facilities. A $25,000 deductible per incident
will apply. The Environmental Insurance will not cover all potential
environmental risks. No assurance can be given that (i) the insurance will be
adequate to reimburse for all covered all losses or liabilities the Company may
incur; (ii) the Company will be able to maintain Environmental Insurance of
adequate type, at adequate levels or at reasonable rates; (iii) the insurance
carrier will honor all claims made under the policy; or (iv) no circumstances or
conditions will be excluded under the insurance policy, resulting in the denial
of coverage for one or more claims. See "Certain Transactions" for a description
of certain environmental indemnity arrangements made pursuant to the
Acquisitions.
LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation or administrative
proceedings that arise in the normal course of its business. The Company does
not have pending any litigation that, separately or in the aggregate, if
adversely determined, would have a material adverse effect on the Company's
results of operations or financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers and those persons who will become directors and
executive officers following the consummation of the Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bruce W. Wilkinson.................... 54 Chairman of the Board of Directors and
Chief Executive Officer
James M. Clepper*..................... 52 President, Chief Operating Officer and
Director
Francis S. Kalman..................... 51 Executive Vice President, Chief
Financial Officer and Secretary
Scott R. Creasman..................... 33 Vice President -- Controller
Lorne D. Bain......................... 57 Director
Douglas A. Brown*..................... 42 Chief Information Officer and Director
Stephen B. Fiverson*.................. 55 Director
Rodney R. Proto*...................... 49 Director
G. Stephen Robins*.................... 53 Director
John Tilley*.......................... 46 Director
William Welch*........................ 58 Director
</TABLE>
- ---------------
* Election as a director or officer of the Company effective upon the
consummation of the Offering.
Bruce W. Wilkinson has served as Chairman of the Board and Chief Executive
Officer of the Company since April 1998. From March 1997 through October 1997,
Mr. Wilkinson served as President and Chief Executive Officer of Tyler
Corporation, a publicly traded diversified manufacturing and service company.
From June 1996 through December 1996, Mr. Wilkinson served as a director and
Interim President/Chief Executive Officer of Proler International, Inc., a
formerly publicly traded ferrous scrap recycler. From 1989 through 1995, Mr.
Wilkinson served as Chairman and Chief Executive Officer of CRSS Inc., a
publicly traded, independent power and industrial energy company. Mr. Wilkinson
began employment with CRSS in 1978 and served as President and Chief Executive
Officer from 1982 through 1989.
James M. Clepper will become President, Chief Operating Officer and a
director of the Company effective upon the consummation of the Offering. Mr.
Clepper has been the Chief Executive Officer of Southwest Solvents since July
1986 and has been an owner of Southwest Solvents since 1970. Mr. Clepper has
been active in the NACD since 1978. Mr. Clepper has served the NACD as a
regional president, chairman of the insurance and supplier relations committees
and is currently serving on the board of directors of the NACD. Mr. Clepper is
past president and currently a director of the Chemical Educational Foundation.
Mr. Clepper has served on the Board of Directors of Sterling Bancshares, Inc., a
publicly traded bank holding company, since 1996.
Francis S. Kalman has served as Executive Vice President, Chief Financial
Officer and Secretary of the Company since March 1998. From June 1996 through
September 1997, Mr. Kalman served as Senior Vice President and Chief Financial
Officer of Keystone International, Inc., a publicly traded manufacturing
company. From May 1992 to May 1996, Mr. Kalman served as Vice President and
Chief Financial Officer of American Ref-Fuel Company. From July 1982 through
October 1991, Mr. Kalman worked for United Gas Pipe Line Company, having
attained the position of Senior Vice President and Chief Financial Officer.
Scott R. Creasman has served as Vice President -- Controller since June
1998. From November 1997 through June 1998, Mr. Creasman served as Vice
President and Corporate Controller of U.S. Legal Support, Inc. From August 1997
through November 1997, Mr. Creasman served as Vice President and Controller of
Tyler Corporation, a publicly traded diversified manufacturing and service
company. From October 1996 through July 1997, Mr. Creasman served as Controller
of Brink's Home Security, Inc. From 1990 through
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1996, Mr. Creasman was with Texas Eastern Products Pipeline Company, the
operator of a publicly held petroleum products pipeline company, most recently
as Controller. Mr. Creasman is a C.P.A.
Lorne D. Bain has been President of the Company since its inception and a
director of the Company since April 1998. Mr. Bain will cease serving as
President upon consummation of the Offering. Mr. Bain has been a member and a
Managing Director of BCP since February 1997. From 1991 to 1996, Mr. Bain was
Chairman of the Board of Directors and Chief Executive Officer of Sanifill,
Inc., a publicly traded environmental services company, and served as a
consultant to Sanifill, Inc. until August 1997. Mr. Bain has served as a
director of Belden, Inc., a publicly traded electrical wire and cable
manufacturing company, since 1993.
Douglas A. Brown will become Chief Information Officer and a director of
the Company effective upon the consummation of the Offering. Mr. Brown has
served the NACD as co-chairman of the RDP committee and a member of the
distributor operations committee. Mr. Brown is currently serving on the board of
directors of the NACD and as chairman of the government affairs committee. Mr.
Brown is also on the board of directors of the Chemical Industry Council of New
Jersey.
Stephen B. Fiverson will become a director of the Company effective upon
the consummation of the Offering. Mr. Fiverson has served as president of
American since 1972. Mr. Fiverson currently serves as a regional president of
the NACD.
Rodney R. Proto has been President, Chief Operating Officer and a director
of USA Waste Services, Inc. ("USA Waste"), the third largest solid waste
services company in North America, since August 1996. Prior thereto, he was
President, Chief Operating Officer and a director of Sanifill, Inc., which was
acquired by USA Waste in August 1996. Mr. Proto joined Sanifill, Inc. in
February 1992. Before joining Sanifill, Inc., he was employed by Browning-Ferris
Industries, Inc. for 12 years where he served, among other positions, as
Chairman of BFI Overseas from 1985 to 1987 and President of Browning-Ferris
Industries Europe, Inc. from 1987 through 1991. Mr. Proto has been a director of
Quanta Services, Inc., a publicly traded specialty electrical contracting
company, since March 1998. Mr. Proto will become a director of the Company
effective upon the consummation of the Offering.
G. Stephen Robins will become a director of the Company effective upon the
consummation of the Offering. Mr. Robins has served as president of Robins since
1980. Mr. Robins has been active in the NACD since 1977 and is currently
president of the organization. Mr. Robins has also served as the president of
the Affiliated Chemical Group. Mr. Robins received a bachelor of science in
chemical engineering from Princeton University and a masters of business
administration from Stanford University.
John Tilley will become a director of the Company effective upon the
consummation of the Offering. Mr. Tilley has served as president of Tilley since
1990. Mr. Tilley served as vice president of Tilley from 1985 to 1990. Mr.
Tilley has been active in the NACD since 1975 and is currently on the board of
directors of the organization. Mr. Tilley has also served as the president of
the Affiliated Chemical Group.
William L. Welch will become a director of the Company effective upon the
consummation of the Offering. Mr. Welch formed Industrial in 1970 and has served
as its president since that time.
BOARD OF DIRECTORS
The Board of Directors will establish an Audit Committee and Compensation
Committee to be effective following the consummation of the Offering. The Audit
Committee will recommend the appointment of auditors and oversee the accounting
and audit functions of the Company. The Compensation Committee will determine
the salaries and bonuses of executive officers and administer the Plan.
The Board of Directors, following the consummation of the Offering, will be
divided into three classes of directors, with directors serving staggered
three-year terms, expiring at the annual meeting of stockholders in 1999, 2000
and 2001, respectively. At each annual meeting of stockholders, one class of
directors will be elected for a full term of three years to succeed that class
of directors whose terms are expiring. All officers serve at the discretion of
the Board of Directors, subject to terms of their employment agreement terms.
See "-- Employment Agreements."
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DIRECTOR COMPENSATION
Directors who are employees of the Company or a subsidiary do not receive
additional compensation for serving as directors. Each director who is not an
employee of the Company or a subsidiary will receive an annual fee of $12,000
and $1,000 for each committee meeting (unless held on the same day as a Board of
Directors meeting). Directors of the Company will be reimbursed for reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof, and for other expenses reasonably incurred in their
capacity as directors of the Company. At the consummation of the Offering, each
non-employee director serving on such date will receive stock options to
purchase 10,000 shares of Common Stock, (and individuals who are first elected
or appointed as non-employee directors after such date shall similarly receive
stock options to purchase 10,000 shares of Common Stock on the date of their
initial election or appointment) and thereafter a grant of 5,000 options
following each annual meeting of stockholders of the Company that is more than
90 days after the date of the director's initial 10,000 share grant, provided
the non-employee director continues to serve as such following the annual
meeting. See "-- 1998 Stock Plan." In addition, Mr. Proto purchased 19,962
shares of Common Stock from the Company for nominal consideration.
EXECUTIVE COMPENSATION
The Company was incorporated in July 1997 and, prior to the Offering, has
not conducted any operations other than activities related to the Acquisitions
and the Offering. The Company anticipates that during 1998 annualized base
salaries of its most highly compensated executive officers will be: Mr.
Wilkinson -- $200,000, Mr. Clepper -- $200,000, Mr. Kalman -- $175,000, Mr.
Brown -- $135,000 and Mr. Creasman -- $115,000.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with Messrs. Wilkinson,
Clepper, Kalman and Brown which prohibits them from disclosing the Company's
confidential information and trade secrets and generally restricts these
individuals from competing with the Company for a period of time equal to the
greater of (i) two years after the date of the termination of employment with
the Company and (ii) five years following the consummation of the Offering. Each
of the agreements has an initial term of three years and provides for an
automatic annual extension at the end of its initial term and is terminable by
the Company for "cause" upon ten days' written notice and without "cause" by
either party upon thirty days' written notice. All employment agreements provide
that if the officer's employment is terminated by the Company without "cause,"
the officer will be entitled to receive his base salary (at the rate then in
effect) for the greater of (i) the time period remaining under the initial term
of the agreement or (ii) one year. In addition, the time period during which
such officer is restricted from competing with the Company will be shortened to
one year from the date of termination.
The employment agreements contain certain provisions concerning a
change-in-control of the Company, including the following: (i) in the event (a)
the officer's employment is terminated within one year following the change in
control by the Company, other than for "cause," (b) the officer's salary, duties
or authority are reduced and the officer elects not to accept such reduction; or
(c) the successor does not give written notice to the Company and the officer of
its acceptance of the Company's obligations under the employment agreement at
least five days prior to the anticipated closing date, the officer will be
entitled to receive a lump sum severance amount equal to the greater of three
times (x) the amount of base salary remaining under the initial term of the
employment agreement and (y) one year's base salary, (ii) in any
change-of-control situation, the officer may elect to terminate his employment
by giving three business days' written notice prior to the anticipated closing
of the transaction giving rise to the change-in-control or written notice ten
business days after receipt of notice of such transaction, whichever is later,
which will be deemed a termination of employment by the Company without "cause,"
and the provisions of the employment agreement governing the same will apply,
except that the severance amount otherwise payable shall be doubled, and (iii)
if any payment to the officer is subject to the 20% excise tax on excess
parachute payments, the officer shall be made "whole" on a net after-tax basis.
The Company will enter into an employment agreement with Mr. Creasman which
prohibits him from disclosing the Company's confidential information and trade
secrets and generally restricts him from competing with the Company for two
years after the date of the termination of employment with the
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Company. The agreement has an initial term of one year and provides for an
automatic annual extension at the end of its initial term and is terminable by
the Company for "cause" upon ten days' written notice and without "cause" by
either party upon thirty days' written notice. The agreement provides that if
the officer's employment is terminated by the Company without "cause," the
officer will be entitled to receive his base salary (at the rate then in effect)
for the greater of (i) the time period remaining under the initial term of the
agreement or (ii) one year. In addition, the time period during which such
officer is restricted from competing with the Company will be shortened to one
year from the date of termination.
1998 STOCK PLAN
The Plan was adopted by the Board of Directors and stockholders in July
1998. The purpose of the Plan is to provide officers, employees, directors and
consultants with additional incentives by increasing their ownership interests
in the Company. Individual awards under the Plan may take the form of one or
more of: (i) either incentive stock options or non-qualified stock options
("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii) restricted stock; (iv)
phantom stock; (v) performance awards; (vi) bonus stock awards; (vii) other
stock-based award, i.e., awards not otherwise provided for, the value of which
is based in whole or in part upon the value of the Common Stock; and (viii) cash
awards that may or may not be based on the achievement of performance goals
(collectively, "Awards"). The performance goals for Awards, until changed,
include target levels of net income, cash flows, return on equity, profit
margins, sales, stock price, market share improvement, achievement of national
accounts, reductions in cost of goods sold and earnings per share.
The Compensation Committee or the Company's Chief Executive Officer or
President, to the extent such duties are delegated to either of them by the
Compensation Committee, will administer the Plan and select the individuals who
will receive Awards and establish the terms and conditions of those Awards. The
Plan does not authorize a specific number of shares for Awards; however, the
maximum number of shares of Common Stock that may be subject to outstanding
Awards, determined immediately prior to grant of any Award, may not exceed 15%
of the aggregate number of shares of Common Stock then outstanding. Shares of
Common Stock which are attributable to Awards which have expired, terminated or
been canceled or forfeited are available for issuance or use in connection with
future Awards. The maximum number of shares of Common Stock with respect to
which any person may receive options and SARs in any calendar year is 500,000
shares. With respect to other forms of Awards, the maximum Award that may be
granted to any individual in any calendar year cannot exceed $4 million
(determined as of the date of the grant of the Award). Options and SARs may have
such exercise prices as the Compensation Committee, in its discretion,
determines.
The Plan will remain in effect for 10 years, unless earlier terminated by
the Board of Directors. The Plan may be amended by the Board of Directors or the
Compensation Committee without the consent of the stockholders of the Company,
except that any amendment will be subject to stockholder approval if required by
any federal or state law or regulation or by the rules of any stock exchange or
automated quotation system on which the Common Stock may then be listed or
quoted.
At the consummation of the Offering, NQSOs to purchase approximately
1,070,000 shares will be granted to directors and officers of CLC and employees
of the Founding Companies. Each of the foregoing options will have an exercise
price equal to the initial public offering price per share. These options will
vest at the rate of 20% per year, commencing on the first anniversary of grant,
and will expire at the earliest of (i) ten years from the date of grant, (ii)
three months following termination of employment, other than due to death or
disability, or (iii) one year following a termination of employment due to death
or disability.
The Plan also provides for (i) the automatic grant to each non-employee
director serving at the consummation of the Offering of an option to purchase
10,000 shares, (ii) the automatic grant to each individual who is first elected
or appointed as a non-employee director after the Offering of an option to
purchase 10,000 shares on such election or appointment, and (iii) an automatic
annual grant to each non-employee director of an option to purchase 5,000 shares
following each annual meeting of the stockholders of the Company that is more
than 90 days after the date of the director's initial 10,000 share grant,
provided the non-employee director continues to serve as such following the
annual meeting. All such director options will have an exercise price per share
equal to the fair market value of the Common Stock on the date of grant, will
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vest six months after grant and will expire ten years from the date of grant,
unless such director ceases to serve prior to that time.
STOCK PURCHASE PLAN
The Board of Directors and stockholders adopted an employee stock purchase
plan (the "Stock Purchase Plan") for employees of the Company in July 1997.
Pursuant to the Stock Purchase Plan, the Company will pay any brokerage
commissions, transfer taxes and other fees associated with a participant's
purchase of Common Stock at the end of each six-month option period under the
plan. Additionally, purchases made pursuant to the Stock Purchase Plan will be
made at a 15% discount from (i) the then current market price of the Common
Stock or (ii) its market price at the beginning of the applicable option periods
whichever is lower. This discount will be funded by the Company. The Stock
Purchase Plan is intended to serve as a means of encouraging employees to invest
in the Company's Common Stock.
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Company was organized in July 1997 by BCP. Mr. Bain, John D. Rogers and
J. Chris Brewster (collectively, the "BCP Principals") were issued a total of
1,659,366 shares of Common Stock which were issued for a total of $1,000 in
connection with the formation of CLC. Mr. Bain is currently President and a
director of the Company. BCP has agreed to advance the Company whatever funds
are necessary to pay the transaction costs associated with the Acquisitions and
the Offering. As of July 15, 1998, BCP had outstanding advances to the Company
in the aggregate amount of approximately $1.8 million, which bear no interest.
All of BCP's advances will be reimbursed from the net proceeds of the Offering.
Prior to the consummation of the Offering, the Company will have issued a
total of 791,836 shares of Common Stock at $.01 per share to various members of
management, directors and consultants, including: Mr. Wilkinson -- 201,381
shares, Mr. Clepper -- 178,996 shares, Mr. Kalman -- 120,835 shares, Mr.
Creasman -- 36,290 shares, Mr. Proto -- 19,962 shares and various other
employees of CLC and consultants -- 234,372 shares. The Company will also grant
options to purchase 10,000 shares of Common Stock under the Plan, effective upon
the consummation of this Offering, to Mr. Proto, who will become a director of
the Company upon the closing of the Offering.
Simultaneously with the closing of the Offering, the Company will acquire
by stock purchase all of the issued and outstanding capital stock and other
equity interests of the Founding Companies, at which time each Founding Company
will become a wholly owned subsidiary of the Company. The Acquisitions
Consideration consists of (i) approximately $31.1 million in cash and (ii)
6,543,329 shares of Common Stock. Prior to the Acquisitions, certain of the
Founding Companies will make S Corporation Distributions to their stockholders
in an aggregate amount of $8.7 million. Prior to the Acquisitions, certain of
the Founding Companies will incur approximately $8.7 million in indebtedness to
their stockholders relating to the payment of S Corporation Distributions.
The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy on the closing date of the
Acquisitions of the representations and warranties by the Founding Companies,
their stockholders and by CLC; the performance by each of the parties of their
respective covenants; and the nonexistence of a material adverse change in the
results of operations, financial condition or business of each Founding Company.
There can be no assurance that the conditions to closing of the Acquisitions
will be satisfied or waived or that the acquisition agreements will not be
terminated prior to consummation.
Certain costs associated with environmental liabilities of each Founding
Company have been or will be addressed through the obtaining of the
Environmental Insurance and an environmental indemnity contained in each stock
purchase agreement (the "Environmental Indemnity"). See "Business -- Risk
Management and Insurance."
Scheduled environmental liabilities are covered under the Environmental
Indemnity, subject to a limit of the lesser of $5.0 million or 40% of the
consideration paid for the specific Founding Company (the "Indemnity Limit").
There is no time limit on claims for indemnification for scheduled environmental
liabilities. With
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<PAGE> 61
respect to Chemical Solvents, the Indemnity Limit is $6.0 million. Scheduled
environmental liabilities are those liabilities agreed upon by CLC, the Founding
Companies and the stockholders to be scheduled, and can include (i) conditions
as of the consummation of the Acquisitions on the Founding Company's properties
or facilities that require or would require action to remove, remediate, or
reduce the levels of hazardous substances to below regulatory action levels, or
otherwise to perform any response, corrective or preventive measure or to pay
for any environmental response costs ("Environmental Response Measures") if all
the facts were made known to a governmental agency without regard to any
historical contamination defense; (ii) violations of environmental laws
occurring prior to the consummation of the Acquisitions; and (iii) other
environmental liabilities or conditions existing prior to the consummation of
the Acquisitions that would require Environmental Response Measures if all the
facts were made known to a governmental agency without regard to any historical
contamination defense. Not all known or potential environmental liabilities are
scheduled liabilities. Liabilities that are not scheduled will be partially
indemnified as unscheduled liabilities to the extent that they arose from or
were incurred in connection with the business operations of the Founding
Companies prior to the Consummation Date.
Unscheduled environmental liabilities arising from or incurred in
connection with the operations of a Founding Company before the consummation of
the Acquisitions are also covered by the Environmental Indemnity. Each Founding
Company's stockholders' obligation to indemnify is not triggered until CLC and
such Founding Company have expended $100,000 (the "Basket Amount"). Once CLC and
the Founding Company have expended the Basket Amount, then the stockholders of
the Founding Companies must indemnify CLC and the Founding Company for 50% of
the next $400,000 expended, and for 100% of expenditures over $500,000 until the
Indemnity Limit is met. The stockholders of the Founding Companies are liable
only for those unscheduled environmental liabilities for which a notice of claim
is given by CLC to such stockholders within five years of the consummation of
the Acquisitions.
There can be no assurance that (i) the Environmental Indemnity will be
adequate to cover all losses or liabilities the Company may incur, (ii) each
Founding Company's stockholders will have adequate financial ability to pay any
claims submitted under the indemnity or (iii) that the Environmental Indemnity
will apply to all types of environmental losses or liabilities which the Company
may incur. The Company is generally required to indemnify a stockholder of a
Founding Company from environmental liabilities arising from or incurred in
connection with the operations of that Founding Company except to the extent
that such stockholder is obligated to indemnify the Company under the
Environmental Indemnity.
In determining the amount of consideration paid in the Acquisitions, the
Company valued each Founding Company on a consistent basis using the same
multiple of earnings, as adjusted for owner's compensation and other
nonrecurring items. The Company also took into account the S Corporation
Distributions made by certain of the Founding Companies.
The following table sets forth for each Founding Company the approximate
portion of the Acquisitions Consideration to be paid to the stockholders of each
of the Founding Companies in cash and in shares of Common Stock, with the cash
portion being subject to adjustment through the date of the consummation of the
Acquisitions:
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Robins...................................................... $ 7,189 1,118,227
Industrial.................................................. 6,962 1,176,233
Southwest Solvents.......................................... 1,718 786,613
Chemical Solvents........................................... -- 602,624
Tilley...................................................... 5,145 806,898
Cron........................................................ 2,308 359,006
Brown....................................................... 4,606 716,613
Tarr........................................................ 2,427 514,718
American.................................................... 771 462,397
------- ---------
Total............................................. $31,126 6,543,329
======= =========
</TABLE>
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<PAGE> 62
Prior to consummation of the Acquisitions, certain of the Founding
Companies will make the S Corporation Distributions estimated to be
approximately $8.7 million. Additionally, the amount of cash set forth above
payable to the stockholder of Chemical Solvents does not include an additional
$1.0 million (the "Contingent Consideration") that is being retained by the
Company. The Contingent Consideration will be available to cover certain costs
related to the RFI that is currently in process at Chemical Solvents' facility
on Jennings Road in Cleveland, Ohio. In the event the RFI is completed and funds
remain from the Contingent Consideration, the stockholder of Chemical Solvents
will be entitled to receive such remaining funds.
The agreements relating to the Acquisitions may be terminated under certain
limited circumstances prior to the consummation of the Offering. There can be no
assurance that the conditions to the closing of the Acquisitions will be
satisfied or waived or that the agreements relating to the Acquisitions will not
be terminated prior to the closing.
Pursuant to the agreements relating to the Acquisitions, all stockholders
of each of the Founding Companies have agreed not to compete with the Company
for five years after the consummation of the Offering. Those senior executives
of the Founding Companies who are entering into three-year employment agreements
with the Company have agreed not to compete with the Company for a period of
time equal to the later of (i) two years after the termination of their
affiliation with the Company and (ii) five years after the consummation of the
Offering. Those senior executives of the Founding Companies who are entering
into one-year employment agreements with the Company have agreed not to compete
with the Company for a period of two years after the termination of their
affiliation with the Company.
Individuals who are or will become executive officers or directors of the
Company will receive the following portions of the Acquisitions Consideration
for their interests in the Founding Companies, subject to adjustments as
described above.
<TABLE>
<CAPTION>
SHARES OF
COMPANY CASH(1) COMMON STOCK
------- ------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Industrial
William L. Welch.......................................... $ 3,277 589,626
Robins
G. Stephen Robins......................................... 4,867 757,057
Southwest Solvents
James M. Clepper.......................................... 1,718 786,613
Tilley
John Tilley(2)............................................ 4,216 664,759
Brown
Doug Brown................................................ 580 190,651
American
Steve Fiverson(3)......................................... 771 462,397
------- ---------
Total............................................. $15,429 3,451,103
======= =========
</TABLE>
- ---------------
(1) Excludes S Corporation Distributions to Messrs. Welch, Clepper and Tilley of
approximately $300,000, $3.3 million and $14,000, respectively.
(2) Includes cash of $3,426,896 and 533,073 shares of Common Stock to be
received by the Tilley Family, LLC, of which Mr. Tilley is a member.
(3) This consideration is to be received by Colt Corporation, of which Mr.
Fiverson is an officer, director and shareholder.
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<PAGE> 63
TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS
During fiscal 1995, 1996 and 1997, Southwest Solvents made payments
totaling $95,425, $93,428 and $88,060, respectively, to a company wholly owned
by Mr. Clepper for the chartering of an aircraft. Mr. Clepper will become
President, Chief Operating Officer and a director of the Company following
consummation of the Offering.
Prior to April 1998, several of Industrial's warehouse facilities and
office buildings, and certain vehicles and equipment were owned and leased to
Industrial by Welch Enterprises, a general partnership consisting of William L.
Welch and L. B. Welch. Payments by Industrial during fiscal 1996, 1997 and 1998
under these leases aggregated $581,920, $573,155 and $564,700, respectively. All
the properties and assets will be transferred to Industrial prior to the closing
of the Acquisitions, in exchange for 460 shares of Industrial's common stock.
One of the properties, a 1.7 acre parcel upon which Industrial's Montgomery,
Alabama warehouse is located, was acquired by Welch Enterprises in March 1997
for approximately $125,000. Another one of the properties, a .7 acre parcel
adjacent to Industrial's Birmingham, Alabama warehouse facilities, was acquired
by Welch Enterprises in July 1997 for approximately $40,000. All the other
properties were acquired more than two years prior to the conveyance to
Industrial. The properties and other assets were valued for the purpose of the
exchange at an aggregate $1.5 million, based upon fair market value. In
addition, Industrial formerly leased an office building and warehouse facility
from Astro Packaging, Inc. ("Astro"), a corporation owned in by Messrs. Welch,
for lease payments aggregating $120,000 in each of fiscal 1996, 1997 and 1998.
Prior to the closing of the Acquisitions, Astro will convey this realty to
Industrial in exchange for two parcels of realty then owned by Industrial but
not used in its business operations. The property conveyed to Industrial was
valued for the purpose of the exchange at $450,000, and the two properties
conveyed to Astro were valued at an aggregate $450,000, based upon Industrial
management's belief that those amounts represented at least the fair market
value of the properties. While none of the foregoing valuations were determined
by unaffiliated third parties and none of the transactions were a result of
arms' length negotiations, management of Industrial believes them to have been
on terms at least as favorable as could have been obtained from unaffiliated
third parties.
Industrial was indebted to its stockholders, including Mr. Welch and
certain of his immediate family members, and their affiliates pursuant to
unsecured notes in the aggregate principal amount of $2,770,827 and $2,230,690
as of February 28, 1998 and February 28, 1997, respectively, bearing interest at
8.5% and 10%, respectively. L. B. Welch is indebted to Industrial under a note
dated December 30, 1996, having an outstanding principal balance of $105,167.50
as of February 28, 1998, bearing interest at 8.5%. Interest payments due under
the note were current at February 28, 1998. The note matures on December 30,
1998. Pursuant to the terms of the stock purchase agreement, those amounts will
be repaid within 30 days of the consummation of the offering.
William L. Welch holds a 33.3% equity interest in Pasco Products, Inc.
("Pasco"), a trucking firm from which Industrial purchases some shipping
services. In the fiscal year ended February 28, 1998, Industrial made payments
to Pasco in the aggregate amount of $89,690, which is estimated to equal
approximately 6.5% of Pasco's gross revenues for its most recent fiscal year.
William L. Welch will become a director of the Company effective upon
consummation of the Offering. L. B. Welch is William L. Welch's brother.
Immediately prior to consummation of the Offering, American was a
subsidiary of Colt Corporation ("Colt"). Stephen B. Fiverson is an executive
officer of Colt and members of his family are stockholders of Colt. American has
been included in consolidated federal income tax returns filed by Colt on behalf
of Colt and its subsidiaries. In addition, American paid management fees to Colt
and reimbursed it for administrative charges in the amounts of $24,762 and
$133,679 in the fiscal year ended March 31, 1998 (nine months), $67,006 and
$25,108 in the fiscal year ended June 30, 1997, and $63,608 and $25,060 in the
fiscal year ended June 30, 1996. Columbia, Inc. ("Columbia"), a subsidiary of
Colt, provides storage and related services to American for which it was paid
$504,964, $798,842 and $947,842 in the fiscal years ended March 31, 1998, June
30, 1997 and June 30, 1996, respectively. Columbia reimbursed American for
certain wages and benefit costs incurred by American on behalf of Columbia in
the amounts of $41,912, $35,943 and $60,911 in the fiscal years ended March 31,
1998, June 30, 1997 and June 30, 1996, respectively.
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<PAGE> 64
The Company and Mr. Fiverson have entered into a letter agreement which
states that, simultaneously with the consummation of the Offering, American will
enter into an agreement (the "Operating Agreement") with Columbia pursuant to
which Columbia will allow American to use certain facilities and storage tanks
owned by Columbia. American will reimburse Columbia for operating costs of the
facilities, which include utilities, normal and customary repairs, maintenance,
operating costs and ad valorem taxes, and labor costs related to Columbia
employees utilized by American. During the initial one-year term (the "Initial
Term") of the Operating Agreement, American will not be assessed an operating or
rental charge for the use of the facilities or storage tanks. Following the
Initial Term, American can elect to continue using the facilities and storage
tanks, subject to the payment of rental fees. Mr. Fiverson is an executive
officer of Colt and will become a director of the Company upon the consummation
of the Offering. Certain members of Mr. Fiverson's immediate family are
stockholders of Colt.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock, after giving effect to the issuance of
shares of Common Stock in connection with the Acquisitions and after giving
effect to the Offering, by (i) all persons known to the Company to be the
beneficial owner of 5% or more thereof, (ii) each director and nominee for
director, (iii) each executive officer and (iv) all officers and directors as a
group. Unless otherwise indicated, the address of each such person is c/o
Chemical Logistics Corporation, 808 Travis Street, Suite 1135, Houston, Texas
77002. All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
AFTER OFFERING
--------------------
SHARES PERCENT
--------- -------
<S> <C> <C>
Bruce W. Wilkinson.......................................... 201,381 1.7%
James M. Clepper............................................ 965,609 7.9
Francis S. Kalman........................................... 170,068 1.4
Scott R. Creasman........................................... 36,290 *
Lorne D. Bain............................................... 536,711 4.4
Douglas A. Brown............................................ 190,651 1.6
Stephen B. Fiverson (1)..................................... 462,397 3.8
Rodney R. Proto............................................. 19,962 *
G. Stephen Robins........................................... 757,057 6.2
John M. Tilley (2).......................................... 664,758 5.5
William L. Welch............................................ 588,626 4.8
All officers and directors as a group (12 persons).......... 4,643,510 38.1
</TABLE>
- ---------------
* Less than one percent.
(1) These shares are held by Colt Corporation, of which Mr. Fiverson is an
officer, director and stockholder. Mr. Fiverson shares voting and investment
power with respect to those shares.
(2) Of these shares, 533,073 are held by Tilley Family, LLC, of which Mr. Tilley
is a member. Mr. Tilley shares voting and investment power with respect to
those shares.
61
<PAGE> 65
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.01 per share, and 10,000,000 shares of preferred
stock, par value $0.01 per share. After giving effect to the Acquisitions, there
will be 8,994,531 shares of Common Stock outstanding, par value $0.01 per share,
and no shares of preferred stock outstanding. After the closing of the Offering,
12,194,531 shares of Common Stock will be issued and outstanding, assuming no
exercise of the Underwriters' over-allotment option. The following summary of
the terms and provisions of the Company's capital stock does not purport to be
complete and is qualified in its entirety by reference to the Company's Amended
and Restated Certificate of Incorporation and Bylaws, which have been filed as
exhibits to the Company's registration statement, of which this Prospectus is a
part, and applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Such
holders are not entitled to vote cumulatively for the election of directors.
Holders of a majority of the shares of Common Stock entitled to vote in any
election of directors may elect all of directors standing for election.
Subject to the rights of any then outstanding shares of preferred stock,
holders of Common Stock are entitled to participate pro rata in such dividends
as may be declared in the discretion of the Board of Directors out of funds
legally available therefor. Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
preferred stock then outstanding. Holders of Common Stock have no preemptive
rights to purchase shares of stock of the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued pursuant to the Offering and the
Acquisitions will be, upon payment therefor, fully paid and non-assessable.
The Company intends to make application to list the Common Stock on the
NYSE under the symbol "CLS."
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 Company's Amended and Restated Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including 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 stockholders. The Company has no current plans to issue
any shares of preferred stock of any class or series.
One of the effects of undesignated preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of preferred stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, preferred stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of preferred stock may discourage
bids for the Common Stock at a premium or may otherwise adversely affect the
market price of the Common Stock.
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<PAGE> 66
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder, (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans) or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66% of the corporation's outstanding
voting stock at an annual or special meeting, excluding shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by including in its certificate of incorporation or bylaws by action
of its stockholders to exempt itself from coverage. The Company has not adopted
such an amendment to its Amended and Restated Certificate of Incorporation or
Bylaws.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Amended and Restated Certificate of Incorporation
and under Delaware law, directors of the Company are not liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of the duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for dividend payments or stock repurchases illegal under
Delaware law or any transaction in which a director has derived an improper
personal benefit. The Company will enter into indemnification agreements with
its directors and executive officers which indemnify such person to the fullest
extent permitted by its Amended and Restated Certificate of Incorporation, its
Bylaws and the Delaware General Corporation Law. The Company also intends to
obtain directors' and officers' liability insurance.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
include provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or an unsolicited acquisition
proposal that a stockholder might consider favorable, including a proposal that
might result in the payment of a premium over the market price for the shares
held by stockholders. These provisions are summarized in the following
paragraphs.
Classified Board of Directors. The Amended and Restated Certificate of
Incorporation provides for the Board of Directors to be divided into three
classes of directors serving staggered three-year terms. The classification of
the Board of Directors has the effect of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of members of the
Board of Directors.
Supermajority Voting. The Amended and Restated Certificate of Incorporation
requires the approval of the holders of at least 75% of the then outstanding
shares of the Company's capital stock entitled to vote thereon and the approval
of the holders of at least 75% of the then outstanding shares of each class of
stock of the Company voting separately as a class on, among other things,
certain amendments to the Amended and Restated Certificate of Incorporation. The
Board of Directors may amend, alter, change or repeal any bylaws without the
assent or vote of the stockholders, but any such bylaws may be altered, amended
or repealed upon
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<PAGE> 67
the affirmative vote of at least 66 2/3% of the stock entitled to vote thereon.
A director of the Corporation may be removed only for cause and only upon the
affirmative vote of the holders of 66 2/3% of the stock entitled to vote
thereon.
Authorized but Unissued or Undesignated Capital Stock. The Company's
authorized capital stock will consist of 50,000,000 shares of Common Stock and
10,000,000 shares of preferred stock . After the Offering, the Company will have
outstanding 12,194,531 shares of Common Stock (assuming the Underwriters' over-
allotment option is not exercised). The authorized but unissued (and in the case
of preferred stock, undesignated) stock may be issued by the Board of Directors
in one or more transactions. In this regard, the Company's Amended and Restated
Certificate of Incorporation grants the Board of Directors broad power to
establish the rights and preferences of authorized and unissued preferred stock.
The issuance of shares of preferred stock pursuant to the Board of Directors'
authority described above could decrease the amount of earnings and assets
available for distribution to holders of Common Stock and adversely affect the
rights and powers, including voting rights, of such holders and may also have
the effect of delaying, deferring or preventing a change in control of the
Company. The Board of Directors does not currently intend to seek stockholder
approval prior to any issuance of preferred stock, unless otherwise required by
law.
Special Meeting of Stockholders. The Bylaws provide that special meetings
of stockholders of the Company may only be called by the Chairman of the Board
of Directors upon the written request of the Board of Directors pursuant to a
resolution approved by a majority of the Board of Directors.
Stockholder Action by Written Consent. The Amended and Restated Certificate
of Incorporation and Bylaws generally provide that any action required or
permitted by the stockholders of the Company must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by any
written consent of the stockholders.
Notice Procedures. The Bylaws establish advance notice procedures with
regard to stockholder proposals relating to the nomination of candidates for
election as director, the removal of directors and amendments to the Amended and
Restated Certificate of Incorporation or Bylaws to be brought before annual
meetings of stockholders of the Company. These procedures provide that notice of
such stockholder proposals must be timely given in writing to the Secretary of
the Company prior to the annual meeting. Generally, to be timely, notice must be
received at the principal executive offices of the Company not less than 80 days
prior to an annual meeting (or if fewer than 90 days' notice or prior public
disclosure of the date of the annual meeting is given or made by the Company,
not later than the tenth day following the date on which the notice of the date
of the annual meeting was mailed or such public disclosure was made). The notice
must contain certain information specified in the Bylaws, including a brief
description of the business desired to be brought before the annual meeting and
certain information concerning the stockholder submitting the proposal.
Charter Provisions Relating to Rights Plan. The Amended and Restated
Certificate of Incorporation authorizes the Board of Directors of the Company to
create and issue rights (the "Rights") entitling the holders thereof to purchase
from the Company shares of capital stock or other securities. The times at
which, and the terms upon which, the Rights are to be issued may be determined
by the Board of Directors and set forth in the contracts or instruments that
evidence the Rights. The authority of the Board of Directors with respect to the
Rights includes, but is not limited to, the determination of (i) the initial
purchase price per share of the capital stock or other securities of the Company
to be purchased upon exercise of the Rights, (ii) provisions relating to the
times at which and the circumstances under which the Rights may be exercised or
sold or otherwise transferred, either together with or separately from, any
other securities of the Company, (iii) antidilutive provisions which adjust the
number or exercise price of the Rights or amount or nature of the securities or
other property receivable upon exercise of the Rights, (iv) provisions which
deny the holder of a specified percentage of the outstanding securities of the
Company the right to exercise the Rights and/or cause the Rights held by such
holder to become void, (v) provisions which permit the Company to redeem the
Rights and (vi) the appointment of a rights agent with respect to the Rights. If
authorized by the Board of Directors, the Rights would be intended to protect
the Company's stockholders from certain non-negotiated takeover attempts which
present the risk of a change of control on terms which may be less favorable to
the Company's stockholders than would be available in a transaction negotiated
with and approved by the Board
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<PAGE> 68
of Directors. The Board of Directors believes that the interests of the
stockholders generally are best served if any acquisition of the Company or a
substantial percentage of the Company's Common Stock results from arm's-length
negotiations and reflects the Board of Directors' careful consideration of the
proposed terms of a transaction. In particular, the Rights if issued would be
intended to help (i) reduce the risk of coercive two-tiered, front-end loaded or
partial offers which may not offer fair value to all stockholders of the
Company, (ii) deter market accumulators who through open market or private
purchases may achieve a position of substantial influence or control without
paying to stockholders a fair control premium and (iii) deter market
accumulators who are simply interested in putting the Company "in play."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market. All of the
3,200,000 shares sold in the Offering, except for any shares acquired by
affiliates of the Company, will be freely tradeable. Simultaneously with the
closing of the Offering, the stockholders of the Founding Companies will
receive, in the aggregate, 6,543,329 shares of Common Stock as a portion of the
consideration for their businesses. Certain other stockholders of the Company
will hold, in the aggregate, an additional 2,451,202 shares of Common Stock.
None of these 8,994,531 shares was issued in a transaction registered under the
Securities Act, and, accordingly, such shares may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration, including the exemptions contained in Rules 144 and 701 under
the Securities Act.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned his or her shares for at
least one year but not more than two years, or a person who may be deemed an
"affiliate" of the Company who has beneficially owned shares for at least one
year, would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the then outstanding shares of the
Common Stock or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date on which notice of the proposed sale is
sent to the Securities and Exchange Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person who is
not deemed to have been an affiliate of the Company at any time for 90 days
preceding a sale and who has beneficially owned his shares for at least two
years would be entitled to sell such shares under Rule 144 without regard to the
volume limitations, manner of sale provisions, notice requirements or the
availability of current public information about the Company.
In general, under Rule 701 under the Securities Act, any employee, officer,
or director of or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701. Such provisions permit nonaffiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation, or notice provisions of Rule 144 and permit
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the
commencement of the Offering.
The Company has authorized the issuance of up to 15% of the outstanding
shares of its Common Stock immediately before any grant in accordance with the
terms of the Plan. It is anticipated that options to purchase approximately
1,070,000 shares of Common Stock will be granted upon closing of the Offering to
certain officers and directors of CLC and employees of the Founding Companies.
The Company intends to file a registration statement on Form S-8 under the
Securities Act registering the issuance of shares upon exercise of options
granted under the Plan. As a result, such shares will be eligible for resale in
the public market.
The Company currently intends to file a registration statement covering
5,000,000 additional shares of Common Stock under the Securities Act for its use
in connection with future acquisitions. These shares
65
<PAGE> 69
generally will be freely tradeable after their issuance by persons not
affiliated with the Company unless the Company contractually restricts their
resale.
The Company has agreed not to (i) directly or indirectly, offer, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
dispose of or transfer any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock or file any registration
statement under the Securities Act with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock whether any such swap or transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, for a period of 180 days from the date
of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated on behalf of the Underwriters, except (i) in connection with
acquisitions and (ii) for any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to the Company's benefit plans described
herein. In addition, the owners of the Founding Companies, management, the
principals of BCP and certain consultants have agreed with the Company not to
sell, contract to sell or otherwise dispose of any shares of Common Stock
received as consideration in the Acquisitions for a period of two years
following receipt thereof.
Prior to the Offering, there has been no established trading market for the
Common Stock, and no predictions can be made as to the effect that sales of
Common Stock under Rule 144, pursuant to a registration statement, or otherwise,
or the availability of shares of Common Stock for sale, will have on the market
price prevailing from time to time. Sales of substantial amounts of Common Stock
in the public market, or the perception that such sales could occur, could
depress the prevailing market price. Such sales may also make it more difficult
for the Company to issue or sell equity securities or equity-related securities
in the future at a time and price that it deems appropriate. See "Risk
Factors -- Shares Eligible for Future Sale."
Former stockholders of the Founding Companies, certain executive officers
and directors are entitled to certain rights with respect to the registration of
their shares of Common Stock under the Securities Act. In the aggregate, these
groups hold 8,994,531 shares of Common Stock. If the Company proposes to
register any of its securities under the Securities Act, such stockholders are
entitled to notice of such registration and are entitled to include, at the
Company's expense, all or a portion of their shares therein, subject to certain
conditions. These registration rights will not apply to the registration
statement the Company intends to file for use in future acquisitions or with
respect to employee benefit plans.
66
<PAGE> 70
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation
and Sanders Morris Mundy Inc, have severally agreed to purchase from the Company
the following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Sanders Morris Mundy Inc....................................
---------
Total............................................. 3,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share to certain other dealers. After
commencement of the initial public offering, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 480,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to the total number of shares offered by the
Company hereunder, and the Company will be obligated, pursuant to the option, to
sell such shares to the Underwriters. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the Common
Stock offered hereby. If purchased, such additional shares will be offered by
the Underwriters on the same terms as those on which the 3,200,000 shares are
being offered.
To facilitate the offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with the offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the syndicate of Underwriters, also may reclaim
selling concessions allowed to an Underwriter or dealer, if the syndicate
repurchases shares distributed by that Underwriter or dealer.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
67
<PAGE> 71
The Company has agreed not to offer, sell, or otherwise dispose of any
shares of Common Stock or other securities convertible into or exchangeable or
exercisable for shares of Common Stock for a period of 180 days after the date
of this Prospectus, except as consideration for acquisitions of businesses or on
exercise of options granted under the Plan, without the prior written consent of
BT Alex. Brown Incorporated. All directors, officers and current stockholders of
the Company and persons acquiring shares of Common Stock in connection with the
Acquisitions have agreed not to (i) offer, pledge, sell or otherwise dispose of
any shares of Common Stock, (ii) enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
shares of Common Stock owned by such person or (iii) request the registration
for the offer or sale of Common Stock for a period of 180 days without the prior
written consent of BT Alex. Brown Incorporated.
The Representatives of the Underwriters have advised the Company that they
do not intend to confirm sales to any account over which they exercise
discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price will be
determined by negotiations between the Company and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Founding
Companies in recent periods, the market capitalizations and stages of
development of other companies that the Company and the Representatives believe
to be comparable to the Company, estimates of the business potential of the
Company, the present state of the Company's development and other factors deemed
relevant by the Company and the Representatives.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston,
Texas and for the Underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
The financial statements of CLC and the Founding Companies included in this
Prospectus 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.
68
<PAGE> 72
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is included as part of the Registration Statement, does not
contain all the information contained in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto. Statements made in the Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected, without charge, at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and 7 World Trade Center, Suite 1300, New York, NY 10048 or
on the Internet at http:www.sec.gov. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Upon effectiveness of the Registration Statement, the Company will become
subject to the informational and periodic reporting requirements of the Exchange
Act, and in accordance therewith, will file periodic reports, proxy statements,
and other information with the Commission. Such periodic reports, proxy
statements, and other information will be available for inspection and copying
at the public reference facilities and other regional offices referred to above.
The Company intends to register the securities offered by the Registration
Statement under the Exchange Act simultaneously with the effectiveness of the
Registration Statement and to furnish its stockholders with annual reports
containing audited financial statements and such other reports as may be
required from time to time by law or the New York Stock Exchange.
69
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CHEMICAL LOGISTICS CORPORATION AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial
Statements............................................. F-3
Unaudited Pro Forma Combined Balance Sheet................ F-4
Unaudited Pro Forma Combined Statements of Operations..... F-5
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-7
G. S. ROBINS & COMPANY AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-12
Consolidated Balance Sheets............................... F-13
Consolidated Statements of Income......................... F-14
Consolidated Statements of Stockholders' Equity........... F-15
Consolidated Statements of Cash Flows..................... F-16
Notes to Consolidated Financial Statements................ F-17
INDUSTRIAL CHEMICALS, INC.
Report of Independent Public Accountants.................. F-26
Balance Sheets............................................ F-27
Statements of Income...................................... F-28
Statements of Stockholders' Equity........................ F-29
Statements of Cash Flows.................................. F-30
Notes to Financial Statements............................. F-31
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED
COMPANIES dba SOUTHWEST SOLVENTS AND CHEMICALS
Report of Independent Public Accountants.................. F-37
Combined Balance Sheets................................... F-38
Combined Statements of Income............................. F-39
Combined Statements of Stockholder's Equity............... F-40
Combined Statements of Cash Flows......................... F-41
Notes to Combined Financial Statements.................... F-42
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
Report of Independent Public Accountants.................. F-48
Combined Balance Sheets................................... F-49
Combined Statements of Income............................. F-50
Combined Statements of Stockholder's Equity............... F-51
Combined Statements of Cash Flows......................... F-52
Notes to Combined Financial Statements.................... F-53
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
Report of Independent Public Accountants.................. F-60
Combined Balance Sheets................................... F-61
Combined Statements of Income............................. F-62
Combined Statements of Stockholders' Equity............... F-63
Combined Statements of Cash Flows......................... F-64
Notes to Combined Financial Statements.................... F-65
</TABLE>
F-1
<PAGE> 74
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
Report of Independent Public Accountants.................. F-73
Combined Balance Sheets................................... F-74
Combined Statements of Income............................. F-75
Combined Statements of Stockholder's Equity............... F-76
Combined Statements of Cash Flows......................... F-77
Notes to Combined Financial Statements.................... F-78
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
Report of Independent Public Accountants.................. F-84
Consolidated Balance Sheets............................... F-85
Consolidated Statements of Income......................... F-86
Consolidated Statements of Stockholders' Equity........... F-87
Consolidated Statements of Cash Flows..................... F-88
Notes to Consolidated Financial Statements................ F-89
TARR, INC. AND RELATED ENTITIES
Report of Independent Public Accountants.................. F-97
Combined Balance Sheets................................... F-98
Combined Statements of Income............................. F-99
Combined Statements of Stockholders' Equity............... F-100
Combined Statements of Cash Flows......................... F-101
Notes to Combined Financial Statements.................... F-102
A.C.C. INC. T/A AMERICAN CHEMICALS CO., INC.
Report of Independent Public Accountants.................. F-110
Balance Sheet............................................. F-111
Statement of Income....................................... F-112
Statement of Stockholders' Equity......................... F-113
Statement of Cash Flows................................... F-114
Notes to Financial Statements............................. F-115
CHEMICAL LOGISTICS CORPORATION
Report of Independent Public Accountants.................. F-121
Balance Sheets............................................ F-122
Statements of Income...................................... F-123
Statements of Stockholders' Equity........................ F-124
Statements of Cash Flows.................................. F-125
Notes to Financial Statements............................. F-126
</TABLE>
F-2
<PAGE> 75
CHEMICAL LOGISTICS CORPORATION AND FOUNDING 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 CLC of the outstanding capital stock and other equity
interests of Robins, Industrial, Southwest Solvents, Chemical Solvents, Tilley,
Cron, Brown, Tarr and American (together, the Founding Companies) and related
transactions and (ii) CLC's initial public offering (the Offering). These
acquisitions (the Acquisitions) will occur simultaneously with the closing of
the Offering and will be accounted for using the purchase method of accounting.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and related transactions, and the Offering, as if they had occurred
on March 31, 1998. The unaudited pro forma combined statements of operations
give effect to these transactions as if they had occurred on January 1, 1997.
CLC has preliminarily analyzed the savings that it expects to be realized
from reductions in salaries, bonuses and certain benefits to the owners of the
Founding Companies. To the extent such owners have contractually agreed to
prospective changes in salaries, bonuses and benefits, these changes have been
reflected in the unaudited pro forma combined statement of operations. With
respect to other potential cost savings, CLC has not and cannot quantify these
savings until completion of the Acquisitions. It is anticipated that these
savings will be offset by costs related to CLC'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 statements of CLC.
The pro forma adjustments are based on estimates, available information and
certain assumptions that Company management deems appropriate and may be revised
as additional information becomes available. The pro forma financial statements
do not purport to represent what CLC's combined financial position or results of
operations would actually have been if such transactions had occurred on those
dates and are not necessarily representative of CLC's combined financial
position or results of operations for any future period. Since the Founding
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 historical financial statements and notes thereto included elsewhere in
this Prospectus. See "Risk Factors" included elsewhere herein.
F-3
<PAGE> 76
CHEMICAL LOGISTICS CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SOUTHWEST CHEMICAL
ROBINS INDUSTRIAL SOLVENTS SOLVENTS TILLEY CRON BROWN TARR
------- ---------- --------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 2,053 $ 14 $ 217 $ 41 $ 46 $ 840 $ 1,546 $ 51
Accounts receivable........................ 6,122 6,400 5,864 5,642 5,110 6,216 4,397 2,780
Due from affiliate......................... -- 106 -- -- -- -- -- --
Inventories................................ 5,456 3,142 4,217 1,276 3,786 3,049 2,001 1,833
Deferred income taxes...................... -- -- -- -- 181 56 578 25
Other current assets....................... 719 211 170 188 323 45 98 227
------- ------- ------- ------- ------- ------- ------- ------
Total current assets................ 14,350 9,873 10,468 7,147 9,446 10,206 8,620 4,916
Investments................................ -- -- -- -- -- -- 166 --
Property, plant and equipment, net......... 3,175 2,477 5,511 6,362 2,490 2,848 1,885 2,779
Due from stockholders...................... -- -- 55 117 -- -- -- --
Goodwill, net.............................. -- -- -- -- -- 52 -- 685
Other assets, net.......................... 569 233 5 440 322 -- 3,729 228
------- ------- ------- ------- ------- ------- ------- ------
Total assets........................ $18,094 $12,583 $16,039 $14,066 $12,258 $13,106 $14,400 $8,608
======= ======= ======= ======= ======= ======= ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses...... $ 4,683 $ 5,344 $ 6,304 $ 4,064 $ 4,012 $ 5,701 $ 4,866 $2,618
Current maturities of long-term debt....... 177 3,742 389 375 102 -- 964 378
Lines of credit............................ -- -- 635 -- 1,202 -- -- 2,228
Due to affiliate........................... -- -- 831 -- -- 1,773 -- --
Income taxes payable....................... 200 -- -- -- 176 -- 255 --
Deferred income taxes...................... -- -- 84 -- -- -- -- --
Container deposits refundable to
customers................................. 754 155 417 27 199 220 137 346
Payable to Founding Companies'
stockholders.............................. -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------
Total current liabilities........... 5,814 9,241 8,660 4,466 5,691 7,694 6,222 5,570
Container deposits refundable to
customers................................. 489 1,462 -- -- -- -- -- --
Long-term debt, net of current
maturities................................ 1,076 814 1,755 4,495 508 -- 2,166 1,026
Due to affiliate........................... -- -- -- -- -- 650 -- 89
Deferred income taxes...................... -- -- -- -- 231 421 143 153
Other noncurrent liabilities............... 324 -- 105 530 -- -- 1,254 218
Minority interest.......................... -- -- -- -- -- -- 165 --
Commitments and contingencies
Stockholders' Equity
Common stock.............................. 204 4 22 1 321 39 5 1,126
Additional paid-in capital................ 385 27 146 587 3 3,980 1,500 --
Unrealized gain on investments............ -- -- -- -- -- -- 78 --
Retained earnings......................... 11,480 1,035 5,351 3,987 5,504 322 2,867 426
Treasury stock, at cost................... (1,678) -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------
Total stockholders' equity.......... 10,391 1,066 5,519 4,575 5,828 4,341 4,450 1,552
------- ------- ------- ------- ------- ------- ------- ------
Total liabilities and stockholders'
equity............................. $18,094 $12,583 $16,039 $14,066 $12,258 $13,106 $14,400 $8,608
======= ======= ======= ======= ======= ======= ======= ======
<CAPTION>
PRO FORMA PRO FORMA POSTACQUISITION AS
AMERICAN CLC ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
-------- ------- ----------- --------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 77 $ 1 $ (224) $ 4,662 $ (2,588) $ 2,074
Accounts receivable........................ 2,247 -- -- 44,778 -- 44,778
Due from affiliate......................... -- -- -- 106 -- 106
Inventories................................ 1,102 -- -- 25,862 -- 25,862
Deferred income taxes...................... 13 -- (140) 713 -- 713
Other current assets....................... 217 -- -- 2,198 133 2,331
------ ------- -------- -------- -------- --------
Total current assets................ 3,656 1 (364) 78,319 (2,455) 75,864
Investments................................ -- -- -- 166 -- 166
Property, plant and equipment, net......... 39 -- 4,904 32,470 -- 32,470
Due from stockholders...................... -- -- -- 172 -- 172
Goodwill, net.............................. -- -- 75,870 76,607 -- 76,607
Other assets, net.......................... -- 35 198 5,759 231 5,990
------ ------- -------- -------- -------- --------
Total assets........................ $3,695 $ 36 $ 80,608 $193,493 $ (2,224) $191,269
====== ======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses...... $1,510 $ 71 $ 2,450 $ 41,623 $ (1,536) $ 40,087
Current maturities of long-term debt....... -- -- 8,694 14,821 (6,127) 8,694
Lines of credit............................ -- -- -- 4,065 (4,065) --
Due to affiliate........................... 286 -- -- 2,890 (2,890) --
Income taxes payable....................... 192 -- -- 823 -- 823
Deferred income taxes...................... -- -- 855 939 -- 939
Container deposits refundable to
customers................................. 22 -- -- 2,277 -- 2,277
Payable to Founding Companies'
stockholders.............................. -- -- 31,126 31,126 (31,126) --
------ ------- -------- -------- -------- --------
Total current liabilities........... 2,010 71 43,125 98,564 (45,744) 52,820
Container deposits refundable to
customers................................. -- -- -- 1,951 -- 1,951
Long-term debt, net of current
maturities................................ -- -- 3,000 14,840 3,919 18,759
Due to affiliate........................... -- -- -- 739 (739) --
Deferred income taxes...................... 31 -- 1,666 2,645 -- 2,645
Other noncurrent liabilities............... -- -- (1,254) 1,177 -- 1,177
Minority interest.......................... -- -- (165) -- -- --
Commitments and contingencies
Stockholders' Equity
Common stock.............................. 1,326 1 (2,960) 89 32 121
Additional paid-in capital................ -- 5,233 66,896 78,757 40,308 119,065
Unrealized gain on investments............ -- -- (78) -- -- --
Retained earnings......................... 328 (5,269) (31,300) (5,269) -- (5,269)
Treasury stock, at cost................... -- -- 1,678 -- -- --
------ ------- -------- -------- -------- --------
Total stockholders' equity.......... 1,654 (35) 34,236 73,577 40,340 113,917
------ ------- -------- -------- -------- --------
Total liabilities and stockholders'
equity............................. $3,695 $ 36 $ 80,608 $193,493 $ (2,224) $191,269
====== ======= ======== ======== ======== ========
</TABLE>
F-4
<PAGE> 77
CHEMICAL LOGISTICS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SOUTHWEST CHEMICAL
ROBINS INDUSTRIAL SOLVENTS SOLVENTS TILLEY CRON BROWN TARR AMERICAN
---------- ---------- --------- -------- ------ ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES, net......................... $14,323 $13,314 $11,170 $9,896 $9,816 $11,094 $9,160 $6,183 $4,547
------- ------- ------- ------ ------ ------- ------ ------ ------
COSTS AND EXPENSES:
Cost of sales.................... 11,758 10,399 9,060 6,965 8,107 9,458 7,492 4,632 3,722
Operating and delivery........... 952 916 632 1,291 302 373 388 648 251
Selling, general and
administrative................. 1,384 1,560 948 919 836 812 821 697 398
Goodwill amortization............ -- -- -- -- -- -- -- -- --
Depreciation..................... 184 203 199 238 117 102 73 118 6
------- ------- ------- ------ ------ ------- ------ ------ ------
Total costs and expenses... 14,278 13,078 10,839 9,413 9,362 10,745 8,774 6,095 4,377
------- ------- ------- ------ ------ ------- ------ ------ ------
INCOME (LOSS) FROM OPERATIONS...... 45 236 331 483 454 349 386 88 170
OTHER INCOME (EXPENSE):
Interest expense................. (20) (98) (86) (106) (34) (12) (83) (95) --
Interest income.................. 56 14 2 2 3 1 -- 116 --
Other, net....................... (34) 54 36 (2) (1) 11 2 (15) --
------- ------- ------- ------ ------ ------- ------ ------ ------
INCOME (LOSS) BEFORE INCOME
TAXES............................ 47 206 283 377 422 349 305 94 170
INCOME TAX EXPENSE................. -- -- 13 -- 140 4 138 10 67
------- ------- ------- ------ ------ ------- ------ ------ ------
------- ------- ------- ------ ------ ------- ------ ------ ------
NET INCOME (LOSS).................. $ 47 $ 206 $ 270 $ 377 $ 282 $ 345 $ 167 $ 84 $ 103
======= ======= ======= ====== ====== ======= ====== ====== ======
NET INCOME PER SHARE...............
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)..........
<CAPTION>
PRO FORMA PRO FORMA
CLC ADJUSTMENTS COMBINED
------- ----------- -----------
<S> <C> <C> <C>
SALES, net......................... $ -- $ -- $ 89,503
------- ------- -----------
COSTS AND EXPENSES:
Cost of sales.................... -- (89) 71,504
Operating and delivery........... -- -- 5,753
Selling, general and
administrative................. 5,252 (5,613) 8,014
Goodwill amortization............ -- 479 479
Depreciation..................... -- 9 1,249
------- ------- -----------
Total costs and expenses... 5,252 (5,214) 86,999
------- ------- -----------
INCOME (LOSS) FROM OPERATIONS...... (5,252) 5,214 2,504
OTHER INCOME (EXPENSE):
Interest expense................. -- 20 (514)
Interest income.................. -- -- 194
Other, net....................... -- -- 51
------- ------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES............................ (5,252) 5,234 2,235
INCOME TAX EXPENSE................. -- 675 1,047
------- ------- -----------
------- ------- -----------
NET INCOME (LOSS).................. $(5,252) $ 4,559 $ 1,188
======= ======= ===========
NET INCOME PER SHARE............... $ 0.10
===========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1).......... 12,194,531
===========
</TABLE>
- ---------------
(1) Includes (i) 6,543,329 shares issued to owners of the Founding Companies,
(ii) 3,200,000 shares to be sold in the Offering and (iii) 656,697 shares
issued to the management of and directors of CLC, (iv) 1,570,441 shares
issued to the principals of Bellmeade Capital Partners, L.L.C., and (v)
224,064 shares issued to or held by employees and consultants to BCP. Basic
and diluted income per share are the same for the three months ended March
31, 1998.
F-5
<PAGE> 78
CHEMICAL LOGISTICS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SOUTHWEST CHEMICAL
ROBINS INDUSTRIAL SOLVENTS SOLVENTS TILLEY CRON BROWN TARR AMERICAN
------- ---------- --------- -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES, net......................... $61,445 $51,599 $47,219 $41,164 $40,715 $38,755 $34,311 $31,662 $19,040
------- ------- ------- ------- ------- ------- ------- ------- -------
COSTS AND EXPENSES:
Cost of sales.................... 49,176 39,547 38,791 30,333 34,022 32,557 28,361 24,956 15,630
Operating and delivery........... 4,126 3,738 2,433 4,352 1,050 1,680 1,514 2,910 1,058
Selling, general and
administrative................. 5,322 6,366 4,340 3,819 3,381 3,268 3,097 2,798 1,743
Goodwill amortization............ -- -- -- -- -- -- -- -- --
Depreciation..................... 564 828 772 871 444 404 278 420 22
------- ------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses... 59,188 50,479 46,336 39,375 38,897 37,909 33,250 31,084 18,453
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS...... 2,257 1,120 883 1,789 1,818 846 1,061 578 587
OTHER INCOME (EXPENSE):
Interest expense................. (117) (317) (364) (417) (181) (62) (340) (339) --
Interest income.................. 155 34 16 36 12 3 -- 137 1
Other, net....................... 21 247 27 142 5 27 (17) (9) --
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME
TAXES............................ 2,316 1,084 562 1,550 1,654 814 704 367 588
INCOME TAX EXPENSE................. (333) -- 27 -- 568 315 343 33 189
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INCOME (LOSS).................. $ 2,649 $ 1,084 $ 535 $ 1,550 $ 1,086 $ 499 $ 361 $ 334 $ 399
======= ======= ======= ======= ======= ======= ======= ======= =======
NET INCOME PER SHARE...............
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)..........
<CAPTION>
PRO FORMA PRO FORMA
CLC ADJUSTMENTS COMBINED
---- ----------- -----------
<S> <C> <C> <C>
SALES, net......................... $-- $ -- $ 365,910
---- ------- -----------
COSTS AND EXPENSES:
Cost of sales.................... -- (356) 293,017
Operating and delivery........... -- -- 22,861
Selling, general and
administrative................. 17 (4,059) 30,092
Goodwill amortization............ -- 1,917 1,917
Depreciation..................... -- 36 4,639
---- ------- -----------
Total costs and expenses... 17 (2,462) 352,526
---- ------- -----------
INCOME (LOSS) FROM OPERATIONS...... (17) 2,462 13,384
OTHER INCOME (EXPENSE):
Interest expense................. -- 78 (2,059)
Interest income.................. -- -- 394
Other, net....................... -- -- 443
---- ------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES............................ (17) 2,540 12,162
INCOME TAX EXPENSE................. -- 4,556 5,698
---- ------- -----------
---- ------- -----------
NET INCOME (LOSS).................. $(17) $(2,016) $ 6,464
==== ======= ===========
NET INCOME PER SHARE............... $ 0.53
===========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1).......... 12,194,531
===========
</TABLE>
- ---------------
(1) Includes (i) 6,543,329 shares issued to owners of the Founding Companies,
(ii) 3,200,000 shares to be sold in the Offering, (iii) 656,697 shares
issued the management of and directors of CLC, (iv) 1,570,441 shares issued
to the principals of Bellmeade Capital Partners, L.L.C., and (v) 224,064
shares issued to or held by employees and consultants to BCP. Basic and
diluted income per share are the same for the year ended December 31, 1997.
F-6
<PAGE> 79
CHEMICAL LOGISTICS CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
CLC was founded to create a premier national chemical distribution company.
CLC has conducted no operations to date and will acquire the Founding Companies
concurrently with and as a condition to the closing of the Offering.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements. The periods included in
these financial statements for the individual Founding Companies are as of and
for the three months ended March 31, 1998, except for Industrial for which the
period is for the three months ended February 28, 1998, and for the year ended
December 31, 1997, except for Industrial, Tilley, American and Cron, for which
the period is as of and for the fiscal years ended February 28, 1998, October
31, 1997, March 31, 1998, and September 30, 1997, respectively. The audited
historical financial statements included elsewhere herein have been included in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrently with and as a condition to the closing of the Offering, CLC
will acquire all of the outstanding capital stock and other equity interests of
the Founding Companies. The acquisitions will be accounted for using the
purchase method of accounting with CLC being reflected as the accounting
acquiror.
The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of Common Stock to the equity holders of each of the Founding
Companies, other than the accounting acquiror (CLC). For purposes of computing
the estimated purchase price for accounting purposes, the value of the shares is
determined using an estimated fair value of $11.25 per share (or $73.6 million).
The total estimated purchase price of $113.5 million for the acquisitions is
based upon preliminary estimates and is subject to certain purchase price
adjustments at and following closing. The table does not reflect the
distributions totaling $8.7 million constituting an estimate of substantially
all of the Founding Companies' undistributed earnings previously taxed to their
stockholders (S Corporation Distributions).
<TABLE>
<CAPTION>
SHARES OF
COMMON
CASH STOCK
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Robins...................................................... $ 7,189 1,118,227
Industrial.................................................. 6,962 1,176,233
Southwest Solvents.......................................... 1,718 786,613
Chemical Solvents........................................... -- 602,624
Tilley...................................................... 5,145 806,898
Cron........................................................ 2,308 359,006
Brown....................................................... 4,606 716,613
Tarr........................................................ 2,427 514,718
American.................................................... 771 462,397
------- ----------
Total............................................. $31,126 6,543,329
======= ==========
</TABLE>
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the S Corporation Distributions of $8.7 million, which are expected
to be funded using new borrowings.
F-7
<PAGE> 80
CHEMICAL LOGISTICS CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Records the acquisition by one of the Founding Companies of certain
property and equipment prior to the Offering, and records planned
additional borrowings of $3.0 million related to one of the Founding
Companies to fund a dividend.
(c) Records the purchase of the Founding Companies for a total purchase price
of $113.5 million. The entry includes the liability of $31.1 million for
the cash portion of the consideration paid to the stockholders of the
Founding Companies in connection with the Acquisitions and the issuance of
6,543,329 shares of Common Stock to the Founding Companies resulting in the
creation of $76.6 million of goodwill after allocating $3.7 million of the
purchase price to property, plant and equipment and an operating agreement
with American. Based on its initial assessment, management believes that
the historical carrying value of the remaining Founding Companies' assets
and liabilities will approximate fair value and that there are no other
identifiable intangible assets to which any material purchase price can be
allocated. The adjustment excludes $1.0 million in consideration to be paid
to one of the Founding Companies, contingent on certain conditions being
met.
(d) Records the net deferred income tax liability attributable to the balance
sheet adjustments and temporary differences between the financial reporting
and tax bases of assets and liabilities held in the S Corporations.
(e) Records the cash proceeds from the issuance of 3,200,000 shares of Common
Stock, net of estimated offering costs of $7.7 million (based on an assumed
initial public offering price of $15.00 per share). 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 the Founding Companies in connection with the Acquisitions
and the planned additional borrowings for working capital purposes and
related deferred financing costs, net of the planned repayment of existing
debt in connection with the Offering.
F-8
<PAGE> 81
CHEMICAL LOGISTICS CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize the unaudited pro forma combined balance
sheet adjustments (in thousands):
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................. $ (42) $ -- $ (182) $ -- $ (224)
Deferred income taxes..................... -- -- 98 (238) (140)
------- ------- -------- ------- --------
Total current assets............ (42) -- (84) (238) (364)
Property, plant and equipment, net........ -- 1,275 3,629 -- 4,904
Other assets, net......................... -- -- -- -- --
Goodwill, net............................. -- -- 75,870 -- 75,870
Other assets, net......................... -- -- 198 -- 198
------- ------- -------- ------- --------
Total assets.................... $ (42) $ 1,275 $ 79,613 $ (238) $ 80,608
======= ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses..... $ -- $ -- $ 2,450 $ -- $ 2,450
Current maturities of long-term debt...... 8,694 -- -- -- 8,694
Deferred income taxes..................... -- -- -- 855 855
Payable to Founding Companies'
stockholders............................ -- -- 31,126 -- 31,126
------- ------- -------- ------- --------
Total current liabilities....... 8,694 -- 33,576 855 43,125
Long-term debt, net of current
maturities.............................. -- 3,000 -- -- 3,000
Deferred income taxes..................... -- -- 1,398 268 1,666
Other noncurrent liabilities.............. -- -- (1,254) -- (1,254)
Minority interest......................... -- -- (165) -- (165)
------- ------- -------- ------- --------
Total liabilities............... 8,694 3,000 33,555 1,123 46,372
Stockholders' equity --
Common stock............................ -- -- (2,960) -- (2,960)
Additional paid-in capital.............. -- (1,725) 68,621 -- 66,896
Unrealized gain on investments.......... -- -- (78) -- (78)
Retained earnings....................... (8,736) -- (21,203) (1,361) (31,300)
Treasury stock, at cost................. -- -- 1,678 -- 1,678
------- ------- -------- ------- --------
Total stockholders' equity...... (8,736) (1,725) 46,058 (1,361) 34,236
------- ------- -------- ------- --------
Total liabilities and
stockholders' equity.......... $ (42) $ 1,275 $ 79,613 $ (238) $ 80,608
======= ======= ======== ======= ========
</TABLE>
F-9
<PAGE> 82
CHEMICAL LOGISTICS CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ASSETS
<TABLE>
<CAPTION>
POSTACQUISITION
(E) (F) ADJUSTMENTS
------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $40,340 $(42,928) $ (2,588)
Other current assets....................................... -- 133 133
------- -------- --------
Total current assets............................. 40,340 (42,795) (2,455)
Other assets, net.......................................... (35) 266 231
------- -------- --------
Total assets..................................... $40,305 $(42,529) $ (2,224)
======= ======== ========
LIABILITIES
Accounts payable and accrued expenses...................... $ (35) $ (1,501) $ (1,536)
Current maturities of long-term debt....................... -- (6,127) (6,127)
Lines of credit............................................ -- (4,065) (4,065)
Due to affiliate........................................... -- (2,890) (2,890)
Payable to Founding Companies' stockholders................ -- (31,126) (31,126)
------- -------- --------
Total current liabilities........................ (35) (45,709) (45,744)
Long-term debt, net of current maturities.................. -- 3,919 3,919
Due to affiliate........................................... -- (739) (739)
------- -------- --------
Total liabilities................................ (35) (42,529) (42,564)
------- -------- --------
Stockholders' equity --
Common stock............................................. 32 -- 32
Additional paid-in capital............................... 40,308 -- 40,308
------- -------- --------
Total stockholders' equity....................... 40,340 -- 40,340
------- -------- --------
Total liabilities and stockholders' equity....... $40,305 $(42,529) $ (2,224)
======= ======== ========
</TABLE>
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
Year Ended December 31, 1997
(a) Reflects the net reduction in operations for the acquisition of certain
property and equipment which were not acquired in the Acquisitions and the
reduction in cost of sales on a FIFO basis for certain Founding Companies
which have historically accounted for inventory on a LIFO basis.
(b) Reflects the $3.4 million reduction in salaries, bonuses and benefits to
the owners of the Founding Companies to which they agreed in connection
with the Acquisitions offset by a charge for the recurring portion of
salary expenses of management.
(c) Reflects the amortization of goodwill to be recorded as a result of the
Acquisitions over a 40-year estimated life.
(d) Reflects elimination of interest expense of $0.1 million due to the planned
repayment of existing debt in connection with the Acquisitions.
(e) Reflects the incremental provision for federal and state income taxes
relating to the statement of operations adjustments and to reflect income
taxes on S Corporation income as if these entities had been taxable as C
Corporations during the periods presented.
F-10
<PAGE> 83
CHEMICAL LOGISTICS CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the unaudited pro forma combined statement
of operations adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
----- ------- ------- ---- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
COST OF SALES............................ $(356) $ -- $ -- $ -- $ -- $ (356)
SELLING, GENERAL AND ADMINISTRATIVE...... (663) (3,396) -- -- -- (4,059)
GOODWILL AMORTIZATION.................... -- -- 1,917 -- -- 1,917
DEPRECIATION............................. 36 -- -- -- -- 36
----- ------- ------- ---- ------- -------
Total costs and expenses....... (983) (3,396) 1,917 -- -- (2,462)
----- ------- ------- ---- ------- -------
INCOME FROM OPERATIONS................... 983 3,396 (1,917) -- -- 2,462
----- ------- ------- ---- ------- -------
INTEREST EXPENSE......................... -- -- -- 78 -- 78
----- ------- ------- ---- ------- -------
INCOME BEFORE INCOME TAXES............... 983 3,396 (1,917) 78 -- 2,540
PROVISION FOR INCOME TAXES............... -- -- -- -- 4,556 4,556
----- ------- ------- ---- ------- -------
NET INCOME............................... $ 983 $ 3,396 $(1,917) $ 78 $(4,556) $(2,016)
===== ======= ======= ==== ======= =======
</TABLE>
Three Months Ended March 31, 1998
(a) Reflects the net reduction in operations for the acquisition of certain
property and equipment which were not acquired in the Acquisitions and the
reduction in cost of sales on a FIFO basis for certain Founding Companies
which have historically accounted for inventory on a LIFO basis.
(b) Reflects the $0.4 million reduction in salaries, bonuses and benefits to
the owners of the Founding Companies to which they agreed in connection
with the Acquisitions and the reversal of the $5.3 million noncash
compensation charge related to the issuance of 465,121 shares of Common
Stock to management and directors of and consultants to the Company offset
by a charge for the recurring portion of salary expenses of management.
(c) Reflects the amortization of goodwill to be recorded as a result of the
Acquisitions over a 40-year estimated life.
(d) Reflects elimination of interest expense of $20,000 due to the planned
repayment of existing debt in connection with the Acquisitions.
(e) Reflects the incremental provision for federal and state income taxes
relating to the statement of operations adjustments and to reflect income
taxes on S Corporation income as if these entities had been taxable as C
Corporations during the periods presented.
The following table summarizes the unaudited pro forma combined statement
of operations adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
----- ------- ----- ---- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
COST OF SALES.......................... $ (89) $ -- $ -- $ -- $ -- $ (89)
SELLING, GENERAL AND ADMINISTRATIVE.... (166) (5,447) -- -- -- (5,613)
GOODWILL AMORTIZATION.................. -- -- 479 -- -- 479
DEPRECIATION........................... 9 -- -- -- -- 9
----- ------- ----- ---- ----- -------
Total costs and expenses..... (246) (5,447) 479 -- -- (5,214)
----- ------- ----- ---- ----- -------
INCOME FROM OPERATIONS................. 246 5,447 (479) -- -- 5,214
----- ------- ----- ---- ----- -------
INTEREST EXPENSE....................... -- -- -- 20 -- 20
----- ------- ----- ---- ----- -------
INCOME BEFORE INCOME TAXES............. 246 5,447 (479) 20 -- 5,234
PROVISION FOR INCOME TAXES............. -- -- -- -- 675 675
----- ------- ----- ---- ----- -------
NET INCOME............................. $ 246 $ 5,447 $(479) $ 20 $(675) $ 4,559
===== ======= ===== ==== ===== =======
</TABLE>
F-11
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To G. S. Robins & Company:
We have audited the accompanying consolidated balance sheets of G. S.
Robins & Company and Subsidiaries (the Company) 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 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
G. S. Robins & Company and Subsidiaries as of December 31, 1996 and 1997, and
the consolidated 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.
Houston, Texas
May 1, 1998
F-12
<PAGE> 85
G. S. ROBINS & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $439,722.... $ 1,260,742 $ 1,763,496
Certificates of deposit............................. -- 879,798 289,578
Accounts receivable, less allowance for doubtful
accounts of $67,617, $67,862 and $78,362,
respectively..................................... 6,043,214 6,359,352 6,121,655
Inventories......................................... 5,930,778 5,458,859 5,455,833
Container deposits paid to suppliers................ 624,650 580,957 572,393
Other current assets................................ 333,592 229,561 146,612
----------- ----------- -----------
Total current assets........................ 13,371,956 14,769,269 14,349,567
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost................ 7,391,877 8,018,295 8,206,281
Less -- Accumulated depreciation.................... (4,283,806) (4,847,386) (5,031,662)
----------- ----------- -----------
3,108,071.. 3,170,909 3,174,619
----------- ----------- -----------
OTHER ASSETS, net..................................... 624,448 562,732 569,301
----------- ----------- -----------
Total assets................................ $17,104,475 $18,502,910 $18,093,487
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 3,101,070 $ 3,516,742 $ 4,055,156
Accrued liabilities................................. 556,272 705,846 410,125
Income taxes payable................................ 90,397 185,512 199,581
Container deposits refundable to customer........... 765,129 753,846 753,846
Current maturities of long-term debt................ -- 176,668 176,668
Deferred income taxes............................... 292,486 -- --
Other current liabilities........................... 175,101 150,336 217,343
----------- ----------- -----------
Total current liabilities................... 4,980,455 5,488,950 5,812,719
----------- ----------- -----------
CONTAINER DEPOSITS REFUNDABLE TO CUSTOMERS............ 479,751 469,700 488,880
LONG-TERM DEBT, net of current maturities............. -- 1,076,432 1,076,432
DEFERRED INCOME TAXES................................. 140,520 -- --
OTHER LONG-TERM LIABILITIES........................... 46,088 424,017 323,848
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, voting; $10 par value; 50,000 shares
authorized; 18,660 shares issued; 18,660, 13,308
and 13,308, shares outstanding, respectively..... 186,600 186,600 186,600
Common stock, nonvoting; $10 par value; 1,730 shares
authorized, issued and outstanding,
respectively..................................... 17,300 17,300 17,300
Additional paid-in capital.......................... 385,292 385,292 385,292
Retained earnings................................... 10,868,469 12,132,195 11,479,992
Treasury stock, 5,352 shares, at cost............... -- (1,677,576) (1,677,576)
----------- ----------- -----------
Total stockholders' equity.................. 11,457,661 11,043,811 10,391,608
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................... $17,104,475 $18,502,910 $18,093,487
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 86
G. S. ROBINS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES, net.................. $58,235,831 $59,387,306 $61,445,374 $14,936,339 $14,323,377
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales............. 47,109,851 48,299,937 49,175,809 12,122,448 11,758,196
Operating and delivery.... 3,741,214 3,539,995 4,125,902 1,064,704 952,242
Selling, general and
administrative......... 5,033,113 5,774,155 5,321,661 1,318,321 1,384,035
Depreciation.............. 448,324 489,816 563,714 161,541 184,421
----------- ----------- ----------- ----------- -----------
Total costs and
expenses........ 56,332,502 58,103,903 59,187,086 14,667,014 14,278,894
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS...... 1,903,329 1,283,403 2,258,288 269,325 44,483
OTHER INCOME (EXPENSE):
Interest expense.......... (2,776) (17,588) (117,076) (23,114) (20,385)
Interest income........... 129,877 191,610 155,189 17,646 55,507
Other, net................ 47,621 (62,770) 21,480 (6,369) (33,911)
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST..... 2,078,051 1,394,655 2,317,881 257,488 45,694
INCOME TAXES................ 796,100 624,061 (333,426) (338,006) --
----------- ----------- ----------- ----------- -----------
INCOME BEFORE MINORITY
INTEREST.................. 1,281,951 770,594 2,651,307 595,494 45,694
MINORITY INTEREST........... 3,568 (4,838) -- -- --
----------- ----------- ----------- ----------- -----------
NET INCOME.................. $ 1,278,383 $ 775,432 $ 2,651,307 $ 595,494 $ 45,694
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 87
G. S. ROBINS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
VOTING NONVOTING
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
----------------- ----------------- ----------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ -------- ------ -------- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994....... 9,490 $ 94,900 18,660 $186,600 -- $ -- $204,148 $ 9,653,877
Cash dividends on preferred
stock........................ -- -- -- -- -- -- -- (66,430)
Cash dividends on common
stock........................ -- -- -- -- -- -- -- (348,532)
Net income..................... -- -- -- -- -- -- -- 1,278,383
------ -------- ------ -------- ----- -------- -------- -----------
BALANCE, December 31, 1995....... 9,490 94,900 18,660 186,600 -- -- 204,148 10,517,298
Cash dividends on preferred
stock........................ -- -- -- -- -- -- -- (49,823)
Cash dividends on common
stock........................ -- -- -- -- -- -- -- (374,438)
Redemption of preferred
stock........................ (9,490) (94,900) -- -- -- -- -- --
Issuance of nonvoting common
stock........................ -- -- -- -- 1,730 17,300 76,640 --
Contribution of minority
interest..................... -- -- -- -- -- -- 104,504 --
Net income..................... -- -- -- -- -- -- -- 775,432
------ -------- ------ -------- ----- -------- -------- -----------
BALANCE, December 31, 1996....... -- -- 18,660 186,600 1,730 17,300 385,292 10,868,469
Cash dividends on common
stock........................ -- -- -- -- -- -- -- (329,080)
Distributions to
stockholders................. -- -- -- -- -- -- -- (1,058,501)
Purchase of treasury stock..... -- -- -- -- -- -- -- --
Net income..................... -- -- -- -- -- -- -- 2,651,307
------ -------- ------ -------- ----- -------- -------- -----------
BALANCE, December 31, 1997....... -- -- 18,660 186,600 1,730 17,300 385,292 12,132,195
Distributions to stockholders
(unaudited).................. -- -- -- -- -- -- -- (697,897)
Net income (unaudited)......... -- -- -- -- -- -- -- 45,694
------ -------- ------ -------- ----- -------- -------- -----------
BALANCE, March 31, 1998
(unaudited).................... -- $ -- 18,660 $186,600 1,730 $ 17,300 $385,292 $11,479,992
====== ======== ====== ======== ===== ======== ======== ===========
<CAPTION>
TREASURY STOCK TOTAL
-------------------- STOCKHOLDERS'
SHARES AMOUNT EQUITY
------ ----------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1994....... -- $ -- $10,139,525
Cash dividends on preferred
stock........................ -- -- (66,430)
Cash dividends on common
stock........................ -- -- (348,532)
Net income..................... -- -- 1,278,383
----- ----------- -----------
BALANCE, December 31, 1995....... -- -- 11,002,946
Cash dividends on preferred
stock........................ -- -- (49,823)
Cash dividends on common
stock........................ -- -- (374,438)
Redemption of preferred
stock........................ -- -- (94,900)
Issuance of nonvoting common
stock........................ -- -- 93,940
Contribution of minority
interest..................... -- -- 104,504
Net income..................... -- -- 775,432
----- ----------- -----------
BALANCE, December 31, 1996....... -- -- 11,457,661
Cash dividends on common
stock........................ -- -- (329,080)
Distributions to
stockholders................. -- -- (1,058,501)
Purchase of treasury stock..... 5,352 (1,677,576) (1,677,576)
Net income..................... -- -- 2,651,307
----- ----------- -----------
BALANCE, December 31, 1997....... 5,352 (1,677,576) 11,043,811
Distributions to stockholders
(unaudited).................. -- -- (697,897)
Net income (unaudited)......... -- -- 45,694
----- ----------- -----------
BALANCE, March 31, 1998
(unaudited).................... 5,352 $(1,677,576) $10,391,608
===== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 88
G. S. ROBINS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $1,278,383 $ 775,432 $ 2,651,307 $ 595,494 $ 45,694
---------- ----------- ----------- --------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation.................................... 448,324 489,816 563,714 161,541 184,421
Amortization.................................... 37,522 37,745 109,514 27,544 24,401
Minority interest in subsidiaries............... 3,568 (4,838) -- -- --
Provision for doubtful accounts................. 1,800 36,210 17,820 -- --
Deferred taxes.................................. (79,559) (269,528) (338,006) -- --
Loss (gain) on disposition of property, plant
and equipment................................. -- -- (10,932) -- 4,000
Changes in operating assets and liabilities --
Receivables................................... 727,375 (463,231) (316,383) (275,263) 227,197
Inventories................................... (136,147) (731,075) 471,919 (103,138) 3,026
Prepaid expenses and other assets............. (95,262) 216,067 (165,747) 124,117 76,380
Container deposits............................ (78,550) 5,750 43,693 58,432 8,564
Accounts payable, accrued liabilities and
other...................................... (564,434) 141,664 796,361 (125,226) 198,449
Container deposits refundable to customers.... (119,283) 13,288 21,334 63,222 19,180
---------- ----------- ----------- --------- ----------
Total adjustments.......................... 145,354 (528,132) 1,193,287 (68,771) 745,618
---------- ----------- ----------- --------- ----------
Net cash provided by operating
activities............................... 1,423,737 247,300 3,844,594 526,723 791,312
---------- ----------- ----------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment............... (698,186) (1,020,557) (611,339) (66,529) (188,131)
Proceeds from sale of property and equipment...... -- -- -- -- 7,250
Sales (purchases) of certificates of deposit...... 422,060 250,000 (879,798) (440,915) 590,220
Cash surrender value decrease (increase).......... (149,160) (80,864) 279,620 240,165 --
---------- ----------- ----------- --------- ----------
Net cash provided by (used in) investing
activities............................... (425,286) (851,421) (1,211,517) (267,279) 409,339
---------- ----------- ----------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt...................... -- -- (165,886) -- --
Stockholder distributions......................... -- -- (1,058,501) -- (697,897)
Common stock dividends............................ (348,532) (374,438) (329,080) -- --
Preferred stock dividends......................... (66,430) (49,823) -- -- --
Purchase of treasury stock........................ -- (960) (258,590) -- --
---------- ----------- ----------- --------- ----------
Net cash used in financing activities...... (414,962) (425,221) (1,812,057) -- (697,897)
---------- ----------- ----------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 583,489 (1,029,342) 821,020 259,444 502,754
CASH AND CASH EQUIVALENTS, beginning of period...... 885,575 1,469,064 439,722 439,722 1,260,742
---------- ----------- ----------- --------- ----------
CASH AND CASH EQUIVALENTS, end of period............ $1,469,064 $ 439,722 $ 1,260,742 $ 699,166 $1,763,496
========== =========== =========== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest........................................ $ 15,588 $ 776 $ 7,252 $ 55 $ 22
Taxes........................................... 910,629 799,828 58,475 20,506 64,107
OTHER SUPPLEMENTAL INFORMATION:
Repurchase of common stock through issuance of
note payable.................................... -- -- 1,418,986 1,418,986 --
Issuance of nonvoting common stock in exchange for
preferred stock................................. -- 93,940 -- -- --
Contribution of minority interest to
Company......................................... -- 104,504 -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 89
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
G. S. Robins & Company and Subsidiaries (the Company), Missouri
corporations, are principally engaged in wholesale distribution of a broad line
or organic and inorganic chemicals. The Company markets and sells its products
to customers in Missouri, Illinois and Kansas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying financial statements present G. S. Robins & Company and
its subsidiaries, Ro-Corp, Inc., Robins Solvents Co. and Robins Transportation
Co., Inc. All significant intercompany activity has been eliminated in
consolidation.
Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at March 31, 1998, and the results of operations and cash flows for the
three months ended March 31, 1997 and 1998. Accounting measurements at interim
dates inherently involve greater reliance on estimates than those at year-end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
Cash and Cash Equivalents
Cash and cash equivalents include all liquid debt instruments purchased
with an original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon a
specified percentage of outstanding accounts receivable at period-end and the
specific identification of accounts receivable where collection is no longer
probable.
Inventories
Inventories are stated at lower of cost or market. Cost is determined using
the weighted average method which approximates the first-in, first-out method.
Substantially all of the inventories consist of finished goods.
Property, Plant and Equipment
Property, plant 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. Property and
equipment are reviewed for impairment whenever events or circumstances provide
evidence that suggests that the carrying amounts of the property and equipment
may not be recoverable.
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 consolidated statements of income.
F-17
<PAGE> 90
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Customer Deposits on Drums and Cylinders
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
The Company routinely purchases new and used drums and cylinders for use in
the ordinary course of business. The costs of the drums are capitalized and are
included in inventory.
Other Assets
Other assets include a noncompete agreement with a former stockholder (see
Note 10). Intangible assets are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amount of the
intangible asset may not be recoverable. The Company assesses the recoverability
of the intangible asset by determining whether the carrying amount of the
intangible asset can be recovered through projected undiscounted future cash
flows over the remaining amortization period. Amortization expense amounted to
$37,522, $37,745 and $109,514 in fiscal years 1995, 1996 and 1997, respectively.
Premiums on cash surrender value life insurance are expensed during the
year. Increases in the cash surrender value of life insurance are recorded as a
decrease in life insurance expense. The cash surrender value of life insurance
is recorded at its fair value.
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
The Company has elected S Corporation status effective January 1, 1997, as
defined by the Internal Revenue Service, whereby the Company itself 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. Consequently, the accompanying 1997 financial
statements of the Company do not include a provision for current or deferred
income taxes (see Note 8). For fiscal years 1995 and 1996, the Company followed
the asset and liability method of accounting for income taxes. Under this
method, deferred assets and liabilities are recorded for future tax consequences
of temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using enacted tax rates and laws.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-18
<PAGE> 91
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires the reporting of comprehensive income and its components to be
displayed with the same prominence as other financial statements. This statement
requires a company to classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of financial position. The
Company has adopted this statement, and the differences between traditional
income and comprehensive income were insignificant.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. Management is
presently evaluating what, if any, additional disclosures may be required when
this statement is implemented.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------------------
USEFUL LIVES 1996 1997
------------ ----------- -----------
(IN YEARS)
<S> <C> <C> <C>
Land........................................... -- $ 246,739 $ 246,739
Buildings and improvements..................... 5-39 1,980,215 2,134,236
Furniture and fixtures......................... 3-10 452,848 603,874
Machinery and equipment........................ 3-10 3,205,331 3,495,725
Automobiles and trucks......................... 3-7 1,204,247 1,165,984
Totes.......................................... 5 302,497 371,737
----------- -----------
7,391,877 8,018,295
Less -- Accumulated depreciation............... (4,283,806) (4,847,386)
----------- -----------
Total................................ $ 3,108,071 $ 3,170,909
=========== ===========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. $ 69,000 $ 67,617
Provision for doubtful accounts............................. 36,210 17,820
Amounts written off......................................... (37,593) (17,575)
-------- --------
Balance, end of year........................................ $ 67,617 $ 67,862
======== ========
</TABLE>
F-19
<PAGE> 92
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Cash surrender value life insurance......................... $405,050 $125,430
Investment in Affiliated Chemical Insurance, Ltd............ 110,755 110,755
Noncompete agreement........................................ -- 250,851
Other assets................................................ 108,643 75,696
-------- --------
$624,448 $562,732
======== ========
</TABLE>
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- --------
<S> <C> <C>
Deferred compensation....................................... $33,197 $107,423
Noncompete agreement (see Note 10).......................... -- 221,594
Other....................................................... 12,891 95,000
------- --------
$46,088 $424,017
======= ========
</TABLE>
5. LINE OF CREDIT:
The Company maintains a line of credit of $2,500,000, available at the
prime rate with no specified maturity date. The line is unsecured and, at
December 31, 1996 and 1997, there were no outstanding borrowings under the line.
6. LONG-TERM DEBT:
The Company has a note payable to a former stockholder. The note bears
interest at 6.5 percent and is payable in annual installments of principal and
interest of $258,120 through December 2003. The note also contains covenants
restricting the amounts of distributions to stockholders and requiring
acceleration of scheduled note payments in the event of a change in control of
the Company's stock.
Interest expense for the year ended December 31, 1997, was $88,696.
The scheduled maturities of long-term debt as of December 31, 1997, are as
follows:
<TABLE>
<S> <C>
1998..................................................... $ 176,668
1999..................................................... 188,152
2000..................................................... 200,382
2001..................................................... 213,407
2002..................................................... 227,278
Thereafter............................................... 247,213
----------
$1,253,100
==========
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash and Cash Equivalents, Certificates of Deposit, Accounts Receivable and
Accounts Payable
The carrying amount approximates market value due to the highly liquid
nature of these short-term investments.
F-20
<PAGE> 93
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Debt
The estimated market value of the Company's long-term debt is based on
quoted market prices or, where such prices are not available, on estimated
year-end interest rates of debt with the same remaining average maturities and
credit quality. The carrying amount approximates market value at December 31,
1996 and 1997.
8. INCOME TAXES:
Effective January 1, 1997, the Company elected S Corporation status. The
Company will no longer be directly responsible for any deferred tax liability
which might exist. The removal of the deferred tax liability which existed as of
December 31, 1996, is recognized in the 1997 consolidated statement of income
(see Note 2).
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Current --
Federal.......................................... $738,574 $ 753,697 $ 4,580
State............................................ 137,085 139,892 --
Deferred --
Federal.......................................... (67,104) (227,333) (285,091)
State............................................ (12,455) (42,195) (52,915)
-------- --------- ---------
$796,100 $ 624,061 $(333,426)
======== ========= =========
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the United States federal statutory rate to income before provision for
income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Statutory federal income tax........................ $727,318 $488,129 $ --
State income tax, less federal benefit.............. 81,010 63,503 (52,915)
Reversal of deferred taxes upon S Corporation
election.......................................... -- -- (285,091)
Other............................................... (12,228) 72,429 4,580
-------- -------- ---------
$796,100 $624,061 $(333,426)
======== ======== =========
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized in the recognition of income and
expenses for financial reporting purposes and such
F-21
<PAGE> 94
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts recognized for tax purposes. The tax effects of the temporary
differences that give rise to the significant portions of the deferred tax
assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Deferred income tax assets --
Allowance for bad debt.................................... $ 27,212
Basis difference in inventories........................... 47,848
Accrued liabilities and expenses.......................... 32,991
---------
Total deferred income tax assets.................. 108,051
---------
Deferred income tax liabilities --
Basis difference in property and equipment................ (446,057)
Other, net................................................ (95,000)
---------
Total deferred income tax liabilities............. (541,057)
---------
Net deferred income tax liabilities............... $(433,006)
=========
</TABLE>
9. EMPLOYEE BENEFIT PLANS:
The Company maintains two retirement plans covering substantially all of
its employees.
Under a defined contribution plan covering union employees, the Company is
required to contribute defined amounts estimated to be sufficient to provide for
benefits under this plan. Company contributions to this plan were $41,407,
$46,313 and $55,844 for the years ended December 31, 1995, 1996 and 1997,
respectively.
The Company maintains a retirement savings plan under Section 401(k) of the
Internal Revenue Code, whereby employee contributions are made based upon a
percentage of compensation and employer matching contributions may be made at
the discretion of the Board of Directors. For participants hired before
September 1, 1995, both employee and employer contributions are 100 percent
vested upon contribution. For participants hired on or after September 1, 1995,
benefits are vested over a six-year period for employer contributions. Employer
contributions to this plan were $204,789, $211,702 and $226,455 for the years
ended December 31, 1995, 1996 and 1997, respectively.
In December 1996, the Company implemented a book value bonus plan, commonly
referred to as a "phantom stock" plan, for certain employees and owners. The
Company accrued $33,310 and $73,659 in 1996 and 1997, respectively, under the
plan. The accrued amounts are included in other long-term liabilities.
Pursuant to the terms of the above plan, should there be a change in
ownership of the Company or if the Company is sold, all "phantom stock" will
immediately vest and the holder shall receive stock at the value the purchaser
pays for actual shares. There were 53.7 shares and 111.7 shares of "phantom
stock" outstanding during 1996 and 1997, respectively.
10. RELATED-PARTY TRANSACTIONS:
In December 1996, certain stockholders of the Company, who were also
minority stockholders in the Company's consolidated subsidiaries, contributed
their equity interests in the subsidiaries to the Company. This noncash
transaction eliminated all minority interests in the Company's subsidiaries and
was accounted for as a $104,504 reduction in minority interest and an equivalent
increase in additional paid-in capital.
In December 1996, the Company issued 1,730 shares of nonvoting common stock
in exchange for all 9,490 outstanding shares of the Company's preferred stock.
F-22
<PAGE> 95
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1996, the Company's stockholders entered into a new
stockholders agreement. The new stockholders agreement places certain
restrictions on all stockholders' ability to sell shares of the Company's stock.
In 1996, the Company reached an agreement with an officer and minority
stockholder wherein he would resign as an officer and sell his stock to the
Company. As a result, in January 1997, the Company repurchased 5,352 shares of
common stock owned by the former officer. The Company paid $258,590 and issued a
note payable of $1,418,986 in exchange for the common stock. The Company holds
this stock as treasury stock.
In connection with this transaction, the Company incurred expenses of
$415,645 in 1996, including a severance payment to the former officer. During
1997, costs incurred relative to this transaction was $202,477. These expenses
are included in general and administrative expenses for 1996 and 1997.
In January 1997, the Company entered into a noncompete agreement with the
former officer. The noncompete agreement restricts the former officer from
engaging in competitive activities in the market areas the Company currently
serves. The Company will pay the former officer or his estate $44,700 annually
over the remaining 4-year term of the noncompete agreement. The Company accrued
a noncompete asset and a noncompete liability of $278,271 and will amortize the
noncompete asset over the term of the agreement. Additionally, in January 1997,
the Company also entered into a consulting agreement with the former officer.
The Company will pay the former officer $45,600 annually for consulting services
for a period of five years under the terms of the consulting agreement. Pursuant
to the Collateral Pledge Agreement surrounding the noncompete and consulting
agreements, payments due to the former officer shall be accelerated in the event
of a change in control of the Company's stock.
11. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and similar state statutes. In
response to liabilities associated with these activities, accruals are
established when it is probable that obligations have been incurred and
reasonable estimates are possible. Such accruals primarily include estimated
costs associated with remediation. The Company does not use discounting in
determining its accrued liabilities for environmental remediation, and no claims
for possible recovery from third-party insurers or other parties related to
environmental costs have been recognized in the Company's consolidated financial
statements.
The Company has received a CERCLA 104(e) request from the Environmental
Protection Agency for information regarding a Superfund site in St. Louis,
Missouri. The Company believes that it only purchased drums from this site and
therefore denies any liability. The Company's current belief that its
contribution, if any, to the site is or will be viewed by the Environmental
Protection Agency as being de minimis.
Litigation
The Company has various claims and lawsuits from time to time in connection
with its operations. In the opinion of management, uninsured losses on claims
and lawsuits, if any, would not be material to the Company's financial position,
results of operations or cash flows.
Leases
Rents of $557,022, $580,460 and $461,686 were paid to nonrelated parties
for the lease of equipment and warehouse space for the years ended December 31,
1995, 1996 and 1997, respectively.
F-23
<PAGE> 96
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has operating leases for certain facilities, trucks and
automobiles which expire at various dates through 2004. Total noncancelable
lease commitments at December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998...................................................... $289,674
1999...................................................... 140,277
2000...................................................... 58,918
2001...................................................... 17,100
2002...................................................... 17,100
Thereafter................................................ 22,800
--------
$545,869
========
</TABLE>
In addition to minimum lease payments, the Company is charged a variable
rental based on lease truck mileage. Total minimum rental and variable rental
expenses related to truck operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Minimum rental expenses.............................. $247,000 $241,020 $134,190
Variable rental expenses............................. 78,000 73,387 44,548
-------- -------- --------
$325,000 $314,407 $178,738
======== ======== ========
</TABLE>
Union Contracts
The Company has certain employees in St. Louis, Missouri, that have union
representation for the period from July 1, 1997, to July 1, 2002. The union
contract covers compensation and benefits.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales ranging from 10 percent to 15 percent of total sales
to one customer during the years ended December 31, 1995, 1996 and 1997,
respectively. The Company believes that the loss of any single customer would
not have a material adverse effect on the results of operations of the Company.
The Company had purchases greater than 10 percent of total purchases from
one vendor during the years ended December 31, 1995, 1996 and 1997.
The Company had cash and cash equivalents in financial institutions which
exceeded the federally insured limits by $339,722 and $1,160,742 at December 31,
1996 and 1997, respectively.
In addition, the Company grants credit, generally without collateral, to
its customers located primarily in Missouri, Illinois and Kansas. Consequently,
the Company is subject to potential credit risk related to changes in business
and economic factors within the midwestern United States. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
13. STOCKHOLDERS' EQUITY:
The Company has two classes of common stock: voting common stock and
nonvoting common stock. All voting power is vested with the voting common stock.
The voting common stock and the nonvoting common stock have equal standing with
respect to distributions and liquidation preference.
There are 50,000 shares of voting common stock, $10 par value, authorized,
18,660 shares issued and 13,308 shares outstanding. There are 1,730 shares of
nonvoting common stock, $10 par value, authorized, issued and outstanding.
F-24
<PAGE> 97
G. S. ROBINS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS (UNAUDITED):
In April 1998, the Company entered a five-year operating lease for a
storage facility in Sauget, Illinois. Rent charges will approximate $10,850 per
month.
In July 1998, the Company and its stockholders entered into a definitive
agreement with Chemical Logistics Corporation (Chemical) pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Chemical common stock, concurrent with the consummation of an initial
public offering (the Offering) of common stock of Chemical.
F-25
<PAGE> 98
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Industrial Chemicals, Inc.:
We have audited the accompanying balance sheets of Industrial Chemicals,
Inc. (the Company), as of February 28, 1997 and 1998, and the related statements
of income, stockholders' equity and cash flows for each of the three years in
the period ended February 28, 1998. 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 Industrial Chemicals, Inc.,
as of February 28, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended February 28, 1998, in
conformity with generally accepted accounting principles.
Houston, Texas
May 1, 1998
F-26
<PAGE> 99
INDUSTRIAL CHEMICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------- MAY 31,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 35,802 $ 14,267 $ 3,965
Accounts receivable, less allowance for doubtful
accounts of $75,836, $60,360 and $110,359,
respectively..................................... 5,285,923 6,400,405 6,033,529
Inventories......................................... 2,852,763 3,141,603 3,004,272
Notes receivable, affiliates........................ 445,151 105,501 105,068
Other current assets................................ 222,894 210,974 147,563
----------- ----------- -----------
Total current assets........................ 8,842,533 9,872,750 9,294,397
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost................ 5,229,069 6,037,889 7,308,992
Less -- Accumulated depreciation.................... (2,650,028) (3,561,255) (3,711,437)
----------- ----------- -----------
2,579,041 2,476,634 3,597,555
----------- ----------- -----------
OTHER ASSETS, net..................................... 112,130 232,820 296,004
----------- ----------- -----------
Total assets................................ $11,533,704 $12,582,204 $13,187,956
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 5,037,541 $ 5,008,743 $ 4,313,259
Accrued liabilities................................. 139,681 300,772 335,642
Container deposits refundable to customers.......... 149,143 154,596 168,407
Current maturities of notes payable, stockholders
and affiliates................................... 1,997,049 1,959,518 1,924,481
Current maturities of long-term debt................ 1,450,845 1,782,451 1,660,448
Other current liabilities........................... 22,931 33,074 --
----------- ----------- -----------
Total current liabilities................... 8,797,190 9,239,154 8,402,237
CONTAINER DEPOSITS REFUNDABLE TO CUSTOMERS............ 1,547,591 1,462,520 1,595,018
NOTES PAYABLE, stockholders and affiliates, net of
current maturities.................................. 233,641 811,309 809,571
LONG-TERM DEBT, net of current maturities............. -- 2,627 2,627
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par, 10,000 shares authorized,
4,148, 4,148 and 4,608 shares issued and
outstanding, respectively........................ 4,148 4,148 4,608
Additional paid-in capital.......................... 26,852 26,852 1,246,084
Retained earnings................................... 924,282 1,035,594 1,127,811
----------- ----------- -----------
Total stockholders' equity.................. 955,282 1,066,594 2,378,503
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................... $11,533,704 $12,582,204 $13,187,956
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 100
INDUSTRIAL CHEMICALS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------- THREE MONTHS
FEBRUARY 28, ENDED MAY 31,
FEBRUARY 29, ------------------------- -------------------------
1996 1997 1998 1997 1998
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES, net.................. $42,880,136 $44,725,643 $51,598,724 $11,724,304 $12,436,443
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales............. 33,473,850 34,999,826 39,547,235 9,028,063 9,669,453
Operating and delivery.... 2,863,114 2,952,249 3,738,220 745,977 779,133
Selling, general and
administrative......... 5,095,331 5,450,568 6,366,219 1,753,869 1,601,791
Depreciation.............. 801,026 902,418 828,240 182,100 146,048
----------- ----------- ----------- ----------- -----------
Total costs and
expenses........ 42,233,321 44,305,061 50,479,914 11,710,009 12,196,425
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS...... 646,815 420,582 1,118,810 14,295 240,018
OTHER INCOME (EXPENSE):
Interest expense.......... (222,832) (259,723) (317,043) (75,660) (98,853)
Interest income........... 11,470 4,328 33,599 -- --
Other, net................ 284,550 340,650 246,580 90,037 81,714
----------- ----------- ----------- ----------- -----------
NET INCOME.................. $ 720,003 $ 505,837 $ 1,081,946 $ 28,672 $ 222,879
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 101
INDUSTRIAL CHEMICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, February 28, 1995.................... 4,148 $4,148 $26,852 $ 581,963 $ 612,963
Distributions to stockholders............... -- -- -- (468,721) (468,721)
Net income.................................. -- -- -- 720,003 720,003
----- ------ ------- ---------- ----------
BALANCE, February 29, 1996.................... 4,148 4,148 26,852 833,245 864,245
Distributions to stockholders............... -- -- -- (414,800) (414,800)
Net income.................................. -- -- -- 505,837 505,837
----- ------ ------- ---------- ----------
BALANCE, February 28, 1997.................... 4,148 4,148 26,852 924,282 955,282
Distributions to stockholders............... -- -- -- (970,634) (970,634)
Net income.................................. -- -- -- 1,081,946 1,081,946
----- ------ ------- ---------- ----------
BALANCE, February 28, 1998.................... 4,148 4,148 26,852 1,035,594 1,066,594
Distributions to stockholders (Unaudited)... -- -- -- (130,662) (130,662)
Issuance of common stock.................... 460 460 -- -- 460
Contributions from stockholders............. -- -- 1,219,232 -- 1,219,232
Net income (Unaudited)...................... -- -- -- 222,879 222,879
----- ------ ------- ---------- ----------
BALANCE, May 31, 1998 (Unaudited)............. 4,608 $4,608 1$,246,084 $1,127,811 $2,378,503
===== ====== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 102
INDUSTRIAL CHEMICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------- THREE MONTHS
FEBRUARY 28, ENDED MAY 31,
FEBRUARY 29, ------------------------- ----------------------
1996 1997 1998 1997 1998
------------ ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 720,003 $ 505,837 $ 1,081,946 $ 28,672 $ 222,879
----------- ----------- ----------- --------- ----------
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation........................ 801,026 902,418 828,240 182,100 146,048
Increase in LIFO reserve............ 189,391 291,407 328,975 -- --
Loss (gain) on disposition of
property, plant and equipment..... (16,110) (8,007) 27,162 -- --
Changes in operating assets and
liabilities --
Receivables....................... (115,850) (420,419) (774,832) (338,728) 367,309
Inventories....................... (489,501) (591,406) (617,815) 594,946 137,331
Prepaid expenses and other........ (1,448) 16,228 11,920 42,772 63,411
Other assets...................... (51,433) (13,360) (120,690) (122,058) (63,184)
Accounts payable, accrued
liabilities and other.......... 1,115,844 (626,327) 49,156 (21,454) (547,379)
----------- ----------- ----------- --------- ----------
Total adjustments.............. 1,431,919 (449,466) (267,884) 337,578 103,536
----------- ----------- ----------- --------- ----------
Net cash provided by operating
activities................... 2,151,922 56,371 814,062 366,250 326,415
----------- ----------- ----------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (1,464,840) (1,064,476) (829,309) (151,073) (73,670)
Proceeds from disposition of property,
plant and equipment................. 52,400 18,950 89,976 11,087 26,393
----------- ----------- ----------- --------- ----------
Net cash used in investing
activities................... (1,412,440) (1,045,526) (739,333) (139,986) (47,277)
----------- ----------- ----------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.......... 3,012,535 2,923,367 2,146,234 93,906 1,966
Repayments of long-term debt.......... (3,236,016) (1,566,177) (1,271,864) (215,487) (160,744)
Distributions to stockholders......... (468,721) (414,800) (970,634) (130,664) (130,662)
----------- ----------- ----------- --------- ----------
Net cash provided by (used in)
financing activities......... (692,202) 942,390 (96,264) (252,245) (289,440)
----------- ----------- ----------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 47,280 (46,765) (21,535) (25,981) (10,302)
CASH AND CASH EQUIVALENTS, beginning of
period................................ 35,287 82,567 35,802 35,802 14,267
----------- ----------- ----------- --------- ----------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 82,567 $ 35,802 $ 14,267 $ 9,821 $ 3,965
=========== =========== =========== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 222,832 $ 259,723 $ 317,043 $ 75,660 $ 98,853
OTHER SUPPLEMENTAL INFORMATION:
Issuance of common stock in exchange
for property and equipment.......... $ -- $ -- $ -- $ -- $1,219,692
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 103
INDUSTRIAL CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Industrial Chemicals, Inc. (the Company), an Alabama corporation, is a
distributor of mainly inorganic chemicals. The majority of its customers are in
the southeastern United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at May 31, 1998, and the results of operations and cash flows for the
three months ended May 31, 1997 and 1998. Accounting measurements at interim
dates inherently involve greater reliance on estimates than those at year-end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments with
an original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Inventories
Inventories are valued at the lower of cost (last-in, first-out) or market.
Substantially all of the goods consist of finished products.
Property, Plant and Equipment
Plant and equipment are stated at cost, and depreciation is computed using
the straight-line method for financial reporting purposes and accelerated
methods for federal income tax purposes. Leasehold improvements are capitalized
and amortized over the lesser of the life of the lease or the estimated useful
life of the asset. Property, plant and equipment are reviewed for impairment
whenever events or circumstances provide evidence that suggests that the
carrying amounts of the property, plant and equipment may not be recoverable.
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.
Customer Deposits on Drums and Cylinders
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
The Company routinely purchases new and used drums and cylinders for use in
the ordinary course of business. The costs of the drums and cylinders are
capitalized and are included in property and equipment.
F-31
<PAGE> 104
INDUSTRIAL CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Other Assets
Other assets consist primarily of prepaid federal income taxes. These
assets represent deposits made for federal income taxes under Internal Revenue
Code Section 444 for S Corporations that retain a year-end different from that
of their stockholders.
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
On December 19, 1986, the Company, with the consent of its stockholders,
elected to have its income taxed under the provisions of Subchapter S of the
Internal Revenue Code, which provided that, in lieu of corporate income taxes,
the stockholders are taxed on the Company's taxable income. The Company
regularly declares dividends in amounts at least equal to the stockholders' tax
liabilities resulting from the S Corporation election. This election became
effective for the tax year beginning March 1, 1987.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires the reporting of comprehensive income and its components to be
displayed with the same prominence as other financial statements. This statement
requires a company to classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of financial position. The
Company has adopted this statement, and the differences between traditional
income and comprehensive income were insignificant.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending February 28, 1999. Management is
presently evaluating what, if any, additional disclosures may be required when
this statement is implemented.
F-32
<PAGE> 105
INDUSTRIAL CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES:
The following sets forth the balances of selected accounts assuming that
the first-in, first-out (FIFO) method had been used for costing all inventories
in fiscal years 1996, 1997 and 1998:
<TABLE>
<CAPTION>
FEBRUARY 28,
FEBRUARY 29, -----------------------
1996 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Inventories...................................... $4,020,299 $4,028,891 $3,988,756
Working capital.................................. 1,856,407 1,370,614 1,635,335
Net income....................................... 416,612 94,092 1,155,309
Retained earnings................................ 361,854 230,537 706,619
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
ESTIMATED -------------------------
USEFUL LIVES 1997 1998
------------ ----------- -----------
(IN YEARS)
<S> <C> <C> <C>
Buildings and improvements..................... 5-32 $ 2,259,032 $ 2,479,029
Furniture and fixtures......................... 5-10 667,669 705,728
Machinery and equipment........................ 3-10 907,240 1,066,382
Containers..................................... 5 725,093 1,017,697
Automobiles and trucks......................... 3-5 670,035 769,053
----------- -----------
5,229,069 6,037,889
Less -- Accumulated depreciation............... (2,650,028) (3,561,255)
----------- -----------
Total........................................ $ 2,579,041 $ 2,476,634
=========== ===========
</TABLE>
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. $ 95,706 $ 75,836
Provision for doubtful accounts............................. 7,178 14,962
Amounts written off......................................... (27,048) (30,438)
-------- --------
Balance, end of year........................................ $ 75,836 $ 60,360
======== ========
</TABLE>
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Accrued compensation and benefits........................... $113,313 $264,005
Other accrued expenses...................................... 26,368 36,767
-------- --------
$139,681 $300,772
======== ========
</TABLE>
6. LONG-TERM DEBT:
The Company has a revolving line of credit with a bank totaling $1,750,000
of available credit expiring in December 1998. The line of credit bears interest
at 8.25 percent. The line of credit is secured by the
F-33
<PAGE> 106
INDUSTRIAL CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's accounts receivable, inventory and equipment. The line-of-credit
agreement requires, among other things, that the Company maintain a minimum
current ratio, a specified working capital level, certain debt-to-equity ratios
and minimum amounts of net worth during the term of the agreement. At February
28, 1997 and 1998, borrowings outstanding under the line of credit were
$1,300,000 and $1,650,000, respectively.
Long-term debt includes the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Regions Bank, 8.5%, unsecured............................. $ 137,770 $ 122,002
South Trust Bank of Alabama, 8.25%, secured by certain of
the Company's accounts receivable, inventory and
equipment............................................... 1,300,000 1,650,000
Other, 7%-10%, unsecured.................................. 13,075 13,076
----------- -----------
1,450,845 1,785,078
Less -- Current maturities................................ (1,450,845) (1,782,451)
----------- -----------
Long-term debt............................................ $ -- $ 2,627
=========== ===========
Notes payable, stockholders and affiliates includes the
following -- Notes payable, 8%-10%, unsecured........... $ 2,230,690 $ 2,770,827
Less -- Current maturities........................... (1,997,049) (1,959,518)
----------- -----------
Long-term notes payable, stockholders and affiliates...... $ 233,641 $ 811,309
=========== ===========
</TABLE>
Long-term debt maturities as of February 28, 1998, are as follows:
<TABLE>
<S> <C>
1999..................................................... $3,741,969
2000..................................................... 813,936
----------
$4,555,905
==========
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash, Trade Receivables and Accounts Payable
The carrying amount approximates market value due to the highly liquid
nature of these short-term investments.
Long-Term Debt
The estimated market value of the Company's long-term debt is based on
quoted market prices or, where such prices are not available, on estimated
year-end interest rates of debt with the same remaining average maturities and
credit quality. The carrying amount approximates market value at February 28,
1997 and 1998.
8. EMPLOYEE BENEFIT PLANS:
The Company has a profit-sharing plan which covers all full-time employees
with more than one year of service with the Company. The amount of employer
contributions made is at the discretion of the Board of Directors and is
determined annually. The amounts contributed to the profit-sharing plan for the
years ended February 29, 1996, and February 28, 1997 and 1998, were $96,264, $--
and $117,030, respectively.
The Company has a discretionary bonus plan covering certain employees under
which $249,700, $598,843 and $1,192,932 were charged to expense in fiscal years
1995, 1996 and 1997, respectively.
F-34
<PAGE> 107
INDUSTRIAL CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED-PARTY TRANSACTIONS:
The Company is leasing an office building and warehouse facility from an
affiliated S Corporation under an operating lease that is renewed on a
month-to-month basis. The consideration for this lease was $120,000 for each of
the years ended February 29, 1996, and February 28, 1997 and 1998, respectively.
The Company is leasing several warehouse facilities, office buildings,
equipment and its corporate headquarters building from an affiliated limited
partnership under operating leases that are renewed on a month-to-month basis.
The consideration for these leases was $581,920, $573,155 and $564,700, for the
years ended February 29, 1996, and February 28, 1997 and 1998, respectively.
The Company has unsecured outstanding notes payable to stockholders and
affiliates at February 28, 1997 and 1998, in the amounts of $2,230,690 and
$2,770,827, respectively. The notes bore interest at 10 percent and 8 percent at
February 28, 1997 and 1998, respectively.
10. COMMON STOCK:
In April 1998, certain stockholders of the Company contributed certain
fixed assets with historical value of $1.2 million to the Company in exchange
for 460 shares of the Company's common stock, par value $1.00 per share. The
fixed assets consist of real estate and other equipment that are leased to the
Company and used in its industrial chemicals distribution business.
11. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and similar state statutes. In
response to liabilities associated with these activities, accruals are
established when it is probable that obligations have been incurred and
reasonable estimates are possible. Such accruals primarily include estimated
costs associated with remediation. The Company does not use discounting in
determining its accrued liabilities for environmental remediation, and no claims
for possible recovery from third-party insurers or other parties related to
environmental costs have been recognized in the Company's financial statements.
The Company has received a potentially responsible party (PRP) notice from the
Environmental Protection Agency (EPA) with respect to the THAN superfund site
near Montgomery, Alabama. The EPA is presently enforcing the cleanup against the
two primarily liable PRPs. The Company previously leased a part of this site
from one of the primarily liable PRPs who has indemnified the Company from this
liability. This PRP, however, has advised the Company that it intends to pursue
the Company for any contribution the Company may have made to the contamination
at the site. Based upon its investigation of the site and the fact that the EPA
is not enforcing cleanup obligations against the Company, the Company believes
that its contribution, if any, to the site will not be material.
Litigation
The Company has various claims and lawsuits outstanding in connection with
its operations. In the opinion of management, uninsured losses on these claims
and lawsuits, if any, would not be material to the Company's financial position,
results of operations or cash flows.
Leases
The Company leases a warehouse facility under a noncancelable operating
lease expiring December 16, 1998. Rent expense during fiscal years 1996, 1997
and 1998 was $--, $13,760 and $41,496, respectively. Additionally, rents of
$91,500 and $45,705 were paid to nonrelated parties for the lease of equipment
for the years ended February 29, 1996, and February 28, 1997, respectively.
F-35
<PAGE> 108
INDUSTRIAL CHEMICALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had no sales or purchases greater than 10 percent of total
sales or total purchases to or from any one customer or vendor, respectively,
during the years ended February 29, 1996, and February 28, 1997 and 1998.
In addition, the Company grants credit, generally without collateral, to
its customers located primarily in the southeastern United States. Consequently,
the Company is subject to potential credit risk related to changes in business
and economic factors within the southeastern United States. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
13. SUBSEQUENT EVENTS (UNAUDITED):
In July 1998, the Company and its stockholders entered into a definitive
agreement with Chemical Logistics Corporation (Chemical) pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Chemical common stock, concurrent with the consummation of an initial
public offering (the Offering) of common stock of Chemical.
F-36
<PAGE> 109
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Houston Solvents and Chemicals Co., Inc.:
We have audited the accompanying combined balance sheets of Houston
Solvents and Chemicals Co., Inc., dba Southwest Solvents and Chemicals, and
related companies (collectively, the Company) as of December 31, 1996 and 1997,
and the related combined statements of income, stockholder's equity and cash
flows for each of the three years in the period ended December 31, 1997. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Houston
Solvents and Chemicals Co., Inc., dba Southwest Solvents and Chemicals, as of
December 31, 1996 and 1997, and the combined 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.
Houston, Texas
May 15, 1998, (except with respect
to the matter discussed in
the second paragraph of Note 5 as to
which the date is July 1, 1998.)
F-37
<PAGE> 110
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 455,875 $ 261,158 $ 217,495
Accounts receivable --
Trade, less allowance for doubtful accounts of
$462,239, $498,129 and $495,061,
respectively................................... 4,815,970 5,819,372 5,863,838
Other............................................ 381,027 310,540 115,062
Inventories......................................... 2,895,848 3,583,028 4,217,107
Other current assets................................ 162,839 118,631 53,655
----------- ----------- -----------
Total current assets........................ 8,711,559 10,092,729 10,467,157
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost................ 14,932,548 14,913,419 14,889,173
Less -- Accumulated depreciation.................... (8,681,535) (9,262,713) (9,377,796)
----------- ----------- -----------
6,251,013 5,650,706 5,511,377
----------- ----------- -----------
DUE FROM AFFILIATES................................... -- -- 54,984
OTHER ASSETS, net..................................... 6,174 9,943 5,417
----------- ----------- -----------
Total assets................................ $14,968,746 $15,753,378 $16,038,935
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 5,690,683 $ 6,272,496 $ 5,776,386
Accrued liabilities................................. 635,665 702,149 527,137
Income taxes payable................................ 40,637 71,138 83,780
Container deposits refundable to customers.......... 189,950 278,554 417,064
Notes payable -- stockholder........................ 622,270 830,606 830,606
Line of credit...................................... -- -- 635,000
Current maturities of long-term debt................ 348,000 397,992 388,848
Other current liabilities........................... 55,709 -- --
----------- ----------- -----------
Total current liabilities................... 7,582,914 8,552,935 8,658,821
LONG-TERM DEBT, net of current maturities............. 2,217,571 1,846,460 1,756,382
OTHER LONG-TERM LIABILITIES........................... 125,269 105,707 105,012
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock........................................ 22,000 22,000 22,000
Additional paid-in capital.......................... 145,633 145,633 145,633
Retained earnings................................... 4,875,359 5,080,643 5,351,087
----------- ----------- -----------
Total stockholder's equity.................. 5,042,992 5,248,276 5,518,720
----------- ----------- -----------
Total liabilities and stockholder's
equity.................................... $14,968,746 $15,753,378 $16,038,935
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 111
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES, net.................. $50,620,579 $46,642,321 $47,219,392 $10,950,871 $11,170,425
COSTS AND EXPENSES:
Cost of sales............. 42,083,971 38,137,878 38,790,545 8,873,387 9,059,760
Operating and delivery.... 2,437,111 2,677,241 2,433,127 518,624 632,221
Selling, general and
administrative......... 4,860,829 4,291,551 4,340,485 955,320 947,553
Depreciation.............. 823,318 852,032 772,494 208,247 199,434
----------- ----------- ----------- ----------- -----------
Total costs and
expenses........ 50,205,229 45,958,702 46,336,651 10,555,578 10,838,968
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS...... 415,350 683,619 882,741 395,293 331,457
OTHER INCOME (EXPENSE):
Interest expense.......... (344,249) (426,416) (363,870) (86,496) (86,085)
Interest income........... 44,964 4,438 15,663 2,270 1,566
Other, net................ 114,801 48,205 26,950 18,987 36,414
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES..................... 230,866 309,846 561,484 330,054 283,352
INCOME TAXES................ (12,343) (15,659) (26,694) (6,674) (12,908)
----------- ----------- ----------- ----------- -----------
NET INCOME.................. $ 218,523 $ 294,187 $ 534,790 $ 323,380 $ 270,444
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 112
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994............... 2,200 $22,000 $145,633 $4,606,031 $4,773,664
Distributions to stockholder........... -- -- -- (12,596) (12,596)
Net income............................. -- -- -- 218,523 218,523
----- ------- -------- ---------- ----------
BALANCE, December 31, 1995............... 2,200 22,000 145,633 4,811,958 4,979,591
Distributions to stockholder........... -- -- -- (230,786) (230,786)
Net income............................. -- -- -- 294,187 294,187
----- ------- -------- ---------- ----------
BALANCE, December 31, 1996............... 2,200 22,000 145,633 4,875,359 5,042,992
Distributions to stockholder........... -- -- -- (329,506) (329,506)
Net income............................. -- -- -- 534,790 534,790
----- ------- -------- ---------- ----------
BALANCE, December 31, 1997............... 2,200 22,000 145,633 5,080,643 5,248,276
Net income (unaudited)................. -- -- -- 270,444 270,444
----- ------- -------- ---------- ----------
BALANCE, March 31, 1998 (unaudited)...... 2,200 $22,000 $145,633 $5,351,087 $5,518,720
===== ======= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 113
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
----------- ---------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 218,523 $ 294,187 $ 534,790 $ 323,380 $ 270,444
----------- ---------- --------- ----------- ---------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation.......................................... 823,318 852,032 772,494 208,247 199,434
Gain on disposition of property, plant and
equipment........................................... (3,008) (267) (36,066) -- --
Changes in operating assets and liabilities --
Accounts receivable................................. 202,467 454,863 (932,915) (985,945) 151,012
Inventories......................................... 142,381 371,076 (687,180) (1,456,664) (634,079)
Other current assets................................ (21,638) 15,480 44,208 153,325 64,976
Other assets, net................................... 11,242 (31,097) (21,564) (130,255) (51,153)
Accounts payable, accrued liabilities and other..... (240,383) (632,149) 767,402 (84,106) (519,970)
----------- ---------- --------- ----------- ---------
Total adjustments................................. 914,379 1,029,938 (93,621) (2,295,398) (789,780)
----------- ---------- --------- ----------- ---------
Net cash provided by (used in) operating
activities...................................... 1,132,902 1,324,125 441,169 (1,972,018) (519,336)
----------- ---------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (1,917,924) (700,632) (185,588) (2,184) (60,105)
Proceeds from disposition of property, plant and
equipment............................................. 31,450 17,900 47,700 -- --
----------- ---------- --------- ----------- ---------
Net cash used in investing activities............. (1,886,474) (682,732) (137,888) (2,184) (60,105)
----------- ---------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) advances on long-term debt............. 950,436 (339,244) (168,492) 1,813,846 535,778
Distributions to stockholder............................ (12,596) (230,786) (329,506) -- --
----------- ---------- --------- ----------- ---------
Net cash provided by (used in) financing
activities...................................... 937,840 (570,030) (497,998) 1,813,846 535,778
----------- ---------- --------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 184,268 71,363 (194,717) (160,356) (43,663)
CASH AND CASH EQUIVALENTS, beginning of period............ 200,244 384,512 455,875 455,875 261,158
----------- ---------- --------- ----------- ---------
CASH AND CASH EQUIVALENTS, end of period.................. $ 384,512 $ 455,875 $ 261,158 $ 295,519 $ 217,495
=========== ========== ========= =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest.............................................. $ 306,746 $ 401,090 $ 366,390 $ 63,259 $ 23,594
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE> 114
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Houston Solvents and Chemicals Co., Inc., dba Southwest Solvents and
Chemicals (a Texas corporation), and its related companies (collectively, the
Company) is a distributor of a broad line of organic and inorganic chemicals.
The primary operations supply the Houston and Dallas marketplaces and are
supplemented with activities in Austin, Beaumont and Corpus Christi, Texas, and
Los Angeles, California.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination
The combined financial statements include the accounts of Houston Solvents
and Chemicals Co., Inc., dba Southwest Solvents and Chemicals, and SS&C
Properties, Inc., and Dallas Solvents & Chemicals Co., Inc., two affiliates
through common ownership. All significant intercompany balances and transactions
have been eliminated.
Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at March 31, 1998, and the results of their operations and cash flows
for the three months ended March 31, 1997 and 1998. Accounting measurements at
interim dates inherently involve greater reliance on estimates than those at
year-end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
Cash and Cash Equivalents
Cash equivalents include all liquid debt instruments purchased with an
original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon a
percentage of sales and writes off accounts against the allowance based upon the
specific identification of accounts receivable where collection is no longer
probable.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the weighted average method which approximates the first-in, first-out
method.
Property, Plant and Equipment
Plant and equipment are stated at cost, and depreciation is computed using
the straight-line method for financial reporting purposes and accelerated
methods for federal income tax purposes. Leasehold improvements are capitalized
and amortized over the lesser of the life of the lease or the estimated useful
life of the asset. Property, plant and equipment are reviewed for impairment
whenever events or circumstances provide evidence that suggests that the
carrying amounts of the property, plant and equipment may not be recoverable.
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.
F-42
<PAGE> 115
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Customer Deposits on Drums
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
The Company has elected S Corporation status for tax purposes. In
accordance with the S Corporation provisions of the Internal Revenue Code, the
Company's earnings are taxed directly to the stockholder. The provision for
income taxes is composed entirely of state income taxes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which requires the reporting of comprehensive income and its components to be
displayed with the same prominence as other financial statements. This statement
requires a company to classify items of other comprehensive income by their
nature in a financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. The Company has adopted this
statement, and the differences between traditional income and comprehensive
income were insignificant.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. Management is
presently evaluating what, if any, additional disclosures may be required when
this statement is implemented.
F-43
<PAGE> 116
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------------------
(IN YEARS) 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Land........................................... -- $ 820,100 $ 820,100
Buildings and improvements..................... 15-20 6,105,326 6,368,390
Plant equipment................................ 5-12 5,122,025 5,255,505
Automobiles and trucks......................... 3-8 1,985,483 1,932,329
Furniture and fixtures......................... 5-7 521,126 537,095
Construction in progress....................... -- 378,488 --
----------- -----------
14,932,548 14,913,419
Less -- Accumulated depreciation............... (8,681,535) (9,262,713)
----------- -----------
Total................................ $ 6,251,013 $ 5,650,706
=========== ===========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. $408,133 $462,239
Provision for doubtful accounts............................. 71,642 51,014
Amounts written off......................................... (17,536) (15,124)
-------- --------
Balance, end of year........................................ $462,239 $498,129
======== ========
</TABLE>
5. LONG-TERM DEBT:
The Company has a $3,000,000 revolving line of credit (the Revolver), a
$3,100,000 term loan (the Term Loan) and a $500,000 equipment line with a bank.
Under the agreements, substantially all accounts receivable and inventories are
pledged as collateral. Borrowings under the equipment line are evidenced by
individual notes payable. The Revolver bears interest at the bank's prime rate
less .5 percent or, at the option of the Company, at the current LIBOR 30-day or
60-day rates plus 200 basis points. The Revolver matures on May 31, 1998. There
were no borrowings outstanding under the Revolver at December 31, 1996 or 1997.
The Term Loan and the equipment line bear interest at the bank's prime rate,
less .5 percent. The Term Loan matures on October 1, 1998. Borrowings
outstanding under the Term Loan were $2,404,000 and $2,056,000 at December 31,
1996 and 1997, respectively. Notes outstanding under the equipment line mature
on January 12, 2001, and December 12, 2002. Borrowings under these notes totaled
$161,571 and $188,452 at December 31, 1996 and 1997, respectively.
On July 1, 1998, and effective May 31, 1998, the Company renewed and
extended both the Revolver and Term Loan through July 1, 1999. Both the Revolver
and Term Loan bear interest at the bank's prime rate less .75 percent or, at the
option of the Company, at the current LIBOR 30-day or 60-day rates plus 200
basis points.
F-44
<PAGE> 117
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt maturities as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998..................................................... $ 397,992
1999..................................................... 1,761,140
2000..................................................... 56,551
2001..................................................... 16,460
Thereafter............................................... 12,309
----------
$2,244,452
==========
</TABLE>
The Revolver and Term Loan agreements require, among other things, that the
Company maintain a minimum current ratio, a specified working capital level,
certain debt-to-equity ratios and minimum amounts of net worth during the life
of the agreements.
At December 31, 1996, the Company had a note payable to its stockholder of
$622,270 with interest at 9 percent. This note provided for quarterly
installments and matured on December 31, 1997. At December 31, 1997, the Company
had notes payable to its stockholder totaling $830,606 with interest at 9
percent. These notes provide for quarterly installments with a final maturity of
December 31, 1998.
6. COMMON STOCK:
Common stock consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Houston Solvents and Chemicals Co., Inc., $100 par value;
10,000 shares authorized, 200 shares issued and
outstanding............................................... $20,000 $20,000
SS&C Properties, Inc., $1 par value; 1,000,000 shares
authorized, 1,000 shares issued and outstanding........... 1,000 1,000
Dallas Solvents and Chemicals Co., Inc., $1 par value;
1,000,000 shares authorized, 1,000 shares issued and
outstanding............................................... 1,000 1,000
------- -------
Total common stock................................ $22,000 $22,000
======= =======
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash, Accounts Receivable and Accounts Payable
The carrying amounts approximate market value due to the highly liquid
nature of these short-term investments.
Long-Term Debt
The estimated market value of the Company's long-term debt is based on
quoted market prices or, where such prices are not available, on estimated
year-end interest rates of debt with the same remaining average maturities and
credit quality. The carrying amount approximates market value at December 31,
1996 and 1997.
F-45
<PAGE> 118
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
State income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
State --
Current............................................... $19,383 $21,254 $30,501
Deferred.............................................. (7,040) (5,595) (3,807)
------- ------- -------
$12,343 $15,659 $26,694
======= ======= =======
</TABLE>
Deferred state 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:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred income tax assets --
Basis difference in inventory............................. $ 1,493 $ 1,841
Allowance for doubtful accounts........................... 7,685 9,865
-------- --------
Total deferred income tax assets.................. 9,178 11,706
-------- --------
Deferred income tax liabilities --
Accrued expenses.......................................... (632) (661)
Basis difference in property and equipment................ (14,226) (12,918)
-------- --------
Total deferred income taxes liabilities........... (14,858) (13,579)
-------- --------
Net deferred income tax liabilities............... $ (5,680) $ (1,873)
======== ========
</TABLE>
9. PROFIT-SHARING PLAN:
The Company provides a contributory 401(k) savings plan (the Plan).
Employees become eligible to participate in the Plan upon completion of six
months of service. Participants may elect to allocate 1 percent to 15 percent of
their compensation to their accounts. Contributions made by the Company are
determined by the board of directors. The Company contributed $50,000, $25,000
and $25,000 to the Plan in 1995, 1996 and 1997, respectively.
10. RELATED-PARTY TRANSACTIONS:
The Company charters an aircraft from a company which is wholly owned by
the sole stockholder and chief executive officer of the Company. Total expense
incurred by the Company in chartering the aircraft was $95,425, $93,428 and
$88,060 for 1995, 1996 and 1997, respectively.
11. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and
F-46
<PAGE> 119
HOUSTON SOLVENTS AND CHEMICALS CO., INC. AND RELATED COMPANIES
dba SOUTHWEST SOLVENTS AND CHEMICALS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
similar state statutes. The Company is currently not named as a potentially
responsible party under CERCLA or similar state legislation with respect to its
operations.
Litigation
The Company has various claims and lawsuits outstanding in connection with
its operations. In the opinion of management, uninsured losses on these claims
and lawsuits, if any, would not be material to the Company's financial position,
results of operations or cash flows.
Leases
As of December 31, 1997, the Company's minimum rental commitments under
operating leases, which relate primarily to facility rental, total $34,995 and
$4,950 for 1998 and 1999 respectively. The Company expects to renew these leases
as they expire.
Total rental expense was $253,970, $277,297 and $246,801 for 1995, 1996 and
1997, respectively.
12. SELF-INSURANCE:
Prior to 1996, the Company had been partially self-insured for employee
healthcare costs. The Company maintained commercial insurance which limited the
Company's losses to $25,000 per individual with the Company accruing for
retained exposures under the plan. In January 1996, the Company changed the
healthcare plan from a partially self-insured plan to a third-party insurer
plan.
13. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company did not have sales greater than 10 percent of total sales to
any one customer during the years 1995, 1996 or 1997.
The Company did not purchase greater than 10 percent of total purchases
from any one vendor during the years 1995, 1996 and 1997.
In addition, the Company grants credit, generally without collateral, to
its customers located in the regions it serves. Consequently, the Company is
subject to potential credit risk related to changes in business and economic
factors affecting these customers. However, management believes that its
contract acceptance, billing and collection policies are adequate to minimize
the potential credit risk.
14. SUBSEQUENT EVENTS (UNAUDITED):
In July 1998, the Company and its sole stockholder entered into a
definitive agreement with Chemical Logistics Corporation (Chemical) pursuant to
which all outstanding shares of the Company's common stock will be exchanged for
cash and shares of Chemical common stock, concurrent with the consummation of an
initial public offering (the Offering) of common stock of Chemical.
F-47
<PAGE> 120
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Chemical Solvents, Inc.:
We have audited the accompanying combined balance sheets of Chemical
Solvents, Inc. and related company (collectively, the Company) as of December
31, 1996 and 1997, and the related combined statements of income, stockholder's
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 combined financial position of Chemical Solvents,
Inc. and related company as of December 31, 1996 and 1997, and the combined
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.
Houston, Texas
May 15, 1998
F-48
<PAGE> 121
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 14,569 $ 3,702 $ 41,223
Accounts receivable, less allowance for doubtful
accounts of $25,000.............................. 5,982,906 5,978,443 5,641,759
Inventories......................................... 924,709 1,176,426 1,275,537
Notes receivable.................................... 19,407 -- --
Other current assets................................ 460,800 245,559 187,663
----------- ----------- -----------
Total current assets........................ 7,402,391 7,404,130 7,146,182
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost................ 12,221,330 14,004,826 13,942,532
Less -- Accumulated depreciation.................... (7,014,151) (7,487,638) (7,580,708)
----------- ----------- -----------
5,207,179 6,517,188 6,361,824
----------- ----------- -----------
NOTES RECEIVABLE, net of current portion.............. 766,777 -- --
NOTES RECEIVABLE -- stockholder....................... 106,217 114,636 116,709
OTHER ASSETS, net..................................... 375,755 440,241 440,241
----------- ----------- -----------
Total assets................................ $13,858,319 $14,476,195 $14,064,956
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 3,820,965 $ 3,750,610 $ 3,434,240
Accrued liabilities................................. 682,414 766,369 629,273
Container deposits refundable to customers.......... -- 27,000 27,000
Current maturities of long-term debt................ 375,000 419,808 375,000
----------- ----------- -----------
Total current liabilities................... 4,878,379 4,963,787 4,465,513
LONG-TERM DEBT, net of current maturities............. 4,754,000 4,534,216 4,494,936
OTHER LONG-TERM LIABILITIES........................... 586,450 529,959 529,959
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock........................................ 1,000 1,000 1,000
Additional paid-in capital.......................... 586,839 586,839 586,839
Retained earnings................................... 3,051,651 3,860,394 3,986,709
----------- ----------- -----------
Total stockholder's equity.................. 3,639,490 4,448,233 4,574,548
----------- ----------- -----------
Total liabilities and stockholder's
equity.................................... $13,858,319 $14,476,195 $14,064,956
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 122
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES, net........................ $45,405,902 $40,873,552 $41,164,102 $9,729,706 $9,895,704
COSTS AND EXPENSES:
Cost of sales................... 33,425,045 30,297,608 30,333,493 7,082,385 6,964,988
Operating and delivery.......... 4,667,110 4,109,326 4,352,407 1,392,389 1,290,551
Selling, general and
administrative............... 3,917,212 3,991,577 3,818,688 857,521 919,424
Depreciation.................... 589,674 838,988 871,287 230,453 238,081
----------- ----------- ----------- ---------- ----------
Total costs and
expenses.............. 42,599,041 39,237,499 39,375,875 9,562,748 9,413,044
----------- ----------- ----------- ---------- ----------
INCOME FROM OPERATIONS............ 2,806,861 1,636,053 1,788,227 166,958 482,660
OTHER INCOME (EXPENSE):
Interest expense................ (389,520) (450,072) (417,125) (99,814) (105,823)
Interest income................. 97,480 76,281 35,606 16,187 2,158
Other, net...................... 113,445 (118,709) 142,203 (66,120) (2,230)
----------- ----------- ----------- ---------- ----------
NET INCOME........................ $ 2,628,266 $ 1,143,553 $ 1,548,911 $ 17,211 $ 376,765
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 123
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S COMPREHENSIVE
SHARES AMOUNT CAPITAL INCOME(1) EARNINGS EQUITY INCOME
------ ------ ---------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994....... 1,000 $1,000 $534,300 $ -- $ 3,159,864 $ 3,695,164
Net income..................... -- -- -- -- 2,628,266 2,628,266 $2,628,266
Other comprehensive income,
unrealized holding gains..... -- -- -- 42,180 -- 42,180 42,180
----------
Comprehensive income........... -- -- -- -- -- -- $2,670,446
==========
Distributions to stockholder... -- -- -- -- (2,632,494) (2,632,494)
----- ------ -------- -------- ----------- -----------
BALANCE, December 31, 1995....... 1,000 1,000 534,300 42,180 3,155,636 3,733,116
Net income..................... -- -- -- -- 1,143,553 1,143,553 $1,143,553
Other comprehensive income,
unrealized holding gains..... -- -- -- (42,180) -- (42,180) (42,180)
----------
Comprehensive income........... -- -- -- -- -- -- $1,101,373
==========
Distributions to stockholder... -- -- -- -- (1,247,538) (1,247,538)
Contribution from
stockholder.................. -- -- 52,539 -- -- 52,539
----- ------ -------- -------- ----------- -----------
BALANCE, December 31, 1996....... 1,000 1,000 586,839 -- 3,051,651 3,639,490
Net income..................... -- -- -- -- 1,548,911 1,548,911 $1,548,911
==========
Distributions to stockholder... -- -- -- -- (740,168) (740,168)
----- ------ -------- -------- ----------- -----------
BALANCE, December 31, 1997....... 1,000 1,000 586,839 -- 3,860,394 4,448,233
Net income (unaudited)......... -- -- -- -- 376,765 376,765 $ 376,765
==========
Distributions to stockholder
(unaudited).................. -- -- -- -- (250,450) (250,450)
----- ------ -------- -------- ----------- -----------
BALANCE, March 31, 1998
(unaudited).................... 1,000 $1,000 $586,839 $ -- $ 3,986,709 $ 4,574,548
===== ====== ======== ======== =========== ===========
</TABLE>
- ---------------
(1) Represents unrealized holding gains on available-for-sale securities.
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE> 124
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 2,628,266 $ 1,143,553 $ 1,548,911 $ 17,211 $ 376,765
----------- ----------- ----------- ---------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation............................. 589,674 838,988 871,287 230,453 238,081
(Decrease) increase in LIFO reserve...... (100,461) (252,517) 2,072 -- --
Loss (gain) on disposition of property,
plant and equipment.................... (28,078) 204,280 (93,554) -- --
Loss (gain) on sale of marketable
securities............................. 44 (29,726) -- -- --
Changes in operating assets and
liabilities --
Accounts receivable.................... 1,747,926 1,586,325 4,463 136,388 336,684
Inventories............................ 1,301,322 744,757 (253,789) (18,192) (99,111)
Other current assets................... 804,448 198,812 234,648 289,111 57,896
Other assets, net...................... 62,898 (4,494) (8,419) 142,744 (2,073)
Accounts payable, accrued liabilities
and other........................... (4,036,500) (907,064) (15,891) 558,532 (453,466)
----------- ----------- ----------- ---------- ---------
Total adjustments................... 341,273 2,379,361 740,817 1,339,036 78,011
----------- ----------- ----------- ---------- ---------
Net cash provided by operating
activities........................ 2,969,539 3,522,914 2,289,728 1,356,247 454,776
----------- ----------- ----------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................... (2,308,759) (1,513,256) (2,237,864) (703,062) (82,717)
Proceeds from disposition of property,
plant and equipment...................... 29,050 8,000 150,122 -- --
Proceeds from sale of marketable
securities............................... 85,174 119,726 -- -- --
Repayment of notes receivable.............. 114,011 112,098 766,777 -- --
Increase (decrease) in cash surrender value
of officer's life insurance.............. (62,020) 24,265 (64,486) -- --
----------- ----------- ----------- ---------- ---------
Net cash used in investing
activities........................ (2,142,544) (1,249,167) (1,385,451) (703,062) (82,717)
----------- ----------- ----------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on long-term debt............... (133,052) (1,969,895) (1,185,684) (272,750) (290,938)
Borrowings on long-term debt............... 1,875,161 833,333 1,010,708 -- 206,850
Issuance of common stock................... -- -- -- -- --
Capital contribution from stockholder...... -- 52,539 -- -- --
Cash distributions to stockholder.......... (2,619,027) (1,247,538) (740,168) (256,734) (250,450)
----------- ----------- ----------- ---------- ---------
Net cash used in financing
activities........................ (876,918) (2,331,561) (915,144) (529,484) (334,538)
----------- ----------- ----------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ (49,923) (57,814) (10,867) 123,701 37,521
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 122,306 72,383 14,569 14,569 3,702
----------- ----------- ----------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of period..... $ 72,383 $ 14,569 $ 3,702 $ 138,270 $ 41,223
=========== =========== =========== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest..................... $ 351,898 $ 454,693 $ 413,742 $ 97,453 $ 103,211
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 125
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Chemical Solvents, Inc. and related company (Ohio corporations)
(collectively, the Company) operates through one main distribution facility in
Cleveland, Ohio, and is a distributor of liquid organic chemicals as well as a
processor of wastewater and wash solvents. The plant processes industrially
contaminated water for disposal in an environmentally safe manner. The Company's
primary operations supply the Ohio, Pennsylvania, Michigan and Indiana
marketplaces.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination
The combined financial statements include the accounts of Chemical
Solvents, Inc. and Pavlish Real Estate, Inc., an affiliate through common
ownership. All significant intercompany balances and transactions have been
eliminated.
Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at March 31, 1998, and the results of its operations and cash flows for
the three months ended March 31, 1997 and 1998. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year-end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
Cash and Cash Equivalents
Cash and cash equivalents include all liquid debt instruments purchased
with an original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Inventories
Inventories are valued at the lower of cost (last-in, first-out) or market.
Substantially all of the goods consist of finished products.
Property, Plant and Equipment
Plant and equipment are stated at cost and depreciation is computed using
the straight-line method for financial reporting and tax purposes. Improvements
are capitalized and amortized over the estimated useful life of the asset.
Property, plant and equipment are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amounts of the
property, plant and equipment may not be recoverable.
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.
F-53
<PAGE> 126
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Customer Deposits on Drums and Cylinders
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
The Company has elected S Corporation status for tax purposes. In
accordance with the S Corporation provision of the Internal Revenue Code, the
Company's earnings are taxed directly to the stockholder.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
New Accounting Pronouncements
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which
requires the display of comprehensive income and its components in the financial
statements. Comprehensive income represents all changes in equity of an entity
during the reporting period, including net income and charges directly to equity
which are excluded from net income. The Company has chosen to disclose
comprehensive income, which includes unrealized gains on an available-for-sale
equity security, in the consolidated statements of stockholders' equity. Prior
years have been restated to conform to the SFAS No. 130 disclosure requirements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. Management is
presently evaluating what, if any, additional disclosures may be required when
this statement is implemented.
F-54
<PAGE> 127
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES:
The following sets forth the balances of selected accounts assuming that
the first-in, first-out (FIFO) method had been used for costing all inventories
in fiscal years 1995, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Inventories...................................... $2,150,886 $1,406,129 $1,659,918
Working capital.................................. 5,201,481 3,105,432 3,023,835
Net income....................................... 2,527,805 891,036 1,550,983
Retained earnings................................ 4,439,573 4,083,071 4,893,886
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------------------
USEFUL LIVES 1996 1997
------------ ----------- -----------
(IN YEARS)
<S> <C> <C> <C>
Land........................................... -- $ 85,084 $ 68,812
Buildings and improvements..................... 5-32 3,708,776 5,174,834
Machinery and equipment........................ 5-7 5,621,138 6,283,323
Automobiles and trucks......................... 3-5 1,776,687 1,579,666
Furniture and fixtures......................... 5-10 765,616 898,191
Construction in progress....................... 264,029 --
----------- -----------
12,221,330 14,004,826
Less -- Accumulated depreciation............... (7,014,151) (7,487,638)
----------- -----------
Total................................ $ 5,207,179 $ 6,517,188
=========== ===========
</TABLE>
5. NOTES RECEIVABLE:
During 1993, the Company sold certain nonproductive assets to an unrelated
party for $240,000. Under the terms of the agreement, the Company received
$40,000 in cash and a promissory note in the amount of $200,000, which bore
interest at 10 percent. The balance was $153,875 at December 31, 1996. The
promissory note required monthly payments of $2,643, including principal and
interest, for a period of 10 years. The note was repaid in full in February
1997.
On January 1, 1994, the Company received a promissory note in the amount of
$875,000 from an unrelated party. This note accrued interest on the unpaid
principal balance at the prime rate of interest and required an annual lump-sum
principal payment of $75,000. The balance was $630,000 at December 31, 1996. The
note was repaid in full in 1997.
F-55
<PAGE> 128
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT:
Long-term debt includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Long-term credit facility at prime (8.25% at 1996 and 8.50%
at 1997), payable at maturity, due April 30, 1999......... $3,879,000 $3,143,000
Mortgage note payable to a bank at 8.75%, payable in monthly
installments of $9,453, due 2002, secured by real
property, and personally guaranteed by the sole
stockholder of the Company................................ -- 960,000
Notes payable to a bank at 8.89%, payable in monthly
installments of $31,250 plus interest, due April 2000,
secured by certain vehicles and equipment................. 1,250,000 805,650
Note payable to a bank at 8%, payable in monthly
installments of principal and interest of $1,241, due June
2001. The note is secured by a vehicle.................... -- 45,374
---------- ----------
5,129,000 4,954,024
Less -- Current maturities.................................. (375,000) (419,808)
---------- ----------
Long-term debt.................................... $4,754,000 $4,534,216
========== ==========
</TABLE>
The long-term credit facility was entered into on March 29, 1996, and
provides for maximum borrowings of $6,000,000. The amount available for
borrowing is based on a percentage of eligible receivables. The Company pays a
commitment fee of .25 percent per year on the unused portion of the credit
facility. Borrowings under the credit facility require that the Company comply
with certain covenants, including limitations on additional borrowings and
capital expenditures and required minimum levels of tangible net worth and
working capital. The Company's inventory, equipment and intangible assets have
been assigned as collateral under the credit facility agreement and is secured
by the guarantee of the sole stockholder of the Company.
The note payable to bank in the amount of $805,650 at December 31, 1997 was
renegotiated in February 1998. The renegotiated debt totals $950,000, with
interest at 7.96 percent, payable in 48 monthly installments of principal and
interest of $23,210 through March 2002.
Long-term debt maturities as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998..................................................... $ 419,808
1999..................................................... 3,539,023
2000..................................................... 136,277
2001..................................................... 49,984
2002..................................................... 808,932
----------
$4,954,024
==========
</TABLE>
F-56
<PAGE> 129
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMON STOCK:
Common stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Chemical Solvents, Inc., no par value, 500 shares
authorized, issued and outstanding....................... $ 500 $ 500 $ 500
Pavlish Real Estate Holding Company, no par value, 500
shares authorized, issued and outstanding................ 500 500 500
------ ------ ------
$1,000 $1,000 $1,000
====== ====== ======
</TABLE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash, Accounts Receivable and Accounts Payable
The carrying amounts approximate market value due to the highly liquid
nature of these short-term investments.
Long-Term Debt
The estimated market value of the Company's long-term debt is based on
quoted market prices or, where such prices are not available, on estimated
year-end interest rates of debt with the same remaining average maturities and
credit quality. The carrying amount approximates market value at December 31,
1996 and 1997.
9. EMPLOYEE BENEFIT PLANS:
The Chemical Solvents Profit Sharing & 401(k) Plan (the Plan) is a
voluntary contributory defined contribution plan for all eligible employees of
Chemical Solvents, Inc. The effective date of the Plan was March 28, 1977. The
Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA). The Plan provides for the Company to make discretionary
contributions not to exceed 3 percent of the participant's contribution. Total
discretionary contributions by the Company under the Plan were approximately
$55,200, $46,000 and $35,000 for 1995, 1996 and 1997, respectively.
During 1992, the Company established an Executive Deferred Compensation
Plan, allowing certain members of management to defer a portion of their
compensation. Under this agreement, the Company was required to deposit funds
into a Trust equivalent to the accumulated deferred compensation. Management had
deposited $186,100 and $244,100 into a restricted trust as of December 31, 1995
and 1996, respectively. For financial statement purposes, the assets held in the
trust were netted against the accrued liability of the plan, which were
generally the same amounts. In 1997, the Company terminated this plan and the
assets of the trust were distributed to the respective members of management.
10. RELATED-PARTY TRANSACTIONS:
The Company has advanced funds amounting to $106,217 and $114,636 to its
sole stockholder at December 31, 1996 and 1997, respectively. The notes
receivable balances include an advance to the stockholder of $100,000 plus
interest accrued in the amount of 8.5 percent. The amount was advanced in
October 1995 and is not evidenced by a formal note agreement. No payments have
been made on the advance since the date of advance, and there is no stated
maturity; thus, the balance is classified as noncurrent in the accompanying
balance sheets.
F-57
<PAGE> 130
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and similar state statutes. In
response to liabilities associated with these activities, accruals are
established when it is probable that obligations have been incurred and
reasonable estimates are possible. Such accruals primarily include estimated
costs associated with remediation. The Company does not use discounting in
determining its accrued liabilities for environmental remediation, and no claims
for possible recovery from third-party insurers or other parties related to
environmental costs have been recognized in the Company's consolidated financial
statements.
The Company has been named a responsible party (PRP) under Environmental
Protection Agency (EPA) regulations for a Superfund site near Greenville, Ohio.
During 1994, the Company reached a settlement with the EPA whereby the Company
would pay a total of $ 341,125 in five annual installments of $68,225. The full
amount of this obligation was accrued in 1995. The Company, after consultation
with counsel, believes that the settlement may be reassessed and an additional
amount will be required to be paid. The Company anticipates based upon the
existing adjusted allocation formula for the site, that it will owe
approximately $322,000, although there can be no assurance as to the ultimate
costs incurred at the site or as to the amount of costs for which the Company
will be responsible.
The Company also has received a PRP notice from the EPA for a Superfund
site near Cleveland, Ohio. The EPA completed remediation at the site at a cost
of approximately $26 million. The PRP group made a settlement offer to the EPA
of $12 million together with anticipated future costs, $33,000 of which was from
the Company. The EPA has not responded to the offer. While there can be no
assurance as to the ultimate outcome, the Company believes that it is a de
minimis contributor to the site.
The Company's facilities in Cleveland, Ohio, are subject to RCRA permitting
and regulatory requirements which are likely to entail significant compliance
costs. In addition, one of the facilities is subject to permitting obligations
under a RCRA Facility Investigation ("RFI") to identify whether any
contamination exists. Certain general areas of concern have been identified, and
the Company is negotiating with the EPA on the proposed scope of work. The
Company is unable to reasonably estimate what corrective action measures may be
required as a result of the RFI. However, the Company estimates that performance
of the RFI alone may cost up to $250,000.
Based on the Company's evaluation of these and other environmental matters,
the Company has provided environmental accruals of $724,450 and $654,792 at
December 31, 1996 and 1997, respectively, primarily related to remediation
matters.
The Company has received a hazardous waste management permit as a federally
approved Part B facility. This permit was superceded by an Ohio EPA permit,
which is effective to May 14, 1998. An application to renew the permit was
submitted in November 1997, and the permit is now pending upon the review and
approval of the agency.
The Ohio EPA has established certain rules which require that the Company
provide assurance that funds will be available when needed for closure and/or
postclosure care of its facilities. In order to comply with these rules, the
Company has established a trust fund for the benefit of the Ohio EPA and entered
into a trust agreement with Pittsburgh National Bank. No deposits have been made
to the trust; however, the Company has purchased a letter of credit in the
amount of $405,341 in favor of the Ohio EPA in connection with its obligation.
The Company evaluates the adequacy of the letter of credit coverage periodically
and increases the letter as needed.
F-58
<PAGE> 131
CHEMICAL SOLVENTS, INC. AND RELATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
The Company has various claims and lawsuits outstanding in connection with
its operations. In the opinion of management, uninsured losses on these claims
and lawsuits, if any, would not be material to the Company's financial position.
Leases
The Company leases equipment and vehicles under noncancelable operating
leases. Expenses incurred under these leases during fiscal years 1995, 1996 and
1997 were $47,226, $57,552 and $98,437, respectively.
Future minimum payments under noncancelable operating leases are as
follows:
<TABLE>
<S> <C>
1998..................................................... $120,524
1999..................................................... 107,803
2000..................................................... 96,419
2001..................................................... 89,779
2002..................................................... 23,379
--------
$437,904
========
</TABLE>
Union Contracts
Hourly plant employees voted in May 1997 to have a union represent them in
negotiations with the Company. The Company has reached a basic agreement with
the union for a four-year period. This agreement must now be presented to the
employees for ratification.
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had sales of approximately 17 percent, 10 percent and 12
percent of total sales to one customer during the years ended December 31, 1995,
1996 and 1997, respectively.
The Company purchased approximately 33 percent, 37 percent and 32 percent
of total purchases from one vendor during 1995, 1996 and 1997, respectively.
In addition, the Company generally grants credit to its customers without
collateral. Consequently, the Company is subject to potential credit risk
related to changes in business and economic factors within the industry.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.
13. SUBSEQUENT EVENTS (UNAUDITED):
In July 1998, the Company and its stockholder entered into a definitive
agreement with Chemical Logistics Corporation (Chemical) pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Chemical common stock, concurrent with the consummation of an initial
public offering (the Offering) of common stock of Chemical.
F-59
<PAGE> 132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tilley Chemical Company, Inc.:
We have audited the accompanying combined balance sheets of Tilley Chemical
Company, Inc., and related entity (collectively, the Company) as of October 31,
1996 and 1997, and the related combined statements of income, stockholders'
equity and cash flows for each of the three years in the period ended October
31, 1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Tilley
Chemical Company, Inc., and related entity as of October 31, 1996 and 1997, and
the combined results of their operations and their cash flows for each of the
three years in the period ended October 31, 1997, in conformity with generally
accepted accounting principles.
Houston, Texas
May 18, 1998
F-60
<PAGE> 133
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 41,904 $ 90,948 $ 45,783
Accounts receivable, less allowance for doubtful
accounts of $42,000.............................. 4,991,545 5,289,070 5,109,623
Inventories......................................... 3,989,682 3,706,378 3,785,941
Other current assets................................ 125,533 105,115 322,774
Deferred income taxes............................... 215,945 179,782 181,166
----------- ----------- -----------
Total current assets........................ 9,364,609 9,371,293 9,445,287
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost................ 5,645,353 6,240,859 6,369,055
Less -- Accumulated depreciation.................... (3,308,079) (3,704,104) (3,878,966)
----------- ----------- -----------
2,337,274 2,536,755 2,490,089
----------- ----------- -----------
OTHER ASSETS, net..................................... 286,070 238,951 322,051
----------- ----------- -----------
Total assets................................ $11,987,953 $12,146,999 $12,257,427
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 3,946,391 $ 3,138,013 $ 3,501,429
Accrued liabilities................................. 553,846 579,448 509,222
Container deposits refundable to customers.......... 179,811 209,393 199,457
Income taxes payable................................ -- 82,038 175,808
Lines of credit..................................... 1,926,153 1,734,368 1,201,887
Current maturities of long-term debt................ 138,648 102,320 102,320
----------- ----------- -----------
Total current liabilities................... 6,744,849 5,845,580 5,690,123
----------- ----------- -----------
LONG-TERM DEBT, less current maturities............... 378,747 528,130 507,574
----------- ----------- -----------
DEFERRED INCOME TAXES................................. 184,733 230,143 230,958
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock........................................ 320,949 320,949 320,949
Additional paid-in capital.......................... 3,055 3,055 3,055
Retained earnings................................... 4,355,620 5,219,142 5,504,768
----------- ----------- -----------
Total stockholders' equity.................. 4,679,624 5,543,146 5,828,772
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................... $11,987,953 $12,146,999 $12,257,427
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 134
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED OCTOBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES, net.................. $36,707,497 $38,280,846 $40,714,717 $16,228,681 $15,791,095
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales............. 30,741,936 32,292,010 34,021,976 13,541,123 13,054,911
Operating and delivery.... 1,054,807 1,024,024 1,049,852 431,505 467,324
Selling, general and
administrative......... 3,133,582 3,339,435 3,380,574 1,358,939 1,357,402
Depreciation.............. 421,046 436,706 444,117 174,442 186,591
----------- ----------- ----------- ----------- -----------
Total costs and
expenses........ 35,351,371 37,092,175 38,896,519 15,506,009 15,066,228
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS...... 1,356,126 1,188,671 1,818,198 722,672 724,867
OTHER INCOME (EXPENSE):
Interest expense.......... (223,779) (220,564) (180,889) (85,008) (57,616)
Interest income........... 887 5,443 12,257 525 2,510
Other income (expense).... (673) 4,808 4,956 -- (1,072)
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES..................... 1,132,561 978,358 1,654,522 638,189 668,689
INCOME TAXES................ 364,828 295,262 567,500 218,900 221,982
----------- ----------- ----------- ----------- -----------
NET INCOME.................. $ 767,733 $ 683,096 $ 1,087,022 $ 419,289 $ 446,707
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 135
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, October 31, 1994................. 320,949 $320,949 $3,055 $3,351,791 $3,675,795
Distributions to stockholders........... -- -- -- (223,500) (223,500)
Net income.............................. -- -- -- 767,733 767,733
------- -------- ------ ---------- ----------
BALANCE, October 31, 1995................. 320,949 320,949 3,055 3,896,024 4,220,028
Distributions to stockholders........... -- -- -- (223,500) (223,500)
Net income.............................. -- -- -- 683,096 683,096
------- -------- ------ ---------- ----------
BALANCE, October 31, 1996................. 320,949 320,949 3,055 4,355,620 4,679,624
Distributions to stockholders........... -- -- -- (223,500) (223,500)
Net income.............................. -- -- -- 1,087,022 1,087,022
------- -------- ------ ---------- ----------
BALANCE, October 31, 1997................. 320,949 320,949 3,055 5,219,142 5,543,146
Distributions to stockholders
(unaudited).......................... -- -- -- (161,081) (161,081)
Net income (unaudited).................. -- -- -- 446,707 446,707
------- -------- ------ ---------- ----------
BALANCE, March 31, 1998 (unaudited)....... 320,949 $320,949 $3,055 $5,504,768 $5,828,772
======= ======== ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 136
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED OCTOBER 31, MARCH 31,
----------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 767,733 $ 683,096 $1,087,022 $ 419,289 $ 446,707
--------- ---------- ---------- --------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation...................... 421,046 436,706 444,117 174,442 186,591
Provision for deferred income
taxes........................... 1,915 (59,071) 81,575 33,989 (569)
Loss (gain) on disposition of
property, plant and equipment... 672 4,808 4,956 -- (1,072)
Changes in operating assets and
liabilities --
Receivables..................... 262,817 (782,020) 297,525 68,402 179,447
Inventories..................... (96,527) (229,121) (283,304) 166,833 (79,563)
Prepaid expenses................ 7,961 (19,981) 20,418 (137,362) (217,659)
Other assets.................... (68,215) (135,853) 47,119 71,949 (83,100)
Accounts payable, accrued
liabilities and other........ (763,272) 1,019,571 (753,193) (877,324) 283,254
Income taxes payable............ (95,712) (17,245) 82,038 126,743 93,770
--------- ---------- ---------- --------- ---------
Total adjustments............ (329,315) 217,794 (58,749) (372,328) 361,099
--------- ---------- ---------- --------- ---------
Net cash provided by
operating activities....... 438,418 900,890 1,028,273 46,961 807,806
--------- ---------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. (493,613) (336,169) (683,799) (33,816) (149,980)
Proceeds from disposition of
property, plant and equipment..... 114 16,299 6,801 -- 11,127
--------- ---------- ---------- --------- ---------
Net cash used in investing
activities................. (493,499) (319,870) (676,998) (33,816) (138,853)
--------- ---------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt......... 108,570 76,000 240,336 -- --
Repayments of long-term debt......... (179,834) (170,776) (127,281) (53,698) (20,556)
Net increase (decrease) in
line-of-credit borrowings......... 350,962 (255,434) (191,786) 136,156 (532,481)
Cash distributions paid.............. (223,500) (223,500) (223,500) (39,296) (161,081)
--------- ---------- ---------- --------- ---------
Net cash provided by (used
in) financing activities... 56,198 (573,710) (302,231) 43,162 (714,118)
--------- ---------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... 1,117 7,310 49,044 56,307 (45,165)
CASH AND CASH EQUIVALENTS, beginning of
period............................... 33,477 34,594 41,904 41,904 90,948
--------- ---------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................... $ 34,594 $ 41,904 $ 90,948 $ 98,211 $ 45,783
========= ========== ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest.......................... $ 177,551 $ 124,436 $ 152,468 $ 69,701 $ 40,253
Taxes............................. 352,289 363,755 341,673 82,413 297,120
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 137
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Tilley Chemical Company, Inc., a Maryland corporation, is a privately owned
and managed industrial distributor of a broad line of organic and inorganic
chemicals. D. J. J. Equity Corporation (D. J. J.) was incorporated in the state
of Maryland in 1989. D. J. J. is a real estate company wholly owned by the
stockholders of the Company. The Company leases its offices and a significant
portion of its warehouse space on a year-to-year basis from D. J. J.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination
The combined financial statements include the accounts of Tilley Chemical
Company, Inc., and D. J. J. (collectively, the Company), affiliates through
common ownership. All significant intercompany balances and transactions have
been eliminated.
Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at March 31, 1998, and the results of its operations and cash flows for
the five months ended March 31, 1997 and 1998. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year-end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
Cash and Cash Equivalents
Cash and cash equivalents include all liquid debt instruments purchased
with an original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market. Substantially all of the goods consist of finished products.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, and depreciation is
computed using the straight-line method for financial reporting purposes and
accelerated methods for federal income tax purposes. Leasehold improvements are
capitalized and amortized over the lesser of the life of the lease or the
estimated useful life of the asset. Property, plant and equipment are reviewed
for impairment whenever events or circumstances provide evidence that suggests
that the carrying amounts of the property, plant and equipment may not be
recoverable.
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.
F-65
<PAGE> 138
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Container Deposits Refundable to Customers
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
Tilley Chemical Company, Inc., follows the asset and liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109. Under this method, deferred assets and liabilities are
recorded for future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws.
Upon incorporation, D. J. J., with the consent of its stockholders, elected
to have its income taxed under the provisions of Subchapter S of the Internal
Revenue Code, which provides that, in lieu of corporate income taxes, the
stockholders are taxed on the entity's taxable income. D. J. J. regularly
declares dividends in amounts at least equal to the stockholders' tax
liabilities resulting from the Subchapter S Corporation election.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires the reporting of comprehensive
income and its components to be displayed with the same prominence as other
financial statements. This statement requires a company to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. The Company has adopted this statement, and the
differences between traditional income and comprehensive income were
insignificant.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15,
F-66
<PAGE> 139
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1997. The Company intends to adopt this statement during its fiscal year ending
October 31, 1999. Management is presently evaluating what, if any, additional
disclosures may be required when this statement is implemented.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
ESTIMATED -------------------------
USEFUL LIVES 1996 1997
------------ ----------- -----------
(IN YEARS)
<S> <C> <C> <C>
Land........................................... $ 170,726 $ 170,726
Warehouse...................................... 30 1,268,954 1,458,441
Leasehold improvements......................... 5-39 474,541 487,011
Machinery and equipment........................ 3-7 1,194,582 1,394,382
Tank farm facility............................. 5-15 475,130 484,021
Automobiles and trucks......................... 5-7 1,865,801 2,034,544
Oil and lube equipment......................... 7 195,619 211,734
----------- -----------
5,645,353 6,240,859
Less -- Accumulated depreciation............... (3,308,079) (3,704,104)
----------- -----------
Total................................ $ 2,337,274 $ 2,536,755
=========== ===========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Accrued compensation and benefits........................... $239,364 $267,044
Accrued profit-sharing expense.............................. 150,000 165,000
Accrued insurance and legal expense......................... 125,000 125,000
Other accrued expenses...................................... 39,482 22,404
-------- --------
$553,846 $579,448
======== ========
</TABLE>
F-67
<PAGE> 140
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Note payable in monthly installments of $4,526 which
includes interest at 8.5%. Unsecured. Maturity date is
January 2012.............................................. $ -- $ 445,137
Note payable in monthly installments of $904 which includes
interest at 8.5%. Unsecured. Maturity date is January
2012...................................................... -- 89,006
Note payable in monthly installments of $1,267 plus interest
at prime plus 1/4%. Collateralized by a semi-tractor.
Maturity date is November 2000............................ 62,065 46,867
Note payable in monthly installments of $1,230 plus interest
at prime plus 1/4%. Collateralized by a semi-tractor.
Maturity date is February 2000............................ 49,200 34,440
Note payable in monthly installments of $600 plus interest
at prime plus 1/4%. Collateralized by a semi-truck.
Maturity date is November 1999............................ 22,200 15,000
Note payable in monthly installments of $1,383 plus interest
at prime plus 1/2%. Collateralized by a semi-tractor.
Maturity date is November 1996............................ 1,383 --
Note payable in monthly installments of $1,983 plus interest
at prime plus 1/2%. Collateralized by automobiles.
Maturity date is November 1996............................ 1,984 --
Note payable in monthly installments of $750 plus interest
at prime plus 1/2%. Collateralized by semi-trailers.
Maturity date is May 1997................................. 4,995 --
Note payable in monthly installments of $1,454 plus interest
at prime plus 1/2%. Collateralized by a semi-tractor.
Maturity date is June 1997................................ 11,633 --
Note payable in monthly installments of $1,382 plus interest
at prime plus 1/2%. Collateralized by a semi-tanker.
Maturity date is August 1997.............................. 13,815 --
Note payable in monthly installments of $5,640 which
includes interest at 8.75%. Collateralized by land and
buildings. Maturity date is December 2003................. 350,120 --
--------- ---------
517,395 630,450
Less -- Current maturities.................................. (138,648) (102,320)
--------- ---------
Long-term debt.................................... $ 378,747 $ 528,130
========= =========
</TABLE>
Long-term debt maturities as of October 31, 1997, are as follows:
<TABLE>
<S> <C>
1998..................................................... $102,320
1999..................................................... 102,320
2000..................................................... 87,114
2001..................................................... 66,427
Thereafter............................................... 272,269
--------
Total.......................................... $630,450
========
</TABLE>
F-68
<PAGE> 141
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LINES OF CREDIT:
The Company has available lines of credit as follows.
Line of Credit, First Union Bank
The Company has a $3,200,000 line of credit with First Union Bank, which
expires in March 1999, collateralized by a lien on accounts receivable and
inventories. The interest rate is the bank's prime rate which averaged 8.3
percent and 8.2 percent during 1996 and 1997, respectively. At October 31, 1996
and 1997, borrowings outstanding under this line of credit were $1,926,154 and
$1,234,368, respectively. The line-of-credit agreement contains the following
restrictive covenants: the ratio of current assets to current liabilities not
less than 1.1 to 1; tangible net worth not less than $4,400,000; and the ratio
of liabilities to tangible net worth no greater than 2.50 to 1.0.
The Company also has available unused letters of credit issued by First
Union Bank for $88,700 and $54,450 as of October 31, 1996 and 1997,
respectively.
Line of Credit, County National Bank
In August 1997, the Company established a $500,000 line of credit with
County National Bank, collateralized by a lien on accounts receivable and
inventories. The line of credit does not have an expiration date, but continues
until all indebtedness of borrower to lender has been repaid in full and the
parties terminate the agreement in writing. The interest rate is the bank's
prime rate which averaged 8.5 percent during 1997. The restrictive covenants for
this line of credit are the same as those for the First Union Bank line of
credit, except tangible net worth must be at least $3,400,000. At October 31,
1997, borrowings outstanding under this line of credit were $500,000.
7. COMMON STOCK:
Common stock consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Tilley Chemical Company, Inc., $1 par, 100,000 shares
authorized, 37,309 shares outstanding,
respectively....................................... $ 37,309 $ 37,309 $ 37,309
D. J. J. Equity Corporation, $1 par, 1,000,000 shares
authorized, 283,640 shares outstanding,
respectively....................................... 283,640 283,640 283,640
-------- -------- --------
Total...................................... $320,949 $320,949 $320,949
======== ======== ========
</TABLE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash, Accounts Receivable and Accounts Payable
The carrying amount approximates market value due to the highly liquid
nature of these short-term investments.
Long-Term Debt and Lines of Credit
The estimated market value of the Company's long-term debt and lines of
credit is based on quoted market prices or, where such prices are not available,
on estimated year-end interest rates of debt with the same remaining average
maturities and credit quality. The carrying amount approximates market value at
October 31, 1995, 1996 and 1997.
F-69
<PAGE> 142
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES:
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current --
Federal............................................ $298,743 $291,620 $399,922
State.............................................. 64,170 62,713 86,005
-------- -------- --------
362,913 354,333 485,927
-------- -------- --------
Deferred --
Federal............................................ 1,514 (48,616) 67,134
State.............................................. 401 (10,455) 14,439
-------- -------- --------
1,915 (59,071) 81,573
-------- -------- --------
Total income tax expense................... $364,828 $295,262 $567,500
======== ======== ========
</TABLE>
Actual income tax expense differs from income tax computed by applying the
United States federal statutory rate to income before provision for income taxes
as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax......................... $396,396 $342,425 $579,081
State income tax, less federal benefit............... 41,971 33,968 65,288
Effect of earnings taxed to stockholders............. (82,498) (84,466) (82,797)
Nondeductible expenses............................... 8,959 3,335 5,928
-------- -------- --------
$364,828 $295,262 $567,500
======== ======== ========
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. The tax effects of the temporary
differences that give rise to the significant portions of the deferred tax
assets and liabilities are presented below:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred income tax assets --
Accrued expenses.......................................... $ 76,614 $ 45,589
Allowance for doubtful accounts........................... 17,640 17,640
Basis difference in inventory............................. 93,459 80,034
Container deposit......................................... 41,609 47,656
State taxes............................................... -- 1,571
--------- ---------
Total deferred income tax assets.................. 229,322 192,490
--------- ---------
Deferred income tax liabilities --
Basis difference in property and equipment................ (163,628) (211,851)
State taxes............................................... (3,482) --
Other..................................................... (31,000) (31,000)
--------- ---------
Total deferred income tax liabilities............. (198,110) (242,851)
--------- ---------
Net deferred income tax assets (liabilities)...... $ 31,212 $ (50,361)
========= =========
</TABLE>
F-70
<PAGE> 143
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLAN:
The Company has a defined 401(k) contribution profit-sharing plan. The plan
provides for the Company to match one-half of the percentage contributed by each
employee not to exceed 3 percent of the employee's compensation. Total matching
contributions by the Company under the plan were approximately $19,443, $17,788
and $21,444 for the years ended October 31, 1995, 1996 and 1997, respectively.
The Company may also make discretionary contributions. The Company declared
discretionary contributions of $190,000, $150,000 and $165,000 for the years
ended October 31, 1995, 1996 and 1997, respectively.
11. RELATED-PARTY TRANSACTIONS:
The Company has a sales agreement with a customer owned by one of the
Company's legal counsel. Sales to this customer were approximately $1,600,000
for the years ended October 31, 1995, 1996 and 1997, respectively. The terms of
such sales agreement are no more or less favorable than those terms on
nonrelated sales contracts.
The Company has a banking relationship and debt borrowings with a bank,
County National Bank, managed by a member of the Company's board of directors.
The debt terms of such borrowings are no more or less favorable than those terms
on nonrelated borrowings.
12. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company has various claims and lawsuits outstanding in connection with
its operations. In the opinion of management, uninsured losses on these claims
and lawsuits, if any, would not be material to the Company's financial position,
results of operations or cash flows.
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and similar state statutes. The
Company is currently not named as a potentially responsible party under CERCLA
or similar state legislation with respect to its operations.
Net Profits Agreement
Effective September 1, 1995, the Company entered into a net profits
agreement with a company whereby the monthly net profits (as defined in the
agreement) earned on certain products procured by that company outside the
United States and later sold in the United States (as defined in the agreement)
are split 50/50 between the parties. The agreement specified a term of two years
expiring September 1, 1997, and automatically renews for another two-year term,
until September 1, 1999. As of October 31, 1997, the agreement is still in
effect. The agreement may be terminated at any time provided that the parties to
the agreement reach mutually agreeable terms and the terminating party provides
the other party with 90 days' written notice. The Company performs all the
administrative tasks associated with this agreement, including the accounting
function. The portion of net profits paid out under this agreement are accounted
for as a commission expense within selling, general and administrative expenses
in the accompanying combined statements of income. The sales related to such
agreement are $1,840,256, $822,027 and $1,070,376 for the years ended October
31, 1995, 1996 and 1997, respectively. The costs of sales related to such
agreement are $1,523,512, $661,378 and $935,160 for the years ended October 31,
1995, 1996 and 1997, respectively.
F-71
<PAGE> 144
TILLEY CHEMICAL COMPANY, INC., AND RELATED ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company had no sales greater than 10 percent of total sales to any one
customer during the years ended October 31, 1995, 1996 and 1997.
The Company purchased 24 percent of total purchases from two vendors during
the years ended October 31, 1995, 1996 and 1997.
In addition, the Company grants credit, generally without collateral, to
its customers located primarily in the northeastern United States. Consequently,
the Company is subject to potential credit risk related to changes in business
and economic factors within the Mid-Atlantic region of the United States.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.
14. SUBSEQUENT EVENTS:
In July 1998, the Company and its stockholders entered into a definitive
agreement with Chemical Logistics Corporation (Chemical) pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Chemical common stock, concurrent with the consummation of the initial
public offering (the Offering) of additional common stock of Chemical.
F-72
<PAGE> 145
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cron Chemical Corporation:
We have audited the accompanying combined balance sheets of Cron Chemical
Corporation and related companies (collectively, the Company) as of September
30, 1996 and 1997, and the related combined statements of income, stockholder's
equity and cash flows for the years then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Cron
Chemical Corporation and related companies as of September 30, 1996 and 1997,
and the combined results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Houston, Texas
May 15, 1998
F-73
<PAGE> 146
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 209,246 $ 415,359 $ 840,384
Accounts receivable, less allowance for doubtful
accounts of $31,000, $31,000 and $53,000,
respectively..................................... 5,389,228 5,289,757 6,215,357
Inventories......................................... 3,510,477 3,072,561 3,048,599
Deferred income taxes............................... 62,411 50,434 56,317
Other current assets................................ 209,273 243,132 44,821
----------- ----------- -----------
Total current assets........................ 9,380,635 9,071,243 10,205,478
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost................ 5,433,636 5,689,710 5,710,199
Less -- Accumulated depreciation.................... (2,476,224) (2,747,268) (2,862,099)
----------- ----------- -----------
2,957,412 2,942,442 2,848,100
----------- ----------- -----------
INTANGIBLE ASSETS, net................................ 70,833 58,333 52,083
----------- ----------- -----------
Total assets................................ $12,408,880 $12,072,018 $13,105,661
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 4,613,113 $ 4,736,402 $ 5,174,061
Accrued liabilities................................. 535,877 517,588 527,202
Container deposits refundable to customers.......... 208,449 218,462 220,059
Dividends payable -- Parent......................... 814,254 403,635 1,286,444
Income taxes payable -- Parent...................... 474,787 292,901 487,342
----------- ----------- -----------
Total current liabilities................... 6,646,480 6,168,988 7,695,108
----------- ----------- -----------
NOTES PAYABLE -- PARENT............................... 600,000 650,000 650,000
----------- ----------- -----------
DEFERRED INCOME TAXES................................. 397,913 394,124 420,505
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock........................................ 38,750 38,750 38,750
Additional paid-in capital.......................... 4,394,469 4,394,469 3,979,469
Retained earnings................................... 331,268 425,687 321,829
----------- ----------- -----------
Total stockholder's equity.................. 4,764,487 4,858,906 4,340,048
----------- ----------- -----------
Total liabilities and stockholder's
equity.................................... $12,408,880 $12,072,018 $13,105,661
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE> 147
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
------------------------- -------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES, net............................... $41,759,726 $38,754,559 $17,993,300 $20,600,650
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales.......................... 34,866,229 32,557,168 15,126,681 17,492,322
Operating and delivery................. 1,753,821 1,680,363 846,877 783,208
Selling, general and administrative.... 3,276,285 3,267,590 1,603,045 1,536,128
Depreciation and amortization.......... 349,491 403,874 207,454 204,328
----------- ----------- ----------- -----------
Total costs and expenses....... 40,245,826 37,908,995 17,784,057 20,015,986
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS................... 1,513,900 845,564 209,243 584,664
OTHER INCOME (EXPENSE):
Interest expense....................... (51,052) (62,285) (23,584) (23,824)
Interest income........................ 6,216 3,221 1,777 1,550
Other, net............................. 49,849 26,744 17,784 20,501
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES............... 1,518,913 813,244 205,220 582,891
INCOME TAXES............................. 569,744 315,190 77,083 218,940
----------- ----------- ----------- -----------
NET INCOME............................... $ 949,169 $ 498,054 $ 128,137 $ 363,951
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 148
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1995............ 1,467.5 $38,750 $4,394,469 $196,353 $4,629,572
Distributions to Parent.............. -- -- -- (814,254) (814,254)
Net income........................... -- -- -- 949,169 949,169
------- ------- ---------- -------- ----------
BALANCE, September 30, 1996............ 1,467.5 38,750 4,394,469 331,268 4,764,487
Distributions to Parent.............. -- -- -- (403,635) (403,635)
Net income........................... -- -- -- 498,054 498,054
------- ------- ---------- -------- ----------
BALANCE, September 30, 1997............ 1,467.5 38,750 4,394,469 425,687 4,858,906
Distributions to Parent
(unaudited)....................... -- -- (415,000) (467,809) (882,809)
Net income for the six months
(unaudited)....................... -- -- -- 363,951 363,951
------- ------- ---------- -------- ----------
BALANCE, March 31, 1998 (unaudited).... 1,467.5 $38,750 $3,979,469 $321,829 $4,340,048
======= ======= ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 149
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
---------------------- ---------------------
1996 1997 1997 1998
--------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 949,169 $ 498,054 $ 128,137 $ 363,951
--------- ---------- --------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization............ 349,491 403,874 207,454 204,328
Loss (gain) on disposition of property,
plant and equipment.................... (49,849) (26,744) (17,784) (20,501)
Provision for deferred income taxes...... 40,530 32,817 32,782 20,499
Changes in operating assets and
liabilities --
Accounts receivable.................... 213,772 99,471 792,666 (925,600)
Inventories............................ (293,810) 437,916 16,784 23,962
Other current assets................... (21,078) (21,881) (5,488) 192,428
Accounts payable, accrued liabilities
and other........................... (241,855) (70,663) (487,354) 669,692
--------- ---------- --------- ---------
Total adjustments................... (2,799) 854,790 539,060 164,808
--------- ---------- --------- ---------
Net cash provided by operating
activities........................ 946,370 1,352,844 667,197 528,759
--------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (717,824) (409,919) (224,196) (124,235)
Proceeds from disposition of property, plant
and equipment............................ 57,700 27,442 18,289 20,501
--------- ---------- --------- ---------
Net cash used in investing
activities........................ (660,124) (382,477) (205,907) (103,734)
--------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under notes
payable -- Parent........................ 250,000 50,000 200,000 --
Distributions to Parent..................... (651,000) (814,254) -- --
--------- ---------- --------- ---------
Net cash provided by (used in)
financing activities.............. (401,000) (764,254) 200,000 --
--------- ---------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS..... (114,754) 206,113 661,290 425,025
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 324,000 209,246 209,246 415,359
--------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period...... $ 209,246 $ 415,359 $ 870,536 $ 840,384
========= ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest................................. $ 51,052 $ 62,285 $ 23,584 $ 23,824
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 150
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Cron Chemical Corporation (a Texas corporation) and its related companies
(Louisiana corporations) (collectively, the Company) are wholly owned
subsidiaries of Amalgamet, Inc. (the Parent), whose ultimate parent is Preussag
AG. The Company is a distributor of a broad line of organic and inorganic
chemicals to customers throughout the United States. The primary operations
supply Texas and Louisiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination
The combined financial statements include the accounts of Cron Chemical
Corporation, Magnolia Chemicals & Solvents, Inc., and Rayver, Inc., two
affiliates through common ownership. All significant intercompany balances and
transactions have been eliminated.
Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at March 31, 1998, and the results of their operations and cash flows
for the six months ended March 31, 1997 and 1998. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year-end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
Cash and Cash Equivalents
Cash equivalents include all liquid debt instruments purchased with an
original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon a
historical analysis of accounts receivable where collection is no longer
probable.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the weighted average method which approximates the first-in, first-out
method.
Property, Plant and Equipment
Plant and equipment are recorded at cost and are being depreciated using
the straight-line method for financial reporting purposes and accelerated
methods for federal income tax purposes. Leasehold improvements are capitalized
and amortized over the lesser of the life of the lease or the estimated useful
life of the asset. Property, plant and equipment are reviewed for impairment
whenever events or circumstances provide evidence that suggests that the
carrying amounts of the property, plant and equipment may not be recoverable.
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.
F-78
<PAGE> 151
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
Intangible assets are amortized, using the straight-line method of
accounting, over their estimated useful life. Amortization amounted to $12,500
in fiscal years 1996 and 1997.
Customer Deposits on Drums and Cylinders
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws.
The operations of the Company were included in the consolidated U.S.
federal income tax return of the Parent. For purposes of these financial
statements, current and deferred income taxes have been provided on an "as if"
separate-return basis. As a member of a consolidated group, the Company is
jointly and severally liable for federal income taxes of the group.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires the reporting of comprehensive
income and its components to be displayed with the same prominence as other
financial statements. This statement requires a company to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The Company has adopted this statement, and the differences between
traditional income and comprehensive income were insignificant.
F-79
<PAGE> 152
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending September 30, 1998. Management is
presently evaluating what, if any, additional disclosures may be required when
this statement is implemented.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
ESTIMATED -------------------------
USEFUL LIVES 1996 1997
------------ ----------- -----------
(IN YEARS)
<S> <C> <C> <C>
Land........................................... $ 435,335 $ 435,335
Buildings and improvements..................... 5-50 2,655,540 2,743,727
Machinery and equipment........................ 3-6 1,555,719 1,689,564
Automobiles and trailers....................... 3-5 787,042 821,084
----------- -----------
5,433,636 5,689,710
Less -- Accumulated depreciation............... (2,476,224) (2,747,268)
----------- -----------
Total................................ $ 2,957,412 $ 2,942,442
=========== ===========
</TABLE>
4. NOTES PAYABLE -- PARENT:
The Company's notes payable -- parent are classified as long-term in the
accompanying balance sheets as the Parent has stated that it will not require
repayment of these notes within the next 12 months. The notes bear interest at
the London Interbank Offered Rate plus 1 percent, as of the beginning of each
quarter. Interest was payable at rates of 7.0 percent and 7.25 percent at
September 30, 1996 and 1997, respectively. Interest expense incurred for the
years ended September 30, 1996 and 1997, related to the notes payable was
$49,998 and $62,285, respectively.
5. COMMON STOCK:
Common stock consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1996 1997
------- -------
<S> <C> <C>
Cron stock, $1 par value; 1,000 shares authorized, 1,000
shares issued and outstanding............................. $ 1,000 $ 1,000
Magnolia stock, $100 par value; 750 shares authorized, 367.5
shares issued and outstanding............................. 36,750 36,750
Rayver stock, no par value; 100 shares authorized, 100
shares issued and outstanding............................. 1,000 1,000
------- -------
Total common stock................................ $38,750 $38,750
======= =======
</TABLE>
F-80
<PAGE> 153
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash, Accounts Receivable and Accounts Payable
The carrying amounts approximate market value due to the highly liquid
nature of these short-term investments.
Notes Payable
The estimated market value of the Company's notes payable is based on
quoted market prices or, where such prices are not available, on estimated
year-end interest rates of debt with the same remaining average maturities and
credit quality. The carrying amount approximates market value at September 30,
1996 and 1997.
7. INCOME TAXES
Income tax expense computed on an "as if" company basis consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Current --
Federal................................................... $514,368 $274,452
State..................................................... 14,846 7,921
Deferred --
Federal................................................... 39,394 31,895
State..................................................... 1,136 922
-------- --------
$569,744 $315,190
======== ========
</TABLE>
Actual income tax expense differs from income tax computed by applying the
United States federal statutory rate to income before provision for income taxes
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Statutory federal income tax................................ $531,620 $284,635
State income taxes, less federal benefit.................... 10,389 5,779
Nondeductible expenses...................................... 27,735 24,776
-------- --------
$569,744 $315,190
======== ========
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. The tax
F-81
<PAGE> 154
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
effects of the temporary differences that give rise to the significant portions
of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred income tax assets --
Basis difference in inventory............................. $ 63,618 $ 58,581
State taxes............................................... 4,672 4,994
--------- ---------
Total deferred income tax assets.................. 68,290 63,575
Deferred income tax liabilities --
Accrued expenses.......................................... (40,188) (22,651)
Basis difference in property and equipment................ (359,105) (377,626)
Other..................................................... (4,499) (6,988)
--------- ---------
Total deferred income tax liabilities............. (403,792) (407,265)
--------- ---------
Net deferred income tax liabilities............... $(335,502) $(343,690)
========= =========
</TABLE>
8. RELATED-PARTY TRANSACTIONS:
The Company has the following related-party transactions:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Interest expense on note payable -- Parent.................. $ 49,998 $ 62,285
Income taxes payable to Parent.............................. 474,787 292,901
Purchases of inventory from affiliated companies............ 252,000 158,000
Sales of inventory to affiliated companies.................. 138,000 211,000
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and similar state statutes. The
Company is not currently named as a potentially responsible party under CERCLA
or similar state legislation with respect to its operations.
Litigation
The Company has various claims and lawsuits outstanding in connection with
its operations. In the opinion of management, uninsured losses on these claims
and lawsuits, if any, would not be material to the Company's financial position,
results of operations or cash flows.
Leases
The Company leases various equipment under operating leases which expire in
2002. Rent expense during fiscal years 1996 and 1997 was approximately $192,000
and $183,000, respectively.
F-82
<PAGE> 155
CRON CHEMICAL CORPORATION AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
1998..................................................... $181,409
1999..................................................... 155,009
2000..................................................... 151,512
2001..................................................... 44,818
2002..................................................... 8,607
--------
$541,355
========
</TABLE>
10. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company did not have sales greater than 10 percent of total sales to
any one customer during 1996 and 1997.
The Company purchased approximately 11 percent of total purchases from one
vendor during 1996. The Company did not purchase greater than 10 percent of
total purchases from any vendor during 1997.
In addition, the Company grants credit, generally without collateral, to
its customers. Consequently, the Company is subject to potential credit risk
related to changes in business and economic factors. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.
11. SUBSEQUENT EVENTS (UNAUDITED):
On June 10, 1998, the Company entered into an unsecured promissory note
with the Parent for $1,000,000 which expires in July 1999. The promissory note
bears interest at 8 percent. Also on June 10, 1998, the Company entered into two
separate secured promissory notes with the Parent for $2,000,000 which expire in
July 1999. The promissory notes are secured by real estate owned by the Company
and bear interest at 8 percent.
In July 1998, the Company and its stockholders entered into a definitive
agreement with Chemical Logistics Corporation (Chemical) pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Chemical common stock concurrent with the consummation of an initial
public offering (the Offering) of common stock of Chemical.
F-83
<PAGE> 156
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brown Chemical Co., Inc.:
We have audited the accompanying consolidated balance sheets of Brown
Chemical Co., Inc. and subsidiary (collectively, the Company) as of December 31,
1996 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brown Chemical
Co., Inc. and subsidiary as of December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Houston, Texas
May 15, 1998
F-84
<PAGE> 157
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 403,468 $ 1,947,718 $ 1,546,140
Accounts receivable, less allowance for doubtful
accounts of $22,185, $21,325 and $21,325,
respectively..................................... 3,680,561 3,441,562 4,397,350
Inventories......................................... 1,972,909 2,048,812 2,001,004
Deferred income taxes............................... 654,142 540,928 578,333
Other current assets................................ 89,727 85,275 97,655
----------- ----------- -----------
Total current assets........................ 6,800,807 8,064,295 8,620,482
----------- ----------- -----------
INVESTMENTS........................................... 72,565 146,648 166,369
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost................ 4,314,738 4,393,681 4,406,527
Less -- Accumulated depreciation.................... (2,167,637) (2,445,150) (2,521,156)
----------- ----------- -----------
2,147,101 1,948,531 1,885,371
----------- ----------- -----------
CASH SURRENDER VALUE OF LIFE INSURANCE................ 3,284,477 3,641,004 3,729,231
OTHER ASSETS, net..................................... 3,848 -- --
----------- ----------- -----------
Total assets................................ $12,308,798 $13,800,478 $14,401,453
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 2,622,264 $ 3,670,562 $ 4,234,369
Accrued liabilities................................. 658,095 804,193 631,858
Container deposits refundable to customers.......... 189,318 218,650 137,220
Income taxes payable................................ 14,101 108,862 254,617
Notes payable....................................... 15,131 14,929 --
Current maturities of long-term debt................ 293,333 987,778 964,444
----------- ----------- -----------
Total current liabilities................... 3,792,242 5,804,974 6,222,508
----------- ----------- -----------
LONG-TERM DEBT, net of current maturities............. 2,992,597 2,133,296 2,165,609
DEFERRED INCOME TAXES................................. 108,151 142,777 143,288
OTHER LONG-TERM LIABILITIES........................... 1,380,454 1,280,985 1,254,372
MINORITY INTEREST..................................... 153,404 163,122 165,377
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 10,000 shares authorized,
5,000 shares issued and outstanding.............. 5,070 5,070 5,070
Additional paid-in capital.......................... 1,500,000 1,500,000 1,500,000
Retained earnings................................... 2,351,133 2,703,039 2,866,975
Unrealized gain on equity investments............... 25,747 67,215 78,254
----------- ----------- -----------
Total stockholders' equity.................. 3,881,950 4,275,324 4,450,299
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................... $12,308,798 $13,800,478 $14,401,453
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE> 158
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- -----------------------
1996 1997 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES, net............................... $33,767,376 $34,311,113 $8,706,630 $9,159,766
----------- ----------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales.......................... 28,175,745 28,361,095 7,175,285 7,492,189
Operating and delivery................. 1,531,583 1,514,302 377,545 388,188
Selling, general and administrative.... 2,856,583 3,097,369 790,966 820,899
Depreciation........................... 260,746 277,513 68,002 73,339
----------- ----------- ---------- ----------
Total costs and expenses....... 32,824,657 33,250,279 8,411,798 8,774,615
----------- ----------- ---------- ----------
INCOME FROM OPERATIONS................... 942,719 1,060,834 294,832 385,151
OTHER INCOME (EXPENSE):
Interest expense....................... (350,734) (339,568) (77,166) (82,992)
Other, net............................. 5,730 (16,996) 1,286 2,029
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST............................... 597,715 704,270 218,952 304,188
INCOME TAX EXPENSE....................... 279,686 342,646 106,520 137,997
----------- ----------- ---------- ----------
INCOME BEFORE MINORITY INTEREST.......... 318,029 361,624 112,432 166,191
MINORITY INTEREST........................ 9,759 9,718 2,252 2,255
----------- ----------- ---------- ----------
NET INCOME............................... $ 308,270 $ 351,906 $ 110,180 $ 163,936
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-86
<PAGE> 159
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME(1) EQUITY INCOME
------ ------ ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996....... 5,000 $5,070 $1,500,000 $2,351,133 $25,747 $3,881,950
Net income..................... -- -- -- 351,906 -- 351,906 $351,906
Other comprehensive income,
unrealized holding gains..... -- -- -- -- 41,468 41,468 41,468
--------
Comprehensive income........... -- -- -- -- -- -- $393,374
----- ------ ---------- ---------- ------- ---------- ========
BALANCE, December 31, 1997....... 5,000 5,070 1,500,000 2,703,039 67,215 4,275,324
Net income (unaudited)......... -- -- -- 163,936 -- 163,936 $163,936
Other comprehensive income,
unrealized holding gains
(unaudited).................. -- -- -- -- 11,039 11,039 11,039
--------
Comprehensive income
(unaudited).................. -- -- -- -- -- -- $174,975
----- ------ ---------- ---------- ------- ---------- ========
BALANCE, March 31, 1998
(unaudited).................... 5,000 $5,070 $1,500,000 $2,866,975 $78,254 $4,450,299
===== ====== ========== ========== ======= ==========
</TABLE>
- ---------------
(1) Represents unrealized holding gains on available-for-sale equity securities.
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE> 160
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ----------------------
1996 1997 1997 1998
---------- ----------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 308,270 $ 351,906 $ 110,180 $ 163,936
--------- ---------- --------- ----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Loss on real estate option..................... -- 29,600 -- --
(Increase) decrease in cash value of life
insurance................................... 75,155 30,227 1,635 (829)
Depreciation................................... 260,737 277,214 68,002 73,339
Provision for deferred taxes................... 174,718 115,259 28,815 (45,568)
Minority interest.............................. 9,759 9,718 2,252 2,255
Changes in operating assets and liabilities--
Accounts and loans receivable............... (319,930) 238,999 (465,430) (955,788)
Inventories................................. (76,633) (75,903) 129,418 47,808
Prepaid expenses............................ 18,189 (1,240) 195 (12,655)
Accounts payable............................ (135,702) 1,048,298 543,131 563,807
Due to customers............................ 28,052 29,332 40,034 (81,430)
Accrued liabilities......................... 248,335 143,393 (94,691) (171,816)
Deferred compensation plan.................. (75,206) (80,642) (19,636) (21,057)
Income taxes payable........................ (8,564) 94,761 46,896 145,755
Other....................................... 7,740 (6,152) 1,449 275
--------- ---------- --------- ----------
Total adjustments......................... 206,650 1,852,864 282,070 (455,904)
--------- ---------- --------- ----------
Net cash provided by (used in) operating
activities.............................. 514,920 2,204,770 392,250 (291,968)
--------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Life insurance policy payments................... (258,277) (258,277) (55,085) (55,085)
Acquisition of fixed assets...................... (147,844) (78,644) (27,136) (10,179)
Other............................................ (15,726) (13,942) (6,734) (8)
--------- ---------- --------- ----------
Net cash used in investing activities..... (421,847) (350,863) (88,955) (65,272)
--------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt............................... (78,203) (293,535) (38,465) (38,263)
Capital lease payments........................... (16,050) (16,122) (4,516) (6,075)
--------- ---------- --------- ----------
Net cash used in financing activities..... (94,253) (309,657) (42,981) (44,338)
--------- ---------- --------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.......... (1,180) 1,544,250 260,314 (401,578)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 404,648 403,468 403,468 1,947,718
--------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ 403,468 $1,947,718 $ 663,782 $1,546,140
========= ========== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for--
Interest....................................... $ 93,988 $ 86,712 $ 21,747 $ 20,378
Taxes.......................................... 93,186 131,712 31,088 34,844
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE> 161
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Brown Chemical Co., Inc. (Brown Chemical), a New Jersey corporation, and
subsidiary (collectively, the Company) are domestic distributors of various dry
and liquid inorganic and organic chemicals to industrial customers primarily in
New Jersey, New York and Pennsylvania.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Brown Realty, Inc. (Brown Realty), an 83 1/3 percent owned subsidiary. All
significant intercompany balances and transactions have been eliminated.
Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at March 31, 1998, and the results of its operations and cash flows for
the three months ended March 31, 1997 and 1998. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year-end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
Cash and Cash Equivalents
Cash and cash equivalents include all liquid debt instruments purchased
with an original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Inventories
Inventories are stated at lower of cost or market with cost being
determined using the first-in, first-out (FIFO) method. Substantially all of the
Company's inventory consists of finished goods.
Investments
Investments consist of equity securities. The Company classifies its equity
securities as available-for-sale. Available-for-sale securities are recorded at
fair value based upon market quotations. Unrealized holding gains and losses,
net of the related tax effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component of stockholders' equity
until realized. A decline in the market value of any available-for-sale security
below cost that is deemed other than temporary is charged to earnings in the
period it occurs resulting in the establishment of a new cost basis for the
security. Dividend income is recognized when earned.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciation is
computed using the straight-line method for financial reporting purposes and
accelerated methods for federal income tax purposes. Plant and
F-89
<PAGE> 162
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equipment are reviewed for impairment whenever events or circumstances provide
evidence that suggests that the carrying amounts of the plant and equipment may
not be recoverable.
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 resulting gain or
loss is recognized in the statements of income.
Cash Surrender Value of Life Insurance
Premiums on cash surrender value life insurance are expensed during the
year. Increases in the cash surrender value of life insurance are recorded as a
decrease in life insurance expense. The cash surrender value of life insurance
is recorded as a long-term asset at its fair value.
Customer Deposits on Drums and Cylinders
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
Containers used to ship products which cost in excess of $1,000 and have a
useful life greater than one year are capitalized and depreciated over their
useful life (generally five years). Containers used to ship products which cost
less than $1,000 are accounted for as inventory.
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities, and are measured using enacted tax rates
and laws.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-90
<PAGE> 163
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncements
In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires the display of comprehensive income and
its components in the financial statements. Comprehensive income represents all
changes in equity of an entity during the reporting period, including net income
and charges directly to equity which are excluded from net income. The Company
has chosen to disclose comprehensive income, which includes unrealized gains on
an available-for-sale equity security, in the consolidated statements of
stockholders' equity. Prior years have been restated to conform to the SFAS No.
130 disclosure requirements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. Management is
presently evaluating what, if any, additional disclosures may be required when
this statement is implemented.
3. INVESTMENTS:
The cost, gross unrealized holding gains and fair value of the Company's
available-for-sale equity securities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- --------
<S> <C> <C>
Cost........................................................ $26,588 $ 26,622
Gross unrealized holding gains.............................. 45,977 120,026
------- --------
Fair value........................................ $72,565 $146,648
======= ========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------------------
USEFUL LIVES 1996 1997
------------ ----------- -----------
(IN YEARS)
<S> <C> <C> <C>
Land........................................... -- $ 199,778 $ 199,778
Buildings and improvements..................... 5-31 2,568,478 2,568,478
Machinery and equipment........................ 5-7 1,104,238 1,170,335
Furniture and fixtures......................... 5-10 158,720 171,566
Automobiles and trucks......................... 5-7 283,524 283,524
----------- -----------
4,314,738 4,393,681
Less -- Accumulated depreciation............... (2,167,637) (2,445,150)
----------- -----------
Total................................ $ 2,147,101 $ 1,948,531
=========== ===========
</TABLE>
F-91
<PAGE> 164
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Balance, beginning of year.................................. $15,000 $22,185
Provision for doubtful accounts............................. 7,185 6,325
Amounts written off......................................... -- (7,185)
------- -------
Balance, end of year........................................ $22,185 $21,325
======= =======
</TABLE>
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred compensation agreements............................ $440,712 $584,105
Profit-sharing plan......................................... 150,000 150,000
Other accrued expenses...................................... 17,383 20,088
-------- --------
$608,095 $754,193
======== ========
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Brown Realty --
Mortgage payable to a bank, dated June 1993, payable in
monthly installments of $7,778, bearing interest at
prime plus 1 percent and secured by property and
building at the Oakland, New Jersey, location and
guaranteed by Brown Chemical, maturing July 1, 1998.
(Prime was 8.50% as of December 31, 1997).............. $1,081,111 $ 987,778
Brown Chemical --
Line of credit with borrowings of up to $1.0 million,
bearing interest at prime plus 1/2% and secured by all
Brown Chemical's assets, scheduled maturity on October
15, 1997, and expiring September 9, 1998............... 200,000 --
Loans payable on cash surrender value of life insurance
policies............................................... 2,004,820 2,133,296
---------- ----------
3,285,931 3,121,074
Less -- Current maturities.................................. (293,333) (987,778)
---------- ----------
Long-term debt.................................... $2,992,598 $2,133,296
========== ==========
</TABLE>
The loans payable on the cash surrender value of life insurance policies
are due upon the death of the insured and have no scheduled repayments prior to
such event.
The mortgage payable requires Brown Chemical and Brown Realty to maintain
certain working capital, net worth and debt service ratios. At December 31,
1997, Brown Chemical was not in compliance with certain mortgage debt covenants.
The mortgage payable is classified as a current maturity of long-term debt as it
matures on July 1, 1998. As of May 15, 1998, the bank has not accelerated the
payment of the mortgage payable.
F-92
<PAGE> 165
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. MINORITY INTEREST:
At December 31, 1996 and 1997, the Company reported minority interest in
the balance sheet of $153,404 and $163,122, respectively. The minority interest
relates to the 16 2/3 percent outside ownership in Brown Realty. For financial
reporting purposes, the assets, liabilities and income (loss) attributable to
the minority interest are consolidated in the Company's financial statements and
the minority interest's share of net assets and income (loss) in Brown Realty,
has been recorded as "Minority Interest" in the balance sheets and statements of
income.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash, Accounts Receivable and Accounts Payable
The carrying amount approximates market value due to the highly liquid
nature of these short-term investments.
Long-Term Debt and Notes Payable
The estimated market value of the Company's long-term debt and notes
payable is based on quoted market prices or, where such prices are not
available, on estimated year-end interest rates of debt with the same remaining
average maturities and credit quality. The carrying amount approximates market
value at December 31, 1996 and 1997.
9. INCOME TAXES:
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Current --
Federal................................................... $ 72,235 $177,290
State..................................................... 32,732 50,097
-------- --------
104,967 227,387
-------- --------
Deferred --
Federal................................................... 145,831 89,865
State..................................................... 28,888 25,394
-------- --------
174,719 115,259
-------- --------
Total income tax expense.......................... $279,686 $342,646
======== ========
</TABLE>
Actual income tax expense differs from income tax computed by applying the
United States federal statutory rate to income before provision for income taxes
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Statutory federal income tax................................ $209,200 $246,495
State income tax, less federal benefit...................... 40,053 49,069
Other....................................................... 30,433 47,082
-------- --------
$279,686 $342,646
======== ========
</TABLE>
F-93
<PAGE> 166
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. The tax effects of the temporary
differences that give rise to the significant portions of the deferred tax
assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Assets --
Basis difference in inventory............................. $ 64,166 $ 53,501
Accrued expense........................................... 577,453 472,121
Allowance for doubtful accounts........................... 12,523 15,306
-------- --------
Total deferred income tax assets.................. 654,142 540,928
-------- --------
Liabilities --
Basis differences in plant and equipment.................. 80,429 82,632
Unrealized investment gain................................ 20,230 52,811
Other..................................................... 7,492 7,334
-------- --------
Total deferred income tax liabilities............. 108,151 142,777
-------- --------
Net deferred income tax assets.................... $545,991 $398,151
======== ========
</TABLE>
Based on recent operating results and expected levels of future earnings,
the Company believes it will, more likely than not, generate sufficient taxable
income to realize the net deferred tax assets recorded.
10. EMPLOYEE BENEFIT PLANS:
401(k) Plan
The Company has a defined contribution 401(k) profit-sharing plan. The plan
provides for the Company to match up to 50% of the first three percent of
contributions made by each employee. Total contributions by the Company under
the plan were $23,752 and $25,806 in 1996 and 1997, respectively.
Profit-Sharing Plan
The Company has a discretionary profit-sharing plan that covers all
full-time employees over the age of 21 with six months of service. Contributions
to the plan are based on a formula and are contingent upon the attainment of
certain levels of earnings as defined in the agreement. In 1996 and 1997,
contributions were $150,000.
Deferred Compensation Agreements
In 1986, the Company entered into deferred compensation agreements with two
of the Company's former officers whereby the Company is obligated to pay $90,000
per year upon retirement to each of the two officers for 15 years. The Company
recorded compensation expense associated with the deferred compensation
agreements from the date of the agreements to the retirement dates of the two
officers. The amounts charged to interest expense relating to such agreements
were $109,685 in 1996 and $104,794 in 1997. The Company's remaining cash
obligations as of December 31, 1997, was approximately $2.2 million. The Company
has purchased life insurance policies which may be used to fund the cash
obligations of these agreements. The cash surrender value of such policies was
$3.6 million as of December 31, 1997.
F-94
<PAGE> 167
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and similar state statues. The
Company is currently not named as a potentially responsible party under CERCLA
or similar state legislation with respect to its operations.
In 1992, the Company entered into an agreement in principle with the New
Jersey Department of Environmental Protection and Energy whereby the Company
would be financially responsible for up to $300,000 annually for any corrective
action necessitated by hazardous discharges. Under this agreement, the Company
has not had to take any corrective action necessitated by hazardous discharges.
Litigation
The Company is not currently involved in any significant disputes or legal
actions; however, such actions could arise in the ordinary course of business.
Deferred Compensation Agreements
The Company has entered into deferred compensation agreements with two of
the Company's officers. See Note 8, "Employee Benefit Plans," for further
description of such agreements.
Leases
The Company leases certain facilities, warehouses, equipment and trucks
under noncancelable operating leases. Rent expense during fiscal years 1996 and
1997 was $170,000 each year. Future minimum payments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1998..................................................... $132,986
1999..................................................... 127,660
2000..................................................... 75,684
2001..................................................... 74,104
2002..................................................... 39,291
--------
$449,725
========
</TABLE>
Certain equipment has been leased under terms that constitute a capital
lease. Accordingly, the costs of the assets (the lower of the cash purchase
price or the present value of future minimum lease payments) were recorded as an
addition to property and the related liabilities were recorded as lease
obligations. The assets are amortized using the straight-line method, and
interest expense is recorded on the basis of the outstanding lease obligation.
F-95
<PAGE> 168
BROWN CHEMICAL CO., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net present value of future minimum lease payments under the capital
leases as of December 31, 1997, is as follows:
<TABLE>
<S> <C>
Year ending December 31 --
1998.................................................... $22,443
1999.................................................... 13,780
2000.................................................... 3,875
-------
Total lease payments............................ 40,098
Less -- Amounts representing interest..................... (3,244)
-------
Present value of minimum lease payments................... $36,854
=======
</TABLE>
12. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company did not have sales greater than 10 percent of total sales to
any one customer during the years ended December 31, 1996 or 1997.
The Company had purchases from one supplier which were greater than 10
percent of total purchases during the years ended December 31, 1996 and 1997.
The purchases from such supplier comprised 22 percent and 14 percent of the
Company's purchases during the years ended December 31, 1996 and 1997,
respectively.
In addition, the Company grants credit, generally without collateral, to
its customers. Consequently, the Company is subject to potential credit risk
related to changes in business and economic factors within the New York, New
Jersey and Connecticut regions. However, management believes that its contract
acceptance, billing and collection policies are adequate to minimize the
potential credit risk.
The Company had cash and cash equivalents in financial institutions which
exceed the federally insured limits by $296,357 and $1,844,350 at December 31,
1996 and 1997, respectively.
13. COMMON STOCK:
The Company has 10,000 shares of no par common stock authorized and 5,000
shares issued and outstanding as of December 31, 1997.
14. SUBSEQUENT EVENTS (UNAUDITED):
In July 1998, the Company and its stockholders entered into a definitive
agreement with Chemical Logistics Corporation (Chemical), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Chemical common stock, concurrent with the consummation of an initial
public offering (the Offering) of common stock of Chemical.
F-96
<PAGE> 169
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tarr, Inc.:
We have audited the accompanying combined balance sheet of Tarr, Inc. and
related entities (collectively, the Company) as of December 31, 1997, and the
related combined statements of income, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 combined financial position of Tarr, Inc. and
related entities as of December 31, 1997, and the combined results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Houston, Texas
May 29, 1998
F-97
<PAGE> 170
TARR, INC. AND RELATED ENTITIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 33,133 $ 50,940
Accounts receivable, less allowance for doubtful accounts
of $172,927............................................ 2,751,016 2,780,919
Inventories............................................... 2,025,480 1,833,313
Other current assets...................................... 207,693 226,631
Deferred income taxes..................................... 23,483 25,023
----------- -----------
Total current assets.............................. 5,040,805 4,916,826
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost...................... 5,386,879 5,518,203
Less -- Accumulated depreciation.......................... (2,638,975) (2,739,074)
----------- -----------
2,747,904 2,779,129
----------- -----------
GOODWILL, net............................................... 693,960 684,973
OTHER ASSETS, net........................................... 238,519 227,510
----------- -----------
Total assets...................................... $ 8,721,188 $ 8,608,438
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,880,982 $ 2,449,933
Accrued liabilities....................................... 197,115 167,590
Container deposits refundable to customers................ 346,261 346,261
Current maturities of long-term debt...................... 392,041 377,541
Line of credit............................................ 2,850,000 2,227,993
----------- -----------
Total current liabilities......................... 5,666,399 5,569,318
----------- -----------
LONG-TERM DEBT, less current maturities..................... 1,110,937 1,026,101
----------- -----------
NOTE PAYABLE, stockholder................................... 99,444 89,444
----------- -----------
DEFERRED INCOME TAXES....................................... 147,473 153,090
----------- -----------
OTHER LIABILITIES........................................... 229,817 218,491
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Common stock (Note 5)..................................... -- --
Additional paid-in capital................................ 1,126,362 1,126,362
Retained earnings......................................... 340,756 425,632
----------- -----------
Total stockholders' equity........................ 1,467,118 1,551,994
----------- -----------
Total liabilities and stockholders' equity........ $ 8,721,188 $ 8,608,438
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE> 171
TARR, INC. AND RELATED ENTITIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
SALES, net.............................................. $31,662,463 $7,863,539 $6,183,131
----------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales......................................... 24,955,806 6,159,891 4,632,273
Operating and delivery................................ 2,910,426 679,214 647,516
Selling, general and administrative................... 2,797,694 643,207 697,028
Depreciation.......................................... 419,546 99,078 117,610
----------- ---------- ----------
Total costs and expenses...................... 31,083,472 7,581,390 6,094,427
----------- ---------- ----------
INCOME FROM OPERATIONS.................................. 578,991 282,149 88,704
OTHER INCOME (EXPENSE):
Interest expense...................................... (339,349) (77,322) (95,315)
Other income.......................................... 137,218 27,450 116,269
Other expense......................................... (9,383) (10,822) (15,016)
----------- ---------- ----------
INCOME BEFORE INCOME TAXES.............................. 367,477 221,455 94,642
INCOME TAXES............................................ 32,794 20,121 9,766
----------- ---------- ----------
NET INCOME.............................................. $ 334,683 $ 201,334 $ 84,876
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE> 172
TARR, INC. AND RELATED ENTITIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996.......... 1,873.7 $ -- $1,126,362 $ 594,849 $1,721,211
Distributions to stockholders..... -- -- -- (588,776) (588,776)
Net income........................ -- -- -- 334,683 334,683
------- -------- ---------- --------- ----------
BALANCE, December 31, 1997.......... 1,873.7 -- 1,126,362 340,756 1,467,118
Net income (unaudited)............ -- -- -- 84,876 84,876
------- -------- ---------- --------- ----------
BALANCE, March 31, 1998
(unaudited)....................... 1,873.7 $ -- $1,126,362 $ 425,632 $1,551,994
======= ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE> 173
TARR, INC. AND RELATED ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 334,683 $ 201,334 $ 84,876
----------- --------- ---------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation........................................ 419,546 99,078 117,610
Amortization........................................ 74,034 18,508 19,996
Provision for deferred income taxes................. 24,192 6,047 4,077
Donation of automobiles............................. -- -- 23,150
Gain on disposition of property, plant and
equipment......................................... (14,372) (11,621) (2,505)
Changes in operating assets and liabilities --
Receivables....................................... 223,906 (113,339) (29,903)
Inventories....................................... (454,581) (156,478) 192,167
Other current assets.............................. 15,897 (30,595) (18,938)
Accounts payable, accrued liabilities and other... (471,433) (186,132) 528,100
Income taxes payable.............................. (5,994) 12,322 --
----------- --------- ---------
Total adjustments.............................. (188,805) (362,210) 833,754
----------- --------- ---------
Net cash provided by (used in) operating
activities................................... 145,878 (160,876) 918,630
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (1,052,109) (179,068) (171,985)
Proceeds from disposition of property, plant and
equipment........................................... 14,372 11,621 2,505
----------- --------- ---------
Net cash used in investing activities.......... (1,037,737) (167,447) (169,480)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under notes payable..................... (354,188) (48,861) (114,336)
Borrowings on line of credit........................... 600,000 250,000 (622,007)
Net (advances) borrowings of notes payable............. 1,208,288 151,893 5,000
Distributions to stockholders.......................... (588,776) (49,350) --
----------- --------- ---------
Net cash provided by (used in) financing
activities................................... 865,324 303,682 (731,343)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (26,535) (24,641) 17,807
CASH AND CASH EQUIVALENTS, beginning of period........... 59,668 59,688 33,133
----------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 33,133 $ 35,047 $ 50,940
=========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................ $ 311,864 $ 61,677 $ 74,591
Taxes............................................... $ 17,060 $ -- $ 960
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-101
<PAGE> 174
TARR, INC. AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Tarr, Inc. (Tarr), an Oregon corporation, and related entities including
Tarr, Inc. of Arizona (Arizona), an Arizona corporation, and Tarr Trucking, Inc.
(Trucking), an Oregon corporation (collectively referred to as the Company), is
primarily engaged in the distribution of liquid organic chemicals and petroleum
products. The Company's primary operations supply the Northwest portion of the
United States and Arizona.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination
The combined financial statements include the accounts of Tarr, Arizona and
Trucking, affiliates through common ownership. All significant intercompany
balances and transactions have been eliminated.
Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at March 31, 1998, and the results of its operations and cash flows for
the three months ended March 31, 1997 and 1998. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year-end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
Cash and Cash Equivalents
Cash and cash equivalents include all liquid debt instruments purchased
with an original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market. Substantially all of the goods consist of finished products.
Property, Plant and Equipment
Plant and equipment are stated at cost and depreciation is computed using
the straight-line method for financial reporting purposes and accelerated
methods for federal income tax purposes. Leasehold improvements are capitalized
and amortized over the lesser of the life of the lease or the estimated useful
life of the asset. Property, plant and equipment are reviewed for impairment
whenever events or circumstances provide evidence that suggests that the
carrying amounts of the property, plant and equipment may not be recoverable.
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.
F-102
<PAGE> 175
TARR, INC. AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Goodwill and Other Assets
Goodwill is being amortized over a period of 40 years. Amortization
amounted to $30,000 for the year ended December 31, 1997, with accumulated
amortization of $473,737 at December 31, 1997.
Other assets consist primarily of a noncompete and consulting agreement
related to an agreement between the Company and another party whereby the
Company retained the other party's experience and abilities while restricting
the other party's ability to compete against the Company. In return, the Company
agreed to pay $5,000 per month over the term of the agreement to the other party
for the consulting services and covenant not to compete. The total future
payments were discounted over the term of the agreement and recorded as an asset
and liability in the accompanying balance sheet.
These intangible assets are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amount of the
intangible asset may not be recoverable. The Company assesses the recoverability
of the intangible asset by determining whether the carrying amount of the
intangible asset can be recovered through projected undiscounted future cash
flows over the remaining amortization period.
Container Deposits Refundable to Customers
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
On October 1, 1987, Tarr, with the consent of its stockholders, elected to
have its income taxed under the provisions of Subchapter S of the Internal
Revenue Code, which provided that, in lieu of corporate income taxes, the
stockholders are taxed on the Tarr's taxable income. Tarr regularly declares
dividends in amounts at least equal to the stockholders' tax liabilities
resulting from the S Corporation election.
Arizona and Trucking are C Corporations and thus follow the asset and
liability method of accounting for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. Under this method, deferred
assets and liabilities are recorded for future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-103
<PAGE> 176
TARR, INC. AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires the reporting of comprehensive
income and its components to be displayed with the same prominence as other
financial statements. This statement requires a company to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The Company has adopted this statement, and the differences between
traditional income and comprehensive income were insignificant.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1998. Management is
presently evaluating what, if any, additional disclosures may be required when
this statement is implemented.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES 1997
------------ ------------
(IN YEARS)
<S> <C> <C>
Land........................................................ $ 424,794
Buildings and improvements.................................. 20 1,238,831
Tank farm................................................... 20 303,919
Machinery and equipment..................................... 5-10 1,619,197
Automobiles and trucks...................................... 5 1,610,686
Furniture and fixtures...................................... 7 189,452
-----------
5,386,879
Less -- Accumulated depreciation............................ (2,638,975)
-----------
Total............................................. $ 2,747,904
===========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts receivable
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Balance at beginning of period.............................. $ 88,027
Provision for doubtful accounts............................. 84,900
Amounts written off......................................... --
--------
Balance at end of period.................................... $172,927
========
</TABLE>
F-104
<PAGE> 177
TARR, INC. AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Consulting and noncompete agreements........................ $ 440,343
Other....................................................... 24,480
---------
464,823
Less -- Accumulated amortization............................ (226,304)
---------
$ 238,519
=========
</TABLE>
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Payable for consulting and noncompete agreement............. $ 43,515
Interest payable............................................ 15,482
Payroll taxes payable....................................... 3,181
Sales and use taxes payable................................. 106,265
Property taxes payable...................................... 3,974
Other taxes payable......................................... 24,698
--------
$197,115
========
</TABLE>
5. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL:
Common stock consisted of Tarr, Inc., no par value, 10,000 shares
authorized, 1,423.7 shares issued and outstanding; Tarr, Inc. of Arizona, no par
value, 100 and 900 shares voting and nonvoting, respectively, 100 voting and 300
nonvoting shares issued and outstanding, respectively; and Tarr Trucking, Inc.,
no par value, 100 shares authorized, 50 shares issued and outstanding.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash, Accounts Receivable and Payables
The carrying amount approximates market value due to the highly liquid
nature of these short-term investments.
Long-Term Debt, Line of Credit and Note Payable, Stockholder
The estimated market value of the Company's long-term debt, line of credit
and note payable, stockholder is based on quoted market prices or, where such
prices are not available, on estimated year-end interest rates of debt with the
same remaining average maturities and credit quality. The carrying amount
approximates market value at December 31, 1997.
F-105
<PAGE> 178
TARR, INC. AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
7. LONG-TERM DEBT:
Long-term debt includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Note payable to the city of Wilsonville in installments of
$5,823, including interest at 5.72% with final payment due
in May 2008. Secured by land improvements at the
Wilsonville Cardlock site................................. $ 94,110
Notes payable to Ford Motor Credit in installments of $632,
including interest at 8.75% with final payment due in
January 2003, secured by two vehicles..................... 37,948
Note payable to bank in installments of $4,447, including
interest at prime plus .75% with final payment due in
February 2000. Secured by accounts receivable and
inventory................................................. 88,387
Note payable in monthly installments of approximately
$5,700, including interest at 9.1% with final payment due
October 2004. Secured by property in Wilsonville,
Oregon.................................................... 345,114
Note payable in monthly installments of approximately
$6,175, including interest at 8.75% with final payment due
December 2000. Secured by accounts receivable, certain
equipment and inventory................................... 200,519
Note payable in monthly installments of approximately
$6,200, including interest at 8.75%, with final payment
due October 2000. Secured by certain equipment............ 186,899
Note payable in monthly installments of approximately
$4,200, including interest at 9.5%, with final payment due
July 2002. Secured by certain equipment................... 186,855
Note payable in monthly installments of approximately
$2,600, including interest at 8.65%, with the final
payment due February 2002................................. 109,964
Note payable in monthly installments of approximately
$2,600, including interest at 8%, with the final payment
due November 1999. Secured by certain property in
Portland, Oregon.......................................... 56,035
Note payable in monthly installments of approximately
$1,300, including interest at 10%, with the final payment
due August 2002. Secured by certain property in Vancouver,
Washington................................................ 57,515
Note payable in monthly installments of approximately
$6,000, including interest at 9%, with the final payment
due October 1999.......................................... 115,000
Chevron note payable with interest rate of 10%.............. 24,632
----------
1,502,978
Less -- Current maturities.................................. (392,041)
----------
Long-term debt.................................... $1,110,937
==========
</TABLE>
Long-term debt maturities as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 392,041
1999........................................................ 374,408
2000........................................................ 271,270
2001........................................................ 143,537
2002........................................................ 107,805
Thereafter.................................................. 213,917
----------
$1,502,978
==========
</TABLE>
F-106
<PAGE> 179
TARR, INC. AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
8. LINE OF CREDIT:
At December 31, 1997, the Company has a line of credit with a bank totaling
$2,850,000 and expiring February 28, 1999. The line of credit is payable upon
demand or upon the lender's determination that there has been a material adverse
change in the financial condition or management of the Company. The line of
credit bears interest at 1/2 percent plus prime. The line of credit is secured
by accounts receivable and inventories. The secured interest cannot exceed 80
percent of the recorded value of the accounts receivable and 50 percent of the
recorded value of inventory with a maximum inventory advance of $550,000.
Borrowings outstanding under the line of credit were $2,850,000 at December 31,
1997.
The line-of-credit agreement provides, among other things, that the Company
will maintain certain minimum levels of tangible net worth, working capital,
total liabilities to tangible net worth and debt coverage ratios, as defined in
the agreement. At December 31, 1997, the Company was in technical violation of
the negative covenants relating to the working capital, total liabilities to
tangible net worth and debt coverage ratios. The Company received a waiver from
the lender agreeing to waive the covenant violations until December 31, 1998.
The majority stockholder has also issued a personal guarantee to the bank during
the waiver period.
9. INCOME TAXES:
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Current --
Federal................................................... $ 6,707
State..................................................... 1,895
-------
8,602
-------
Deferred --
Federal................................................... 18,862
State..................................................... 5,330
-------
24,192
-------
Total income tax expense.......................... $32,794
=======
</TABLE>
Actual income tax expense differs from income tax computed by applying the
United States federal statutory rate to income before provision for income taxes
as follows:
<TABLE>
<S> <C>
Statutory federal income tax................................ $ 128,617
S Corporation income........................................ (104,705)
State income tax, less federal benefit...................... 4,696
Nondeductible expenses...................................... 4,186
---------
$ 32,794
=========
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. The tax
F-107
<PAGE> 180
TARR, INC. AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
effects of the temporary differences that give rise to the significant portions
of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Deferred income tax assets --
Net operating loss........................................ $ 13,834
Basis difference in inventory............................. 20,956
Other..................................................... 44,389
---------
Total deferred income tax assets.................. 79,179
---------
Deferred income tax liabilities --
Basis difference in property and equipment................ (84,894)
Other..................................................... (118,275)
---------
Total deferred income tax liabilities............. (203,169)
---------
Net deferred income tax liabilities............... $(123,990)
=========
</TABLE>
10. EMPLOYEE BENEFIT PLAN:
The Company has a profit-sharing plan for all employees. Employees are
eligible to participate in the plan after completing 12 months of employment and
are vested after six years of employment. The amount contributed by the Company
is discretionary. Profit-sharing contributions amounted to $18,650 for the year
ended December 31, 1997.
11. RELATED-PARTY TRANSACTIONS:
The Company paid cash bonuses of $9,240 to its majority stockholder and
$37,000 to its minority stockholder in 1997.
In 1997, the Company borrowed $99,444 from its majority stockholder. The
note bears an interest rate of 8.5 percent but specifies no payback term. It is
classified as long-term, as the stockholder has no current intention of calling
the note. The Company recorded $2,084 of interest expense related to this note
in 1997.
12. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company has various claims and lawsuits outstanding in connection with
its operations. In the opinion of management, uninsured losses on these claims
and lawsuits, if any, would not be material to the Company's financial position,
results of operations or cash flows.
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and similar state statutes. The
Company is currently not named as a potentially responsible party under CERCLA
or similar state legislation with respect to its operations.
Leases
The Company is leasing an office building under a noncancelable operating
lease expiring in 2008. The lease agreement provides for annual payments of
approximately $42,000.
F-108
<PAGE> 181
TARR, INC. AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
The Company is leasing a warehouse facility under a noncancelable operating
lease which expires in 1999. The lease agreement provides for annual payments of
approximately $43,000.
Additionally, the Company leases certain facilities, warehouses, equipment
and trucks under noncancelable operating leases. Rent expense was $238,345 for
the year ended December 31, 1997.
Future minimum payments under noncancelable operating leases are as
follows:
<TABLE>
<S> <C>
1998..................................................... $192,561
1999..................................................... 136,309
2000..................................................... 94,181
2001..................................................... 92,736
2002..................................................... 78,324
Thereafter............................................... 230,500
--------
$824,611
========
</TABLE>
13. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company did not have sales greater than 10 percent of total sales to
any one customer during the year ended December 31, 1997. The Company had
purchases from three vendors that were individually greater than 10 percent of
total purchases for 1997. The total percentage purchased from these three
vendors accounts for 59 percent of total purchases for 1997.
In addition, the Company grants credit, generally without collateral, to
its customers located primarily in the Northwest region. Consequently, the
Company is subject to potential credit risk related to changes in business and
economic factors within the region. However, management believes that its
contract acceptance, billing and collection policies are adequate to minimize
the potential credit risk.
14. SUBSEQUENT EVENTS:
In July 1998, the Company and its stockholders entered into a definitive
agreement with Chemical Logistics Corporation (Chemical) pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Chemical common stock, concurrent with the consummation of the initial
public offering (the Offering) of additional common stock of Chemical.
F-109
<PAGE> 182
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To A.C.C., Inc.:
We have audited the accompanying balance sheet of A.C.C., Inc., t/a
American Chemicals Co., Inc. (the Company), as of March 31, 1998, and the
related statements of income, stockholder's equity and cash flows for the
nine-month period then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our 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 A.C.C., Inc., t/a American
Chemicals Co., Inc., as of March 31, 1998, and the results of its operations and
its cash flows for the nine-month period then ended in conformity with generally
accepted accounting principles.
Houston, Texas
May 15, 1998
F-110
<PAGE> 183
A.C.C., INC. T/A AMERICAN CHEMICALS CO., INC.
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 77,192
Accounts receivable....................................... 2,247,473
Inventories............................................... 1,100,966
Other current assets...................................... 217,245
Deferred income taxes..................................... 12,989
----------
Total current assets.............................. 3,655,865
----------
PLANT AND EQUIPMENT, at cost................................ 88,082
Less -- Accumulated depreciation.......................... (48,857)
----------
39,225
----------
Total assets...................................... $3,695,090
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $1,390,056
Accrued liabilities....................................... 120,440
Container deposit refundable to customers................. 15,585
Due to affiliates......................................... 285,528
Income taxes payable...................................... 191,995
Note payable, employee.................................... 6,762
----------
Total current liabilities......................... 2,010,366
----------
DEFERRED INCOME TAXES....................................... 30,765
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 2,500 shares authorized, 1 share
issued and outstanding................................. 1,326,343
Retained earnings......................................... 327,616
----------
Total stockholder's equity........................ 1,653,959
----------
Total liabilities and stockholder's equity........ $3,695,090
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-111
<PAGE> 184
A.C.C., INC. T/A AMERICAN CHEMICALS CO., INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31,
1998
-----------
<S> <C>
SALES, net.................................................. $14,044,316
-----------
COSTS AND EXPENSES:
Cost of sales............................................. 11,576,620
Operating and delivery.................................... 781,309
Selling, general and administrative....................... 1,243,733
Depreciation.............................................. 20,039
-----------
Total costs and expenses.......................... 13,621,701
-----------
INCOME FROM OPERATIONS...................................... 422,615
OTHER INCOME, net........................................... 969
-----------
INCOME BEFORE INCOME TAXES.................................. 423,584
INCOME TAXES................................................ 188,950
-----------
NET INCOME.................................................. $ 234,634
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-112
<PAGE> 185
A.C.C., INC. T/A AMERICAN CHEMICALS CO., INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1997............................ 1 $1,326,343 $ 92,982 $1,419,325
Net income................................... -- -- 234,634 234,634
-- ---------- -------- ----------
BALANCE, March 31, 1998........................... 1 $1,326,343 $327,616 $1,653,959
== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-113
<PAGE> 186
A.C.C., INC. T/A AMERICAN CHEMICALS CO., INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31,
1998
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 234,634
---------
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation........................................... 20,039
Increase in LIFO reserve............................... 21,695
Provision for deferred income taxes.................... (11,806)
Changes in operating assets and liabilities--
Increase in receivables.............................. (44,855)
Increase in inventories.............................. (132,040)
Increase in prepaid expenses......................... (57,796)
Decrease in accounts payable, accrued liabilities and
other............................................... (216,461)
Increase in income taxes payable..................... 150,235
---------
Total adjustments................................. (270,989)
---------
Net cash used in operating activities............. (36,355)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable, employee...................... (49,429)
---------
Net cash used in financing activities............. (49,429)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (85,784)
CASH AND CASH EQUIVALENTS, beginning of period.............. 162,976
---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 77,192
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for--
Taxes.................................................. $ 7,683
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE> 187
A.C.C., INC., T/A AMERICAN CHEMICALS CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Description of Business
A.C.C., Inc., t/a American Chemicals Co., Inc. (the Company), a Florida
corporation, is a domestic distributor of a broad line of organic and inorganic
chemicals. The Company sells its products primarily to customers in the
northeastern United States.
Basis of Presentation
The accompanying financial statements represent the financial position,
results of operations and cash flows for the Company, a wholly owned subsidiary
of Colt Corporation (Colt).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
Cash and cash equivalents include all liquid debt instruments purchased
with an original maturity of three months or less.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable. As of March 31, 1998, the Company did not have an allowance for
doubtful accounts as historical credit losses have been insignificant.
Inventories
Inventories are stated at lower of cost or market, with costs being
determined using the last-in, first-out (LIFO) method. Substantially all of the
Company's inventories consist of finished goods.
Plant and Equipment
Plant and equipment are recorded at cost and are being depreciated using
the straight-line method for financial reporting purposes and accelerated
methods for federal income tax purposes. Plant and equipment are reviewed for
impairment whenever events or circumstances provide evidence that suggests that
the carrying amounts of the plant and equipment may not be recoverable.
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 plant 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 income.
Customer Deposits on Drums and Cylinders
Many products are sold in steel or polyethylene drums for which the Company
charges a deposit. These deposits are refundable to the customer upon return of
the drum and are therefore recorded as a liability. Periodically, the Company
assesses (based on aging and experience) the deposit liability account for
deposits not expected to be claimed. For those deposits not expected to be
claimed, the drums are considered sold and the deposit is recognized as income.
Containers used to ship products which cost in excess of $1,000 and have a
useful life greater than one year are capitalized and depreciated over their
useful life (generally five years). Containers used to ship products which cost
less than $1,000 are accounted for as inventory.
F-115
<PAGE> 188
A.C.C., INC., T/A AMERICAN CHEMICALS CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes income on the accrual method. Under this method,
credit sales and the cost of such sales are recognized in full upon completion
of the sales transaction.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws.
The operations of the Company were included in the consolidated U.S.
federal income tax return of Colt. For purposes of these financial statements,
current and deferred income taxes have been provided on an "as if"
separate-return basis. As a member of a consolidated group, the Company is
jointly and severally liable for federal income taxes of the group.
Environmental Expenditures
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities for these expenditures are
recorded when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires the reporting of comprehensive
income and its components to be displayed with the same prominence as other
financial statements. This statement requires a company to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. The Company has adopted this statement, and the
differences between traditional income and comprehensive income were
insignificant.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending March 31, 1999. Management is presently
evaluating what, if any, additional disclosures may be required when this
statement is implemented.
F-116
<PAGE> 189
A.C.C., INC., T/A AMERICAN CHEMICALS CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES:
The following sets forth the balances of selected accounts assuming that
the first-in, first-out (FIFO) method had been used for costing all inventories:
<TABLE>
<CAPTION>
MARCH 31,
1998
----------
<S> <C>
Inventories................................................. $1,207,981
Working capital............................................. 1,771,888
Net income.................................................. 266,095
Retained earnings........................................... 454,005
</TABLE>
4. PLANT AND EQUIPMENT:
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31,
USEFUL LIVES 1998
------------ ---------
(IN YEARS)
<S> <C> <C>
Machinery and equipment................................ 5-7 $68,666
Furniture and fixtures................................. 7 19,416
-------
88,082
Less -- Accumulated depreciation....................... 48,857
-------
Total........................................ $39,225
=======
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and a note payable. The carrying values of
the Company's financial instruments approximate fair value due to the short-term
nature of these investments.
6. INCOME TAXES:
Income tax expense consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31,
1998
-----------
<S> <C>
Current --
Federal................................................... $162,487
State..................................................... 38,269
--------
200,756
========
Deferred --
Federal................................................... (10,729)
State..................................................... (1,077)
--------
(11,806)
--------
Total income tax expense.......................... $188,950
========
</TABLE>
F-117
<PAGE> 190
A.C.C., INC., T/A AMERICAN CHEMICALS CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax computed by applying the
United States federal statutory rate to income before provision for income taxes
as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31,
1998
-----------
<S> <C>
Statutory federal income tax................................ $148,254
State income tax, less federal benefit...................... 24,175
Other....................................................... 16,521
--------
$188,950
========
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. The tax effects of the temporary
differences that give rise to the significant portions of the deferred tax
assets and liabilities are presented below:
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
Deferred income tax assets --
Accrued expenses.......................................... $ 13,884
State tax liability....................................... 1,374
--------
Total deferred income tax assets.................. 15,258
--------
Deferred income tax liabilities --
Basis difference in plant and equipment................... (8,034)
Other..................................................... (25,000)
--------
Total deferred income tax liabilities............. (33,034)
--------
Net deferred income tax liabilities............... $(17,776)
========
</TABLE>
7. EMPLOYEE BENEFIT PLANS:
401(k) Plan
On January 1, 1998, Colt established a defined contribution 401(k)
profit-sharing plan which covers substantially all of the Company's employees.
The plan provides for Colt to match one-half of the first 6 percent contributed
by each of the Company's employees. Total contributions by Colt on behalf of
Company employees under the plan were $4,065 for the nine-month period ended
March 31, 1998.
Profit-Sharing Plan
Colt has a discretionary profit-sharing plan which covers substantially all
of the Company's employees. Contributions are determined at the discretion of
Colt's board of directors. There were no contributions made on behalf of the
Company's employees in the nine-month period ended March 31, 1998.
Other
For the nine-month period ended March 31, 1998, the Company made retirement
benefit payments of $37,494 to a former employee.
F-118
<PAGE> 191
A.C.C., INC., T/A AMERICAN CHEMICALS CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED-PARTY TRANSACTIONS:
Included in operating and selling, general and administrative expenses for
the nine-month period ended March 31, 1998, is $411,659 which represents the
Company's net allocated share of certain operating and selling, general and
administrative costs paid by an affiliated entity. Operating and selling,
general and administrative costs are allocated based on the estimated level of
effort devoted to Colt's various subsidiary operations and the relative size of
the subsidiary (based on revenues and payroll). The Company's management
believes the method of allocating operating and selling general and
administrative expenses is reasonable. Total operating and selling, general and
administrative expenses reflected in the accompanying statement of income are
reasonable when compared with the total operating and selling, general and
administrative costs the Company would have incurred on a stand-alone basis.
Historical interest expense on amounts due to affiliates has not been
reflected in the accompanying financial statements. As of March 31, 1998, the
Company had net amounts due to affiliates of $285,528. Amounts due to affiliates
have no specific repayment terms and are noninterest-bearing. The average
balance on the amounts due to affiliates for the nine-month period ended March
31, 1998, was $247,547.
The Company rents certain land, equipment and storage facilities owned by
related parties on a month-to-month basis. Total expenses related to these items
for the nine-month period ended March 31, 1998, was $128,700.
In July 1997, the Company borrowed $56,191 from an officer of the Company.
As of March 31, 1998, the loan balance was $6,762. The loan was
noninterest-bearing and will be repaid in full July 1998.
9. COMMITMENTS AND CONTINGENCIES:
Environmental Matters
The Company is subject to certain laws and regulations, such as the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
the Resource Conservation and Recovery Act and similar state statutes. The
Company is currently not named as a potentially responsible party under CERCLA
or similar state legislation with respect to its operations.
Litigation
The Company is not currently involved in any significant disputes or legal
actions; however, such actions could arise in the ordinary course of business.
Leases
The Company leases certain trucks under noncancelable operating leases.
Rent expense for such leases during the nine-month period ended March 31, 1998,
was $106,414. Future minimum payments under noncancelable operating leases are
as follows:
<TABLE>
<S> <C>
Remaining portion of 1998................................... $ 80,112
1999........................................................ 106,816
2000........................................................ 106,816
2001........................................................ 62,309
--------
$356,053
========
</TABLE>
F-119
<PAGE> 192
A.C.C., INC., T/A AMERICAN CHEMICALS CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Union Contracts
Certain employees have union representation under a ratified agreement
through May 2000. The agreement covers compensation and benefits.
10. MAJOR CUSTOMERS AND RISK CONCENTRATION:
The Company did not have sales greater than 10 percent of total sales to
any one customer during the nine-month period ended March 31, 1998.
The Company had purchases from three suppliers which were greater than 10
percent of total purchases during the nine-month period ended March 31, 1998.
The purchases from such suppliers comprised approximately 50 percent of the
Company's purchases during the nine-month period ended March 31, 1998.
In addition, the Company grants credit, generally without collateral, to
its customers located primarily in the northeastern region. Consequently, the
Company is subject to potential credit risk related to changes in business and
economic factors within the area. However, management believes that its contract
acceptance, billing and collection policies are adequate to minimize the
potential credit risk.
11. COMMON STOCK:
The Company has 2,500 shares of no par common stock authorized and one
share issued and outstanding. The Company's sole stockholder is Colt.
12. SUBSEQUENT EVENTS (UNAUDITED):
In July 1998, the Company and its stockholders entered into a definitive
agreement with Chemical Logistics Corporation (Chemical) pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Chemical common stock, concurrent with the consummation of an initial
public offering (the Offering) of common stock of Chemical.
F-120
<PAGE> 193
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chemical Logistics Corporation:
We have audited the accompanying balance sheet of Chemical Logistics
Corporation as of December 31, 1997, and the related statements of operations,
cash flows and stockholders' equity for the period from inception (July 15,
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 audits 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 Chemical Logistics
Corporation as of December 31, 1997, and the results of its operations and its
cash flows for the period from inception (July 15, 1997) through December 31,
1997, in conformity with generally accepted accounting principles.
Houston, Texas
July 17, 1998
F-121
<PAGE> 194
CHEMICAL LOGISTICS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH........................................................ $ 1,000 $ 1,224
DEFERRED OFFERING COSTS..................................... -- 35,421
-------- -----------
Total assets...................................... $ 1,000 $ 36,645
======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES......................................... $ 16,592 $ 71,157
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued................................ -- --
Common Stock, $.01 par value, 50,000,000 shares
authorized, 1,659,366 and 2,124,487 shares issued and
outstanding, respectively.............................. 1,000 1,280
Additional paid-in capital................................ -- 5,232,611
Retained deficit.......................................... (16,592) (5,268,403)
-------- -----------
Total stockholders' equity........................ (15,592) (34,512)
-------- -----------
Total liabilities and stockholders' equity........ $ 1,000 $ 36,645
======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-122
<PAGE> 195
CHEMICAL LOGISTICS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JULY 15, 1997) THREE MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1997 1998
--------------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUES.................................................... $ -- $ --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 16,592 5,251,811
-------- -----------
LOSS BEFORE INCOME TAXES.................................... (16,592) (5,251,811)
INCOME TAXES................................................ -- --
-------- -----------
NET LOSS.................................................... $(16,592) $(5,251,811)
======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-123
<PAGE> 196
CHEMICAL LOGISTICS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JULY 15, 1997) THREE MONTHS
THROUGH ENDED
DECEMBER 31, MARCH 31,
1997 1998
--------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(16,592) $(5,251,811)
Adjustments to reconcile net loss to net cash used in
operating activities --
Compensation expense related to issuance of stock to
CLC management........................................ -- 5,232,611
Changes in assets and liabilities --
Increase in deferred offering costs.................. -- (35,421)
Increase in accrued liabilities...................... 16,592 54,565
-------- -----------
Net cash provided by (used in) operating
activities..................................... -- (56)
-------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial capitalization.................................... 1,000 --
Issuance of additional shares to management............... -- 280
-------- -----------
Net cash provided by financing activities......... 1,000 280
-------- -----------
NET INCREASE IN CASH........................................ 1,000 224
CASH, beginning of period................................... -- 1,000
-------- -----------
CASH, end of period......................................... $ 1,000 $ 1,224
======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-124
<PAGE> 197
CHEMICAL LOGISTICS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION BY
BELLMEADE, July 15, 1997.... 1,659,366 $1,000 $ -- $ -- $ 1,000
NET LOSS...................... -- -- -- (16,592) (16,592)
--------- ------ ---------- ----------- -----------
BALANCE, December 31, 1997.... 1,659,366 1,000 -- (16,592) (15,592)
ISSUANCE OF ADDITIONAL SHARES
TO
MANAGEMENT.................. 465,121 280 5,232,611 -- 5,232,891
NET LOSS...................... -- -- -- (5,251,811) (5,251,811)
--------- ------ ---------- ----------- -----------
BALANCE, March 31, 1998....... 2,124,487 $1,280 $5,232,611 $(5,268,403) $ (34,512)
========= ====== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-125
<PAGE> 198
CHEMICAL LOGISTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Chemical Logistics Corporation (the Company) was founded in July 1997, to
create a premier national chemical distribution company. The Company intends to
acquire, in separate transactions, nine entities engaged in the chemical
distribution business (the Acquisitions), complete the consummation of its
initial public offering (the Offering) and, subsequent to the Offering, continue
to acquire through merger or purchase similar companies to expand its national
and regional operations.
The Company has not conducted any operations, and all activities to date
have related to the Offerings and the Acquisitions. All expenditures of the
Company to date have been funded by its founders and current stockholders, on
behalf of the Company. The Company's founders and stockholders have also
committed to fund future organization expenses and offering costs. As of March
31, 1998, costs of approximately $35,421 have been incurred in connection with
the Offering, and such costs will be a reduction of the proceeds from the
Offering. The Company has treated these costs as deferred offering costs in the
accompanying balance sheet. The Company is dependent upon the Offering to
execute the Acquisitions and to repay its current stockholders for funding
deferred offering costs. There is no assurance that the Acquisitions or Offering
will be completed. The ability of the Company to generate future operating
revenues is dependent upon among other things, the ability of the Company to
integrate operations and computer systems, identify and integrate satisfactory
acquisition candidates and manage the effect of business growth and the need for
other key personnel.
2. STOCKHOLDERS' EQUITY:
Common Stock
The Company effected a 16.59366-for-1 stock split in July 1998 for each
share of common stock of the Company (Common Stock) then outstanding. The
effects of the Common Stock split have been retroactively reflected in the
balance sheets and in these notes.
In connection with its initial capitalization the Company issued 1,659,366
shares to Bellmeade Capital Partners, L.L.C., the founder of the Company, in
July 1997. In March 1998, the Company issued a total of 465,121 shares to
management, directors and consultants of the Company. As a result of the
issuance of shares to the Company's management, directors and consultants for
nominal consideration, the Company recorded, for financial statement
presentation purposes, a nonrecurring, noncash compensation charge of $5.2
million, calculated based on the difference between the amount paid for the
shares and the offering price of the shares of $15.00 less a discount of 25
percent. Certain members of management who joined the Company subsequent to
March 31, 1998, will be issued an additional 123,377 shares at $.01 per share.
As a result of the issuance of the 123,377 shares, the Company will record an
additional nonrecurring, noncash compensation charge of approximately $1.4
million.
1998 Stock Plan
The Plan was adopted by the board of directors and stockholders in June
1998. The purpose of the Plan is to provide officers, employees, directors and
consultants with additional incentives by increasing their ownership interests
in the Company. Individual awards under the Plan may take the form of one or
more of (a) either incentive stock options or nonqualified stock options
(NQSOs), (b) stock appreciation rights (SARs), (c) restricted stock, (d) phantom
stock, (e) bonus stock awards, (f) awards not otherwise provided for, the value
of which is based in whole or in part upon the value of the Common Stock, and
(g) cash awards that may or may not be based on the achievement of performance
goals (Awards). The performance goals for Awards, until changed, include target
levels of net income, cash flows, return on equity, profit margins, sales, stock
price, market share improvement, achievement of national accounts, reductions in
cost of goods sold and earnings per share.
F-126
<PAGE> 199
CHEMICAL LOGISTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Compensation Committee or the Company's chief executive officer or
president, to the extent such duties are delegated to either of them by the
Compensation Committee, will administer the Plan and select the individuals who
will receive awards and establish the terms and conditions of those awards. The
maximum number of shares of Common Stock that may be subject to outstanding
awards, determined immediately prior to grant of any award, may not exceed 15
percent of the aggregate number of shares of Common Stock then outstanding.
Shares of Common Stock which are attributable to awards which have expired,
terminated or been canceled or forfeited are available for issuance or use in
connection with future awards. The maximum number of shares of Common Stock with
respect to which any person may receive options and SARs in any calendar year is
500,000 shares. With respect to other forms of Awards, the maximum Award that
may be granted to any individual in any calendar year cannot exceed $4 million
(determined as of the date of the grant of the Award). Options and SARs may have
such exercise prices as the Compensation Committee, at its discretion,
determines.
The Plan will remain in effect for 10 years, unless earlier terminated by
the board of directors. The Plan may be amended by the board of directors or the
Compensation Committee without the consent of the stockholders of the Company,
except that any amendment will be subject to stockholder approval if required by
any federal or state law or regulation or by the rules of any stock exchange or
automated quotation system on which the Common Stock may then be listed or
quoted.
Each of the foregoing options will have an exercise price equal to the
initial public offering price per share. These options will vest at the rate of
20 percent per year, commencing on the first anniversary of grant and will
expire at the earliest of (a) 10 years from the date of grant, (b) three months
following termination of employment, other than due to death or disability or
(c) one year following a termination of employment due to death or disability.
The Plan also provides for (a) the automatic grant to each nonemployee
director serving at the consummation of the Offering of an option to purchase
10,000 shares, (b) the automatic grant to each individual who is first elected
or appointed as a nonemployee after the Offering of an option to purchase 10,000
shares on such election or appointment and (c) an automatic annual grant to each
nonemployee director of an option to purchase 5,000 shares following each annual
meeting of the stockholders on which such director remains a nonemployee
director. All such director options will have an exercise price per share equal
to the fair market value of the Common Stock on the date of grant, will vest six
months after grant and will expire on the earliest of (a) 10 years from the date
of grant or (b) one year following termination from the board.
Stock Purchase Plan
Prior to the closing of the Offering, the Company will adopt an employee
stock purchase plan (the Stock Purchase Plan) for employees of the Company.
Pursuant to the Stock Purchase Plan, the Company will pay any brokerage
commissions, transfer taxes and other fees associated with a participant's
purchase of Common Stock at the end of each six-month option period under the
plan. Additionally, purchases made pursuant to the Stock Purchase Plan will be
made at a 15 percent discount from (a) the then current market price of the
Common Stock or (b) its market price at the beginning of the applicable option
periods, whichever is lower. This discount will be funded by the Company. The
Stock Purchase Plan is intended to serve as a means of encouraging participants
to invest in Common Stock.
3. STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
method of accounting for employee stock options or similar equity instruments
and the current method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25 under which compensation expense is recorded to the extent
that the fair market value
F-127
<PAGE> 200
CHEMICAL LOGISTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of the related stock is in excess of the options exercise price at date of
grant. Entities electing to remain with the accounting in APB Opinion No. 25
must make pro forma disclosures of net income and earnings per share as if the
fair value method of accounting prescribed in SFAS No. 123 had been applied. The
Company will measure compensation expense attributable to stock options based on
the method prescribed in APB Opinion No. 25 and will provide the required pro
forma disclosure of net income and earnings per share, as applicable.
4. NEW ACCOUNTING PRONOUNCEMENTS:
SFAS No. 130 requires the presentation of comprehensive income in an
entity's financial statements. Comprehensive income represents all changes in
equity of an entity during the reporting period, including net income and
charges directly to equity which are excluded from net income. This statement is
not anticipated to have a material impact on the Company or its financial
disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information." This
statement requires the reporting of expanded information of a company's
operating segments. It also expands the definition of what constitutes an
entity's operating segments. This statement is required to be adopted for fiscal
years beginning after December 15, 1997. The Company intends to adopt this
statement during its fiscal year ending December 31, 1997. Management is
presently evaluating what, if any, additional disclosures may be required when
this statement is implemented.
5. FOUNDING COMPANY ACQUISITIONS:
In July 1998, the Company signed definitive agreements pursuant to which
all outstanding shares of common stock of the following entities (the Founding
Companies) will be exchanged for cash and shares of the Common Stock, concurrent
with the consummation of the Offering. The entities to be acquired are as
follows:
- Robins
- Industrial
- Southwest Solvents
- Chemical Solvents
- Tilley
- Cron
- Brown
- Tarr
- American
The aggregate consideration that will be paid by the Company to acquire the
Founding Companies will be approximately $31.1 million in cash and 6,543,329
shares of Common Stock.
The Company will enter into employment agreements with each executive
officer of the Company which prohibits such officer from disclosing the
Company's confidential information and trade secrets and generally restricts
these individuals from competing with the Company for a period of time equal to
the greater of (i) two years after the date of the termination of employment
with the Company and (ii) five years following the consummation of the Offering.
Each of the agreements has an initial term of three years and provides for an
automatic annual extension at the end of its initial term and is terminable by
the Company for "cause" upon ten days' written notice and without "cause" by
either party upon thirty days' written notice. All employment agreements provide
that if the officer's employment is terminated by the Company without "cause,"
the officer will be entitled to receive his base salary (at the rate then in
effect) for the greater of (i) the time period remaining under the initial term
of the agreement or (ii) one year. In addition, the time
F-128
<PAGE> 201
CHEMICAL LOGISTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
period during which such officer is restricted from competing with the Company
will be shortened to one year from the date of termination.
6. EVENTS SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company has recently initiated negotiations with a group of commercial
banks to provide the Company with a credit facility to be used for acquisitions,
working capital and other general corporate purposes and may result in financial
covenants that limit the Company's operations and financial flexibility. There
can be no assurance that the Company will be able to obtain such financing if
and when it is needed or that, if available, it will be available on terms the
Company deems acceptable.
F-129
<PAGE> 202
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...........................
Risk Factors.................................
The Company..................................
Use of Proceeds..............................
Dividend Policy..............................
Capitalization...............................
Dilution.....................................
Selected Financial Data......................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................
Business.....................................
Management...................................
Certain Transactions.........................
Principal Stockholders.......................
Description of Capital Stock.................
Shares Eligible for Future Sale..............
Underwriting.................................
Legal Matters................................
Experts......................................
Additional Information.......................
Index to Financial Statements................
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,200,000 SHARES
(LOGO)
CHEMICAL LOGISTICS
CORPORATION
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SANDERS MORRIS MUNDY
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 203
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 17,370
NASD Filing Fee............................................. 6,388
Listing Fee................................................. *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing Expenses........................................... *
Transfer Agent's Fees....................................... *
Miscellaneous............................................... *
----------
Total............................................. $4,300,000
==========
</TABLE>
- ---------------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of section 145 of the General Corporation Law of the State
of Delaware empowers 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 (other than an action by or in the right of the corporation) 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 (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or 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 corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers 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, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability
II-1
<PAGE> 204
asserted against him and incurred by him in any such capacity, or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article Eighth of the Company's Amended and Restated Certificate of
Incorporation states that:
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty by such director as a director; provided, however, that this
Article Eighth shall not eliminate or limit the liability of a director to
the extent provided by applicable law (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article Eighth shall apply to,
or have any effect on, the liability or alleged liability of any director
of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal. If the DGCL is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the DGCL, as so amended.
In addition, Article VI of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors and employees to the fullest
extent permitted by law.
The Company intends to enter into indemnification agreements with each of
its executive officers and directors.
Under Section of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, the Company, its officers and directors, and persons who control the
Company within the meaning of the Securities Act of 1933, as amended, against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of securities
by the Company during the past three years that were not registered under the
Securities Act of 1933. The description presented below gives effect to the
Company's recent 16.59366 for one stock split effected in June 1998.
(a) On July 15, 1997, the Company issued 1,659,366 shares of its
Common Stock at an aggregate price of $1,000 to Lorne D. Bain, John D.
Rogers, and J. Chris Brewster.
(b) On March 12, 1998, the Company issued 465,121 shares of its Common
Stock to certain executive officers, key employees and consultants at an
aggregate price of $280.29.
(c) On April 1, 1998, the Company issued 19,083 shares of its Common
Stock to certain executive officers at an aggregate price of $11.50.
(d) On April 10, 1998, the Company issued 188,571 shares of its Common
Stock to Bruce W. Wilkinson at a price of $113.64.
(e) On April 15, 1998, the Company issued 12,810 shares of its Common
Stock to Bruce W. Wilkinson at a price of $7.72.
II-2
<PAGE> 205
(f) On May 29, 1998, the Company issued 36,290 shares of its Common
Stock to Scott R. Creasman at a price of $21.87.
(g) On June 16, 1998, the Company issued 19,962 shares of its Common
Stock to Rodney R. Proto at a price of $12.03.
(h) See "Certain Transactions" for a discussion of the issuance of
shares of Common Stock in connection with the Acquisitions.
These transactions were completed without registration under the Securities
Act of 1933 in reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Form of Stock Purchase Agreement dated as of July 20,
1998 by and among the parties listed in the Schedule to
Form of Stock Purchase Agreement attached hereto.
3.1 -- Amended and Restated Certificate of Incorporation.
3.2 -- Bylaws.
*4.1 -- Specimen Common Stock Certificate.
*5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered.
*10.1 -- Form of Employment and Non-Competition Agreement.
*10.2 -- Form of Officer and Director Indemnification Agreement.
*10.3 -- Chemical Logistics Corporation 1998 Stock Plan.
*10.4 -- Chemical Logistics Corporation Stock Purchase Plan.
*23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney (included in signature page set forth
on page II-5).
27 -- Financial Data Schedule.
99.1 -- Consents of Directors to serve.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
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 Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or
II-3
<PAGE> 206
(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) That 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.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-4
<PAGE> 207
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 July 23, 1998.
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
----------------------------------
Bruce W. Wilkinson,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Bruce W. Wilkinson and Francis S. Kalman,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statements filed
by the Registrant pursuant to Rule 462(b) of the Securities Act of 1933, which
relates to this Registration Statement, and to file same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 23, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ BRUCE W. WILKINSON Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
Bruce W. Wilkinson
/s/ LORNE D. BAIN President and Director
- -----------------------------------------------------
Lorne D. Bain
/s/ FRANCIS S. KALMAN Senior Vice President, Chief Financial
- ----------------------------------------------------- Officer and Secretary (Principal Financial
Francis S. Kalman Officer)
/s/ SCOTT R. CREASMAN Vice President -- Controller (Principal
- ----------------------------------------------------- Accounting Officer)
Scott R. Creasman
</TABLE>
II-5
<PAGE> 208
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Form of Stock Purchase Agreement dated as of July 20,
1998 by and among the parties listed in the Schedule to
Form of Stock Purchase Agreement attached hereto.
3.1 -- Amended and Restated Certificate of Incorporation.
3.2 -- Bylaws.
*4.1 -- Specimen Common Stock Certificate.
*5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered.
*10.1 -- Form of Employment and Non-Competition Agreement.
*10.2 -- Form of Officer and Director Indemnification Agreement.
*10.3 -- Chemical Logistics Corporation 1998 Stock Plan.
*10.4 -- Chemical Logistics Corporation Stock Purchase Plan.
*23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1).
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Powers of Attorney (included in signature page set forth
on page II-5).
27 -- Financial Data Schedule.
99.1 -- Consents of Directors to serve.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of the 20th day of July, 1998
by and among
CHEMICAL LOGISTICS CORPORATION
and all of
the STOCKHOLDERS of
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. SALE AND PURCHASE OF STOCK . . . . . . . . . . . . . . . . . . . . . 5
1.1 Sale and Purchase. . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Acquisition Consideration. . . . . . . . . . . . . . . . . . . 6
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . 6
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . 6
2.2 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. DELIVERY OF CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Stockholders' Consideration. . . . . . . . . . . . . . . . . . 6
3.2 Stockholders' Deliveries. . . . . . . . . . . . . . . . . . . 6
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS . . . . . . . . . 7
5.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . 8
5.4 Transactions in Capital Stock; Organization Accounting. . . . 8
5.5 No Bonus Shares. . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Subsidiaries; Ownership in Other Entities. . . . . . . . . . . 9
5.7 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . 9
5.8 Spin-off by the Company. . . . . . . . . . . . . . . . . . . . 9
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . 9
5.10 Liabilities and Obligations. . . . . . . . . . . . . . . . . . 9
5.11 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . 10
5.12 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . 10
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 11
5.14 Personal Property. . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Significant Customers and Suppliers; Material Contracts and
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.16 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.18 Compensation; Employment Agreements; Labor Matters. . . . . . 15
5.19 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . 16
5.20 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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5.21 Conformity with Law; Litigation. . . . . . . . . . . . . . . . 18
5.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.23 No Violations; No Consent Required, Etc. . . . . . . . . . . . 19
5.24 Government Contracts. . . . . . . . . . . . . . . . . . . . . 20
5.25 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . 20
5.26 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . 21
5.27 Validity of Obligations. . . . . . . . . . . . . . . . . . . . 22
5.28 Relations with Governments. . . . . . . . . . . . . . . . . . 22
5.29 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.30 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . 23
5.31 No Warranties or Insurance. . . . . . . . . . . . . . . . . . 23
5.32 Interest in Customers and Suppliers and Related Party
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 23
5.33 Registration Statement. . . . . . . . . . . . . . . . . . . . 23
5.34 Authority; Ownership. . . . . . . . . . . . . . . . . . . . . 24
5.35 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . 24
6. REPRESENTATIONS OF CLC . . . . . . . . . . . . . . . . . . . . . . . 24
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Capital Stock of CLC. . . . . . . . . . . . . . . . . . . . . 24
6.4 Transactions in Capital Stock; Organization Accounting. . . . 25
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . 25
6.7 Liabilities and Obligations. . . . . . . . . . . . . . . . . . 25
6.8 Conformity with Law; Litigation. . . . . . . . . . . . . . . . 25
6.9 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . 26
6.10 Validity of Obligations. . . . . . . . . . . . . . . . . . . . 27
6.11 CLC Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.12 Business; Real Property; Material Agreements. . . . . . . . . 27
6.13 Relations with Governments. . . . . . . . . . . . . . . . . . 27
6.14 Investment Representations. . . . . . . . . . . . . . . . . . 28
6.15 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . 28
6.16 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.17 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 28
7. COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . 29
7.1 Access and Cooperation; Due Diligence. . . . . . . . . . . . . 29
7.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . 29
7.3 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . 30
7.4 No Shop. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Notification of Certain Matters. . . . . . . . . . . . . . . . 32
7.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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7.8 Cooperation in Preparation of Registration Statement. . . . . 33
7.9 Final Financial Statements. . . . . . . . . . . . . . . . . . 34
7.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 34
7.11 Compliance with the Hart-Scott Act. . . . . . . . . . . . . . 34
7.12 Transfers of Permits and Intangibles. . . . . . . . . . . . . 34
7.13 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY . . . 35
8.1 Representations and Warranties; Performance of Obligations. . 35
8.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 35
8.3 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . 35
8.4 Registration Statement. . . . . . . . . . . . . . . . . . . . 36
8.5 Consents and Approvals. . . . . . . . . . . . . . . . . . . . 36
8.6 Good Standing Certificates. . . . . . . . . . . . . . . . . . 36
8.7 No Material Adverse Change. . . . . . . . . . . . . . . . . . 36
8.8 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . 36
8.9 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . 36
8.10 Employment Agreements. . . . . . . . . . . . . . . . . . . . . 36
8.11 Bellmeade Transfer Restrictions. . . . . . . . . . . . . . . . 36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLC . . . . . . . . . . . . . 37
9.1 Representations and Warranties; Performance of Obligations. . 37
9.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 37
9.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . 37
9.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . 37
9.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . 38
9.6 Termination of Related Party Agreements. . . . . . . . . . . . 38
9.7 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . 38
9.8 Consents and Approvals. . . . . . . . . . . . . . . . . . . . 38
9.9 Good Standing Certificates. . . . . . . . . . . . . . . . . . 38
9.10 Registration Statement. . . . . . . . . . . . . . . . . . . . 38
9.11 Employment Agreements. . . . . . . . . . . . . . . . . . . . . 38
9.12 Closing of IPO. . . . . . . . . . . . . . . . . . . . . . . . 39
9.13 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . 39
9.14 Resignations of Directors; Appointment of Officer. . . . . . . 39
9.15 Amendments to Charter Documents. . . . . . . . . . . . . . . . 39
9.16 Registration Statement Certificate. . . . . . . . . . . . . . 39
10. COVENANTS OF CLC AND THE STOCKHOLDERS AFTER CLOSING . . . . . . . . . 39
10.1 Release From Guarantees; Repayment of Certain Obligations. . . 39
10.2 Preservation of Tax and Accounting Treatment. . . . . . . . . 39
10.3 Preparation and Filing of Tax Returns. . . . . . . . . . . . . 40
</TABLE>
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10.4 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.5 Preservation of Employee Benefit Plans. . . . . . . . . . . . 41
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.1 General Indemnification by the Stockholders. . . . . . . . . . 41
11.2 Environmental Indemnification by the Stockholders. . . . . . . 42
11.3 Indemnification by CLC. . . . . . . . . . . . . . . . . . . . 45
11.4 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . 46
11.5 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . 47
11.6 Limitations on Indemnification. . . . . . . . . . . . . . . . 47
12. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 48
12.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.2 Liabilities in Event of Termination. . . . . . . . . . . . . . 49
13. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . 49
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
13.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . 50
13.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . 50
13.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . 50
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . 51
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . 51
14.1 Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . 51
14.2 CLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
15. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 52
15.1 Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . 52
16. FEDERAL SECURITIES ACT REPRESENTATIONS . . . . . . . . . . . . . . . 53
16.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . 53
16.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . 53
17. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 54
17.1 Piggyback Registration Rights. . . . . . . . . . . . . . . . . 54
17.2 Registration Procedures. . . . . . . . . . . . . . . . . . . . 54
17.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 55
17.4 Underwriting Agreement. . . . . . . . . . . . . . . . . . . . 56
17.5 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . 57
17.6 Availability of Rule 144. . . . . . . . . . . . . . . . . . . 57
</TABLE>
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18. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
18.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . 57
18.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . 57
18.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 58
18.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 58
18.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . 58
18.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
18.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
18.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 60
18.9 Survival of Representations and Warranties. . . . . . . . . . 60
18.10 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . 60
18.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
18.12 Reformation and Severability. . . . . . . . . . . . . . . . . 60
18.13 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . 60
18.14 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
18.15 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . 61
18.16 Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . 61
18.17 References, Gender, Number. . . . . . . . . . . . . . . . . . 61
18.18 Schedules and Annexes. . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Certificate of Incorporation and By-Laws of CLC
Annex III - Form of Opinion of Counsel to CLC
Annex IV - Form of Opinion of Counsel to Company and
Stockholders
Annex V - Form of Founder Employment Agreement
SCHEDULES
2.1 Board of Directors of the Company
2.2 Officers of the Company
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock; Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries; Ownership in Other Entities
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5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15(a) Significant Customers and Suppliers
5.15(b) Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, No Consents Required, Etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.30 Prohibited Activities
5.31 No Warranties or Insurance
5.32 Interest in Customers and Suppliers and Related Party Transactions
6.2 Authorized Capital Stock of CLC
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Agreements
9.6 Termination of Related Party Agreements
9.11 Employment Agreements
10.1 Release From Guarantees; Repayment of Certain Obligations
11.2 Scheduled Environmental Liabilities
16.2 Non-accredited Investors
18.5 Brokers and Agents
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 20th
day of July, 1998, by and among Chemical Logistics Corporation, a Delaware
corporation ("CLC"), , an
corporation (the "Company") and the stockholders listed on the signature pages
of this Agreement (the "Stockholders"), who are all the stockholders of the
Company.
RECITALS
WHEREAS, as of the date hereof, the Stockholders own, and as of the
Consummation Date the Stockholders will own, all of the issued and outstanding
capital stock of the Company (the "Company Stock");
WHEREAS, CLC is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements") with each of the Other
Founding Companies (as defined herein) and their respective stockholders in
order to acquire additional chemical distribution companies;
WHEREAS, this Agreement and the Other Agreements constitute the "CLC
Plan of Organization;"
WHEREAS, the Stockholders and the boards of directors and the
stockholders of CLC and each of the Other Founding Companies that are parties
to the Other Agreements have approved and adopted the CLC Plan of Organization
as an integrated plan pursuant to which the Stockholders and the stockholders
of each of the other Founding Companies (as defined herein) will transfer the
capital stock of each of the Founding Companies to CLC and the stockholders of
each of the other Founding Companies will acquire shares of CLC Stock (as
defined herein);
WHEREAS, it is the intent of the parties that the transfer to CLC of
stock of the Company by the Stockholders in consideration for stock of CLC
qualify as a tax-free transfer of property under Section 351 of the Code (as
hereinafter defined);
WHEREAS, the Board of Directors of the Company has approved this
Agreement as part of the CLC Plan of Organization in order to transfer the
capital stock of the Company to CLC;
WHEREAS, unless the context otherwise requires, capitalized terms used
in this Agreement or in any schedule attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
<PAGE> 9
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquisition Consideration" means the cash and CLC Stock paid to the
Stockholders as consideration for the shares of Company Stock.
"Affiliate" means with respect to any person or entity, any other person
or entity that directly or indirectly, controls, is controlled by, or is under
common control with such person or entity.
"Balance Sheet Date" means February 28, 1998.
"Charter" means the certificate of incorporation or articles of
incorporation of the corporation, as the case may be.
"Charter Documents" has the meaning set forth in Section 5.1.
"CLC" has the meaning set forth in the first paragraph of this
Agreement.
"CLC Charter Documents" has the meaning set forth in Section 6.1.
"CLC Documents" has the meaning set forth in Section 6.9.
"CLC Financial Statements" has the meaning set forth in Section 6.6.
"CLC Plan of Organization" has the meaning set forth in the fourth
recital of this Agreement.
"CLC Stock" means the common stock, par value $.01 per share, of CLC.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in the first recital of this
Agreement.
"Consummation Date" has the meaning set forth in Section 4.
"Delaware GCL" means the General Corporation Law of the State of
Delaware.
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"Draft Registration Statement" means the draft dated July 20, 1998 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by CLC to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to CLC.
"Effective Time" means the effective time of the consummation of the
purchase and sale of the Company Stock, which shall occur on the Consummation
Date.
"Environmental Law" has the meaning set forth in Section 5.13(c).
"Environmental Liabilities"has the meaning set forth in Section 11.2(h).
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
A.C.C., Inc. (t/a American Chemicals Co., Inc.), a New Jersey
corporation; Brown Chemical Company, Inc., a New Jersey
corporation, and its Affiliate
Brown Realty Incorporated, a New Jersey corporation;
Chemical Solvents, Inc., an Ohio corporation, and its Affiliate
Pavlish Real Estate Holding Company; Cron Chemical Corporation,
a Texas corporation, and its Affiliates
Magnolia Chemical and Solvents, Inc., a Louisiana
corporation, and Rayver, Inc., a Louisiana corporation;
Houston Solvents & Chemicals Co., Inc., a Texas corporation
(d/b/a Southwest Solvents & Chemicals) and its Affiliates
SS & C Properties, Inc. and Dallas Solvents and Chemicals
Company, Inc.;
Industrial Chemicals, Inc., an Alabama corporation;
G.S. Robins & Company, a Missouri corporation;
Tarr, Inc., an Oregon corporation, and its Affiliates
Tarr Trucking Inc., an Oregon corporation, and
Tarr, Inc. of Arizona, an Arizona corporation;
Tilley Chemical Co., Inc., a Maryland corporation, and its
Affiliate
D.J.J. Equity Corporation, a Maryland corporation.
"GAAP" means generally accepted accounting principles as consistently
applied in the United States.
"Hart-Scott Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Hazardous Substance" has the meaning set forth in Section 5.13(d).
"IPO" means the initial public offering of CLC Stock pursuant to the
Registration Statement.
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<PAGE> 11
"known," "knowledge" or "best knowledge," when used in reference to a
statement regarding the existence or absence of facts in this Agreement, is
intended by the parties to mean that the only information to be attributed to
such person is information actually known to (a) the person in the case of an
individual or (b) in the case of a corporation or other entity, an officer,
director or member. With respect to the "knowledge" of the Stockholders who
are officers, directors, employees, consultants or agents of the Company, such
term is also intended to mean that such Stockholder has made inquiry of the
officers and directors of the Company and its Subsidiaries, if any, and with
respect to the representations made in Section 5.13, the Company's management
and environmental personnel.
"Material Adverse Change" means a material adverse change in the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the subject entity and its Subsidiaries taken as a whole.
"Material Documents" has the meaning set forth in Section 5.23(a).
"Minimum Value" has the meaning set forth in Annex I.
"Operating Capital" means the Company's current assets minus (i) the
Company's current liabilities and (ii) the Company's long-term debt except for
notes payable related to real estate that will be held by the Company.
"Other Agreements" has the meaning set forth in the second recital of
this Agreement.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Person" means an individual, partnership, joint venture, corporation,
limited liability company, bank, trust, unincorporated organization or other
entity.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by CLC and the Underwriters of
the public offering price of the shares of CLC Stock in the IPO.
"Qualified Plans" has the meaning set forth in Section 5.20.
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"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of CLC Stock to be issued
in the IPO, including the prospectus and all amendments and supplements
thereto.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as amended or
supplemented pursuant to Section 7.7), which shall reference the relevant
sections of this Agreement, on which parties hereto disclose information as
part of their respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means, as it relates to a referenced
corporation, the state of incorporation for such corporation.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means with respect to a person or entity, any corporation
or other entity in which such person or entity owns a 5% or greater ownership
interest.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add-on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Draft Registration Statement and any additional or substitute underwriter
appointed by CLC as identified in writing to the Stockholders.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. SALE AND PURCHASE OF STOCK
1.1 SALE AND PURCHASE. Upon the terms and subject to the conditions
contained in this Agreement and in reliance upon the representations,
warranties, covenants and agreements contained in this Agreement, on the
Consummation Date, the Stockholders shall sell to CLC, and CLC shall purchase
from the Stockholders, all of the issued and outstanding shares of capital
stock of the Company as set forth in Annex I hereto.
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1.2 ACQUISITION CONSIDERATION. The Acquisition Consideration for the
Company Stock shall be as set forth on Annex I to this Agreement.
2. BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
2.1 BOARD OF DIRECTORS. As of the Consummation Date, the Board of
Directors of the Company shall consist of the persons identified on Schedule
2.1 hereto, each of such directors to hold office subject to the provisions of
the laws of the State of Incorporation and of the charter and bylaws of the
Company, until their respective successors are duly elected and qualified.
2.2 OFFICERS. As of the Consummation Date, the officers of the
Company shall consist of the persons listed on Schedule 2.2 except that
effective as of the Consummation Date, the Chief Financial Officer of CLC shall
become an additional Vice President and the Secretary of the Company, each of
such officers to hold office, subject to the provisions of the laws of the
State of Incorporation and of the charter and bylaws of the Company, until
their respective successors are duly elected and qualified.
3. DELIVERY OF CONSIDERATION
3.1 STOCKHOLDERS' CONSIDERATION. On the Consummation Date, the
Stockholders, who are now and on the Consummation Date will be, the holders of
all of the outstanding capital stock of the Company, shall, upon surrender of
certificates evidencing that capital stock, receive from CLC the respective
number of shares of CLC Stock and the amount of cash described on Annex I
hereto, which shall be payable by certified check or wire transfer.
3.2 STOCKHOLDERS' DELIVERIES. The Stockholders shall deliver at the
Closing the certificates representing Company Stock, duly endorsed in blank by
the Stockholders, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Stockholders' expense,
affixed and canceled. The Stockholders agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such Company Stock or with respect to the stock
powers accompanying any Company Stock.
4. CLOSING
Prior to the Pricing and subject to the satisfaction or waiver of the
conditions in Sections 8 and 9, the parties shall take all actions necessary to
effect the delivery of shares referred to in Section 3 hereof; provided, that
such actions shall not include the actual completion of the purchase and sale
of the Company Stock or the delivery of the CLC Stock and cash referred to in
Section 3 hereof, each of which actions shall only be taken upon the
Consummation Date as herein provided. The delivery of the Company Stock, which
shall occur prior to the Pricing (the "Closing"), shall take place on the
closing date (the "Closing Date") at the offices of Andrews & Kurth L.L.P., 600
Travis, Suite 4200, Houston, Texas 77002. All Company Stock shall be delivered
prior to the Closing to
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Andrews & Kurth L.L.P., to be held in trust until the Consummation Date, and
shall be returned immediately upon any termination of this Agreement prior to
the Consummation Date. On the Consummation Date (x) all transactions
contemplated by this Agreement, including the delivery of shares and cash which
the Stockholders shall be entitled to receive pursuant to Annex I hereof, shall
be completed, and (y) the closing with respect to the IPO shall occur and be
completed. The date on which the actions described in the preceding clauses
(x) and (y) occurs shall be referred to as the "Consummation Date." During the
period from the Closing Date to the Consummation Date, this Agreement may only
be terminated by the Company if the underwriting agreement in respect of the
IPO is terminated pursuant to the terms of such underwriting agreement. This
Agreement shall in any event terminate if the Consummation Date does not occur
within 30 days of the Pricing. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
(A) Representations and Warranties of the Stockholders.
Except as set forth in the disclosure schedules attached hereto and
except as otherwise qualified below, each of the Stockholders, jointly and
severally, represent and warrant that all of the following representations and
warranties in this Section 5(A) are true at the date of this Agreement, and
that such representations and warranties shall survive the Consummation Date
for a period of twenty-four months (the last day of such period being the
"Expiration Date"), except that the warranties and representations set forth in
Sections 5.3 and 5.22 hereof shall survive until such time as the applicable
limitations period has run, which shall be deemed to be the Expiration Date for
Sections 5.3 and 5.22. For purposes of this Section 5, the term "Company"
shall mean and refer to the Company and all of its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated
and organized, validly existing and in good standing under the laws of the
State of Incorporation, and has the requisite power and authority to carry on
its business as it is now being conducted. The Company is duly qualified or
authorized to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or authorization necessary except where the failure to be so
qualified or authorized to do business would not have a Material Adverse Effect
on the Company. Schedule 5.1 sets forth a list of all states in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Charter and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered to CLC complete and
correct copies of all minutes of meetings, written consents and other evidence,
if any, of deliberations of or actions taken by the Company's Board of
Directors, any committees of the Board of Directors and stockholders during the
last three years.
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<PAGE> 15
5.2 AUTHORIZATION. (i) The officers or other representatives of the
Company executing this Agreement have the authority to enter into and bind the
Company to the terms of this Agreement and (ii) the Company has the full legal
right, power and authority to enter into this Agreement and consummate the
transactions contemplated herein. Copies of the most recent resolutions
adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders, which approve this Agreement and the
transactions contemplated herein in all respects, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Schedule 5.3, other than any treasury shares listed on
Schedule 5.3. Each Stockholder, severally, represents and warrants that except
as set forth on Schedule 5.3, the shares of capital stock of the Company owned
by such Stockholder are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind. All of the issued and outstanding shares of the capital stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the Stockholders and
further, such shares were offered, issued, sold and delivered by the Company in
compliance with all applicable state and Federal laws concerning the issuance
of securities. Further, none of such shares were issued in violation of any
preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except
as set forth on Schedule 5.4, the Company has not acquired or redeemed any
Company Stock since January 1, 1995. Except as set forth on Schedule 5.4, (i)
no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock; (ii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the Company nor the
relative ownership of shares among any of its respective Stockholders has been
altered or changed in contemplation of the transactions contemplated herein
and/or the CLC Plan of Organization. Except as attached to Schedule 5.4, there
are no voting trusts, proxies or other agreements or understandings to which
the Company or any of the Stockholders is a party or is bound with respect to
the voting of any shares of capital stock of the Company. Schedule 5.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the Company's stock and the material terms of such
outstanding options, warrants or other rights.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of
the shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the CLC Plan of Organization.
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5.6 SUBSIDIARIES; OWNERSHIP IN OTHER ENTITIES. Except as set forth
on Schedule 5.6, the Company has no Subsidiaries. Except as set forth in
Schedule 5.6, the Company does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity nor is the Company, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing
of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired assets which
are material to the Company, in any case, from the earliest date upon which any
Stockholder acquired his or her stock in any Company. Except as disclosed on
Schedule 5.7, the Company has not been, within such period of time, a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded, nor, within such period of time, has the Company had any
substantial operations that have been discontinued or any operating plants or
facilities that have been discontinued, sold or spun off.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8,
there has not been any sale, spin-off or split-up of material assets of the
Company since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Copies of the following financial
statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of ,
1997 and 1998 and the related statements of operations, stockholder's
equity and cash flows for the three-year period ended ,
1998, together with the related notes and schedules (such balance
sheets, the related statements of operations, stockholder's equity and
cash flows and the related notes and schedules are referred to herein as
the "Year-end Financial Statements").
The Year-end Financial Statements are referred to herein as the
"Financial Statements". The Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and changes in financial position for the
periods then ended. The Company's books of account have been kept accurately
in all material respects, the transactions entered therein represent bona fide
transactions, and the revenues, expenses, assets and liabilities of the Company
have been properly recorded in such books in all material respects.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an
accurate list as of the Balance Sheet Date of (i) all material liabilities of
the Company which are not reflected on the balance sheet of the Company at the
Balance Sheet Date which by their nature would be required in accordance with
GAAP to be reflected in the balance sheet, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges or other security
agreements to which the Company is a party or by which its properties may be
bound. Except as set forth on Schedule 5.10,
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<PAGE> 17
since the Balance Sheet Date, the Company has not incurred any material
liabilities or obligations of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business and consistent with
past practices. For each such contingent liability or liability for which the
amount is not fixed or is contested, the Company has provided to CLC the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation in the
possession of the Company or its directors,
officers, management, stockholders or key employees
relating thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an
accurate list, in all material respects, of the accounts and notes receivable
of the Company, as of the Balance Sheet Date, including any such amounts which
are not reflected in the balance sheet as of the Balance Sheet Date, and
including all receivables from and advances to employees and the Stockholders,
which are identified as such. Schedule 5.11 also sets forth an accurate aging
of all accounts and notes receivable as of the Balance Sheet Date showing
amounts due in 30-day aging categories. Except to the extent reflected on
Schedule 5.11, such accounts, notes and other receivables arose in connection
with bona fide transactions and the reserves reflected in the balance sheet as
of the Balance Sheet Date are adequate in accordance with GAAP.
5.12 PERMITS AND INTANGIBLES. Except for the trademarks, trade
names, patents, patent applications, copyrights, other intellectual property
and permits as will be assigned to the Company pursuant to Section 7.12, the
Company holds all licenses, franchises, permits and other governmental
authorizations ("Licenses") necessary to conduct the business of the Company,
the absence of which would cause a Material Adverse Effect on the Company, and
the Company has delivered to CLC a list that is accurate, in all material
respects, and summary description (which is set forth on Schedule 5.12) of all
such Licenses, including any trademarks, trade names, patents, patent
applications and copyrights owned or held by the Company or any of its
employees (including interests in software or other technology systems,
programs and intellectual property) which are material to the operations of the
Company. Except as set forth on Schedule 5.12, the Licenses and other rights
listed on Schedule 5.12 are valid, and the Company has not received any notice
that any person intends to cancel, terminate or not renew any such License or
other right. Except as set forth on Schedule 5.12, the Company has conducted
and is conducting its business in compliance in all material respects
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<PAGE> 18
with the requirements, standards, criteria and conditions set forth in the
Licenses and other rights listed on Schedule 5.12 and is not in violation of
any of the foregoing in any material respect. Except as specifically provided
in Schedule 5.12, the consummation by the Company of the transactions
contemplated in this Agreement will not result in a default under or a breach
or violation of, or adversely affect the rights and benefits afforded to the
Company by, any such Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. The sole representations of the
Stockholders with respect to environmental matters are set forth in this
Section 5.13. To the extent representations in other sections of this Agreement
could apply to environmental matters, including, but not limited to, matters
related to, arising under or concerning Environmental Laws, Hazardous
Substances or Environmental Liabilities, such representations shall be
construed to exclude all environmental matters.
(a) Except as specifically set forth in Schedule 5.13 attached hereto
or as could not have a Material Adverse Effect on the Company, (i) the Company
has conducted and is conducting its businesses in compliance with all
applicable Environmental Laws, including, without limitation, having all
environmental permits, licenses and other approvals and authorizations required
by Environmental Laws for the operation of its business as presently conducted,
(ii) none of the properties now or previously owned or occupied by the Company
contain any Hazardous Substance, the existence of which imposes a requirement
under Environmental Laws to remove, remediate, or reduce the levels of
Hazardous Substances to levels below regulatory action levels, or otherwise
perform any response, corrective or preventive measure or pay for any
environmental response costs ("Environmental Response Measures"), (iii) the
Company has not received any written notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company may be in violation of, or liable for
any Environmental Response Measures under, any Environmental Law in connection
with the ownership or operation of its business, and, to the knowledge of the
Stockholders, has no reason to believe that any such written documentation may
be forthcoming, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, consent orders, investigations or proceedings
pending or, to the knowledge of the Stockholders, threatened, against the
Company relating to any Environmental Law, (v) no reports have been filed, or
are required to be filed, by the Company concerning the release of any
Hazardous Substance or the threatened or actual violation of any Environmental
Law, (vi) no Hazardous Substance has been disposed of, released or transported
in violation of any applicable Environmental Law from any properties owned,
leased or operated by the Company as a result of any activity of the Company
during the time such properties were owned, leased or operated by the Company,
(vii) there have been and are no environmental investigations, studies, audits,
tests, reviews or other analysis regarding compliance or non-compliance with
any applicable Environmental Law conducted by or which are in the possession of
the Company relating to the activities of the Company, (viii) there are no
underground storage tanks on, in or under any properties owned by the Company,
there were no underground storage tanks owned or used by the Company on
properties formerly owned, leased or operated by the Company, and no
underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
the Company, (ix) there is no asbestos or asbestos-containing material present
in any of the properties owned, leased or operated by the Company that is
required to be removed or otherwise abated under Environmental Laws, and no
asbestos was removed from any properties now or formerly owned, leased or
operated by the Company during
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the time such properties were owned, leased or operated by the Company, except
in compliance with Environmental Laws, (x) neither the Company nor any of its
respective properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law, (xi) to the knowledge of the Stockholders,
there are no Environmental Liabilities at sites not owned, operated or leased
by the Company, for which the Company could, in whole or in part, be liable,
and (xii) the Company has not been a contractee under any tolling agreement,
processing agreement or netback agreement with a third party.
(b) With respect to any past direct or indirect subsidiaries or
affiliates of the Company, the representations contained in Section 5.13(a)
shall apply to the assets and activities conducted by such entity while owned,
directly or indirectly, by the Company or affiliated therewith to the extent
that a failure of such representations to be true and correct could subject the
Company to liability.
(c) As used herein, "Environmental Law" means any federal, state, or
local, statute, ordinance, rule, regulation, code, license, permit,
authorization, order, judgment, decree, injunction, restriction or agreement
with any governmental entity, relating to (x) the protection, preservation or
restoration of the environment or to human health or safety or (y) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended through the Consummation Date and as in
effect through the Consummation Date. The term Environmental Law includes,
without limitation, (i) the Federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, the Federal Water Pollution Control Act
of 1972, the Federal Clean Air Act, the Federal Resource Conservation and
Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments
thereto), the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act
of 1970, and any similar law, regulation or requirement of any governmental
authority or agency having jurisdiction over the Company or its property, each
as amended and as in effect on the Consummation Date, and (ii) any common law
or equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability)
that may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of, effects of or exposure to any
Hazardous Substance.
(d) As used herein, "Hazardous Substance" means any substance
regulated under any Environmental Law or the exposure to which is regulated by
any Environmental Law, and shall include, without limitation, any industrial
substance, petroleum or any derivative or by-product thereof, radon, asbestos
or asbestos-containing material, urea formaldehyde foam insulation, lead fibers
or polychlorinated biphenyls.
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5.14 PERSONAL PROPERTY. Schedule 5.14 sets forth an accurate list of
(x) all personal property material to the operations of the Company included in
"plant, property and equipment" on the balance sheet of the Company, (y) all
other personal property owned by the Company with an individual net book value
in excess of $5,000 (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date and (z) all material leases and agreements in respect of
personal property, including, in the case of each of (x), (y) and (z), (1)
true, complete and correct copies of all such leases and agreements and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except
as set forth on Schedule 5.14, (i) all personal property material to, and used
by, the Company in its business is either owned by the Company or leased by the
Company pursuant to a lease included on Schedule 5.14, (ii) all of the personal
property listed on Schedule 5.14 or replacement property thereof is in working
order and condition, ordinary wear and tear excepted and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the Company, and to the knowledge of
the Stockholders, the other parties thereto in accordance with their respective
terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, liquidation or other similar
laws and equity principles relating to creditors' rights generally. For the
purposes of this Section 5.14, "personal property" shall be deemed to exclude
personal property addressed by Sections 5.11 and 5.12 and inventory of the
Company.
5.15 SIGNIFICANT CUSTOMERS AND SUPPLIERS; MATERIAL CONTRACTS AND
COMMITMENTS
(a) Schedule 5.15(a) sets forth an accurate list of (i) all customers
(persons or entities) representing 5% or more of the Company's annual revenues
for fiscal year 1997, showing the approximate total sales to each such
customer, and (ii) all suppliers (persons or entities) representing 5% or more
of the Company's annual purchases of supplies for fiscal year 1997, showing the
approximate total purchases of supplies from each such supplier. Except to the
extent set forth on Schedule 5.15(a), none of such customers or suppliers has
canceled or substantially reduced or, to the best knowledge of the
Stockholders, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Company.
(b) The Company has listed on Schedule 5.15(b) all material
contracts, commitments and similar agreements to which the Company is a party
or by which it or any of its properties are bound (including, but not limited
to, contracts with significant customers or suppliers, joint venture or
partnership agreements, contracts with any labor organizations, strategic
alliances and options to purchase land), other than agreements listed on
Schedules 5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date and
(b) entered into since the Balance Sheet Date, and in each case has delivered
true, complete and correct copies of such agreements to CLC. Except as set
forth on Schedule 5.15(b), the Company has complied with all commitments and
obligations pertaining to it, is not in default under any contracts or
agreements listed on Schedules 5.10, 5.14, 5.15(b) or 5.16 and has not received
notice of a default under any such contract or agreement except for such
commitments and obligations or defaults which would not individually or in the
aggregate have a Material Adverse Effect upon the Company. Where required
prior to the execution of this
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Agreement under such contracts or agreements, the Company has furnished notice
of the CLC Plan of Organization to third parties and has, where required prior
to the execution of this Agreement, obtained consent from third parties to
enter into the transactions contemplated in this Agreement, except where the
failure to provide such notice or obtain such consent would not have a Material
Adverse Effect upon the Company. The Company has also indicated on Schedule
5.15(b) a list of all plans or projects involving the opening of new
operations, expansion of existing operations, or the acquisition of any
personal property, business or assets requiring, in any event, the payment of
more than $30,000 by the Company.
(c) Except as set forth on Schedule 5.15(b) and as would not have a
Material Adverse Effect upon the Company, since January 1, 1997, the Company
has not experienced any difficulties in obtaining any inventory items necessary
to the operation of its business, and, to the knowledge of the Stockholders, no
such shortage of supply of inventory items is threatened or pending. To the
knowledge of the Stockholders and except as set forth in Schedule 5.15(b), no
customer or supplier of the Company has indicated that it will cease to do
business with, or substantially reduce its purchases from or sales to, the
Company by reason of or after the consummation of the transactions contemplated
hereby.
(d) Except as set forth on Schedule 5.15(b), the Company is not
required to provide any bonding or other financial security arrangements in any
material amount in connection with any contract listed on Schedule 5.15(b).
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real
property owned or leased by the Company at the date hereof and all other real
property, if any, used by the Company in the conduct of its business. The
Company has good title to any real property owned by it that is shown on
Schedule 5.16, other than property intended to be sold or distributed prior to
the Closing Date, and all real property so owned is subject to no mortgage,
pledge, lien, conditional sales agreement, encumbrance, lease, possessory
rights of third parties or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet payable and assessments
not in default and other inchoate liens for amounts not yet payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions
to title which do not adversely affect the current or contemplated use
of the property.
Copies of all leases and agreements in respect of such real property
leased by the Company, which are true, complete and correct in all material
respects, are attached to Schedule 5.16, and an indication as to which such
properties, if any, are currently owned, or were formerly owned, by
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Stockholders or Affiliates of the Company or Stockholders is included in
Schedule 5.16. Copies of all title reports and title insurance policies with
respect to such real property owned by the Company and in its possession or
reasonably accessible to it are attached to Schedule 5.16. Except as set forth
on Schedule 5.16, all of such leases included on Schedule 5.16 are in full
force and effect and constitute valid and binding agreements of the Company
and, to the knowledge of the Stockholders, the other parties thereto in
accordance with their respective terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium,
liquidation or other similar laws and equity principles relating to creditors'
rights generally.
5.17 INSURANCE. The Company has delivered to CLC (i) an accurate list
as of the Balance Sheet Date of all insurance policies carried by the Company,
(ii) an accurate list of all insurance loss runs or workers compensation claims
received by the Company for the past three policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect.
Such insurance policies evidence all of the insurance the Company is required
to carry pursuant to all of its contracts and other agreements and pursuant to
all applicable laws. Except as set forth on Schedule 5.17, all of such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Consummation Date. Since January 1, 1996, no
insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; LABOR MATTERS.
(a) The Company has delivered to CLC an accurate list (which is set
forth on Schedule 5.18) showing all officers, directors and key employees of
the Company, listing all employment, compensation, change in control and
severance agreements with such officers, directors and key employees (the
"Agreements") and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to CLC true, complete and correct copies of all
Agreements. Since the Balance Sheet Date, except as disclosed on Schedule
5.18, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past
practices.
(b) Except as set forth on Schedule 5.18, (i) the Company is not
bound by or subject to (and to the knowledge of the Stockholders, none of its
respective assets or properties is bound by or subject to) any arrangement with
any labor union, (ii) to the knowledge of the Stockholders, no campaign to
establish such arrangement is in progress and (iii) there is no pending or, to
the Stockholders' knowledge, threatened labor dispute involving the Company and
any group of its employees nor has the Company experienced any labor
interruptions over the past three years. Except as set forth on Schedule 5.18,
the Company believes its relationship with its employees to be good.
(c) Except as set forth in Schedule 5.18 attached hereto, (i) there
are no significant controversies pending or, to the knowledge of the
Stockholders, threatened between the Company
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and any of its employees, (ii) the Company has complied in all material
respects with all applicable laws relating to the employment of labor,
including, without limitation, any provisions thereof relating to wages, hours,
collective bargaining, and the payment of social security and similar taxes,
and (iii) to the knowledge of the Stockholders, no person has asserted that the
Company is liable in any material amount for any arrears of wages or any taxes
or penalties for failure to comply with any of the foregoing.
5.19 EMPLOYEE PLANS. The Company has delivered to CLC an accurate
schedule (Schedule 5.19) listing all employee benefit plans and compensation
plans or programs (the "Plans") maintained by, contributed to or with respect
to which there is or would be any obligation or liability of the Company,
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, incentive
compensation agreements, and deferred compensation agreements, and whether or
not heretofore terminated, together with true, complete and correct copies of
such plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date and as of the date of
this Agreement. Except for the Plans, if any, described on Schedule 5.19, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee benefit plan," and the Company does
not have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement arrangement on behalf of any current or
former employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")). For the purposes of this Agreement, the term
"employee benefit plan" shall have the same meaning as is given that term in
Section 3(3) of ERISA. The Company has not sponsored, maintained or
contributed to any employee benefit plan other than the Plans set forth on
Schedule 5.19, and the Company is not or could not be required to contribute to
any Plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of the Company's
employees.
Except as set forth on Schedule 5.19, the Company is not now, and will
not as a result of its past activities become, liable to the Pension Benefit
Guaranty Corporation or to any multiemployer employee pension benefit plan
under the provisions of Title IV of ERISA.
All Plans listed on Schedule 5.19 and the administration thereof are in
compliance in all material respects with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of the Company as of the Balance
Sheet Date with respect to any Plan listed on Schedule 5.19 have either been
fulfilled in their entirety or are fully reflected on the balance sheet of the
Company as of the Balance Sheet Date.
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5.20 COMPLIANCE WITH ERISA. All such Plans listed on Schedule 5.19
that are intended to qualify (the "Qualified Plans") under Section 401(a) of
the Code are, and have been so qualified from their inception and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are attached to Schedule 5.19. Except as disclosed
on Schedule 5.20, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of
Schedule 5.19 hereof. Neither the Stockholders, any such Plan listed in
Schedule 5.19, nor the Company or, to the knowledge of the Stockholders, other
person has engaged in any transaction with any Plan which is prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No such
Plan listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(l) of ERISA, whether or
not waived; and the Company nor, to the knowledge of the Stockholders, any
other person has incurred any liability for excise tax or penalty due to the
Internal Revenue Service nor any liability to the Pension Benefit Guaranty
Corporation with respect to any Plan or breached any fiduciary duty with
respect to any Plan. The Company further represents that except as set forth
on Schedule 5.20 hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval
by the Internal Revenue Service;
(ii) no Plan listed in Schedule 5.19 is subject to the
provisions of Title IV of ERISA;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such Plan listed
in Schedule 5.19;
(iv) the Company has not incurred liability under Section 4062
or Section 4069 of ERISA;
(v) no circumstances exist pursuant to which the Company could
have any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multiemployer plan or the PBGC under
Title IV of ERISA or to the Internal Revenue Service for any excise tax
or penalty, or being subject to any statutory lien to secure payment of
any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that
is, or at any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes the Company; and
(vi) each Plan may be unilaterally terminated at any time by
the Company without a Material Adverse Effect upon the Company.
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5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedule 5.21 or 5.13, the Company is not in violation of any law or
regulation or any order of any court or Federal, state, local or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it other than violations that would not have a
Material Adverse Effect on the Company; and except to the extent set forth on
Schedule 5.10, 5.13 or 5.21, there are no claims, actions, suits or
proceedings, pending or, to the knowledge of the Stockholders, threatened
against or affecting, the Company, at law or in equity, or before or by any
Federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over any of them and no
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company. Except as set forth in Schedule
5.21, the Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations except where such noncompliance would not have
a Material Adverse Effect on the Company.
5.22 TAXES.
(a) The Company has timely filed all requisite Federal, state and
other Tax Returns due or extension requests for such Tax Returns for all fiscal
periods ended on or before the Balance Sheet Date; and except as set forth on
Schedule 5.22, there are no examinations in progress or claims pending against
it for federal, state and other Taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for Taxes, whether pending or threatened, has been
received. All Tax, including interest and penalties (whether or not shown on
any Tax Return), owed by the Company has been paid or provided for in the
Financial Statements. The amounts shown as accruals for Taxes on the Company
Financial Statements are sufficient for the payment of all Taxes of the kinds
indicated (including penalties and interest) for all fiscal periods ended on or
before that date. Copies of (i) any tax examinations, (ii) extensions of
statutory limitations and (iii) the federal and local income Tax Returns and
franchise Tax Returns of Company for their last three (3) fiscal years, or such
shorter period of time as any of them shall have existed, are attached hereto
as Schedule 5.22 or have otherwise been delivered to CLC. The Company has a
taxable year ended February 28. Except as set forth on Schedule 5.22, the
Company uses the accrual method of accounting for income tax purposes, and the
Company's methods of accounting have not changed in the past five years. The
Company is not an Investment Company as defined in Section 351(e)(1) of the
Code. Except as set forth on Schedule 5.22, the Company is not and has not
been a party to any tax sharing agreement or agreement of similar effect.
Except as set forth on Schedule 5.22, the Company is not and has not been a
member of any consolidated group. The Company has not received, been denied,
or applied for any private letter ruling during the last ten years.
(b) The Company has been a validly existing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times during its existence
and the Company will be an S corporation up to and including the day before the
Closing Date. The Company would not be liable for any tax under Section 1374
of the Code if its assets were sold for their fair market value
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as of the Closing Date. Neither the Company nor any qualified subchapter S
subsidiary of the Company has, in the past 10 years, (A) acquired assets from
another corporation in a transaction in which the Company's tax basis in the
acquired assets was determined, in whole or part, by reference to the tax basis
of the acquired assets in the hands of the transferor or (B) acquired the stock
of any corporation which is a qualified subchapter S subsidiary. The
Stockholders shall pay, and they hereby indemnify CLC and the Company against,
all income taxes payable with respect to the Company's operations for all
periods through and including the Consummation Date regardless of whether the
tax payment is not due until after the Consummation Date.
5.23 NO VIOLATIONS; NO CONSENT REQUIRED, ETC.
(a) The Company is not in violation of any Charter Document. Except
as set forth on Schedule 5.23(a), neither the Company nor, to the best
knowledge of the Stockholders, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.10,
5.12, 5.13, 5.14, 5.15(a), 5.15(b) or 5.16 (the "Material Documents") which
violation or default would reasonably be expected to have a Material Adverse
Effect upon the Company.
(b) The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of (i)
the Charter Documents of the Company, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any Material Document to which the Company or
any of the Stockholders is now a party or by which any of the Stockholders or
the Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the Stockholders of the transactions
contemplated herein will not result in any material violation, conflict,
breach, right of termination or acceleration or creation of liens under any of
the terms, conditions or provisions of the items described in clauses (i)
through (iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (iii) above, to
obtaining (prior to the Effective Time) such consents as may be required from
commercial lenders, lessors or other third parties.
(c) Except as set forth on Schedule 5.23 and except for requirements
under the Hart-Scott Act, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to the consummation by the Company and the Stockholders of any of the
transactions contemplated herein in order to remain in full force and effect,
and consummation by the Company and the Stockholders of the transactions
contemplated herein will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit, the loss of which
would reasonably be expected to have a Material Adverse Effect upon the
Company.
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<PAGE> 27
(d) Except for (i) the filing of the Registration Statement, (ii) the
declaration of the effectiveness thereof by the SEC and filings with various
state blue sky authorities and (iii) any filing required under the Hart-Scott
Act in connection with the purchase and sale of the Company Stock, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated herein.
(e) Except as set forth on Schedule 5.23, none of the Material
Documents prohibits the use or publication by the Company or CLC of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from providing services or selling products
to any other customer or potential customer of the Company, or to the knowledge
of the Stockholders, CLC or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since December 31, 1997, except as set forth
on Schedule 5.25 or as otherwise contemplated herein, there has not been:
(i) any Material Adverse Change in the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance), alone or in the aggregate, which has caused a Material
Adverse Effect on the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the
Company;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by the Company to any of
its officers, directors, Stockholders, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed,
or any event or condition of any character, which has caused a Material
Adverse Effect on the Company;
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<PAGE> 28
(vii) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of Company to any
person, including, without limitation, the Stockholders and their
Affiliates, except inventory sold or transferred in the ordinary course
of business;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation
any indebtedness or obligation of any Stockholders or any Affiliate
thereof;
(ix) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
material assets, property or rights of the Company or requiring consent
of any party to the transfer and assignment of any such assets, property
or rights;
(x) 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 the Company's business;
(xi) any waiver of any material rights or claims of the
Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a
party;
(xiii) any transaction by the Company outside the ordinary course
of its business;
(xiv) any cancellation or termination of a material contract
with a customer or client prior to the scheduled termination date other
than in the ordinary course of business of the Company and of which
notice has been given to CLC;
(xv) any other distribution of property or assets by the
Company other than in the ordinary course of business and other than
distributions of real estate and other assets as permitted by this
Agreement (including the Schedules hereto); or
(xvi) any occurrence that is reasonably likely to give rise to a
contingent liability which would have a Material Adverse Effect on the
Company.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered
to CLC an accurate schedule (which is set forth on Schedule 5.26) as of the
date of the Agreement of:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
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<PAGE> 29
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company
and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Company and the performance by the Company of the transactions
contemplated herein have been duly and validly authorized by the Board of
Directors of the Company and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of the Company, subject to the effect of applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium, liquidation or
other similar laws and equity principles relating to creditors' rights
generally.
5.28 RELATIONS WITH GOVERNMENTS. To the knowledge of the
Stockholders, none of the Company, any of the Stockholders, or any Affiliate of
any of them has given or offered anything of value to any governmental
official, political party or candidate for government office nor has it or any
of them otherwise taken any action which would in any case cause the Company to
be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.29 DISCLOSURE. (a) The representations and warranties of the
Stockholders as set forth in this Agreement, including the Annexes and
Schedules hereto, to the extent they relate to the Company and the
Stockholders, the completed Director and Officer Questionnaires, with respect
to any Stockholder who has completed such, and the written information provided
by the Company or any Stockholder to CLC's environmental consultants do not
contain an untrue statement of a material fact concerning the Company or the
Stockholders or omit to state a material fact concerning the Company or the
Stockholders necessary to make the statements herein and therein, in light of
the circumstances under which they were made, not misleading; provided,
however, that the foregoing does not apply to statements contained in or
omitted from any of such documents made or omitted in reliance upon information
furnished in writing by the Other Founding Companies, CLC and its Affiliates or
any representatives or agents of CLC and its Affiliates.
(b) The Stockholders acknowledge and agree (i) that there exists no
firm commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
become effective or that the IPO pursuant thereto will occur; (ii) that neither
CLC nor Bellmeade Capital Partners L.L.C. or any of their officers, directors,
agents or representatives nor any Underwriter shall have any liability to the
Company, the Stockholders or any other person affiliated or associated with the
Company for any failure of the Registration Statement to become effective, the
IPO to occur at a particular price or within a particular range of prices or to
occur at all, the transactions contemplated by this Agreement to be successful
or the prospects for the Company described in the Registration Statement to be
realized; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or
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<PAGE> 30
consent to the proposed purchase and sale of the Company Stock, has been or
will be made independent of, and without reliance upon, any statements,
opinions or other communications, or due diligence investigations which have
been or will be made or performed by any prospective Underwriter, relative to
CLC or the prospective IPO.
(c) No Stockholder has any present plan, intention, commitment,
binding agreement or arrangement to dispose of any shares of CLC Stock to be
received by such Stockholder as a result of the transactions contemplated in
this Agreement, except for transfers permitted pursuant to Sections 15 and 17
hereof.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule
5.31, the Company has no liability to any person under any warranty relating to
goods sold or services provided by the Company and the Company does not offer
or sell insurance or consumer protection plans or other arrangements that could
result in the Company being required to make any payment to or perform any
service for any person.
5.32 INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED PARTY
TRANSACTIONS. Except as described on Schedule 5.32, no Stockholder, officer,
director or Affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or Affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is a
party to an agreement or relationship, that involves the receipt by such person
of compensation or property from the Company other than through a customary
employment relationship.
5.33 REGISTRATION STATEMENT. To the best of the Stockholders'
knowledge, none of the information supplied by the Company in writing for
inclusion in the Registration Statement contains any untrue statement of a
material fact concerning the Company or the Stockholders or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements therein concerning the Company or the Stockholders, in light of
the circumstances under which they are made, not misleading.
(B) Individual Representations and Warranties of Stockholders.
Each Stockholder severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Section
5(B) shall survive the Consummation Date.
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<PAGE> 31
5.34 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Schedule 5.3 hereto as being owned by such Stockholder, and such Company Stock
is owned free and clear of all liens, encumbrances and claims of every kind.
5.35 PREEMPTIVE RIGHTS. Except as set forth in this Section 5.35,
such Stockholder does not have, or hereby waives, any preemptive or other right
to acquire shares of Company Stock that such Stockholder has or may have had.
Nothing herein, however, shall limit or restrict the rights of any Stockholder
to acquire CLC Stock pursuant to (i) this Agreement or (ii) any outstanding
option, warrant or other rights granted by CLC.
6. REPRESENTATIONS OF CLC
Except as set forth in the disclosure schedules attached hereto and
except otherwise qualified below, CLC represents and warrants that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement, and that such representations and warranties shall survive
the Consummation Date for a period of twenty-four months (the last day of such
period being the "Expiration Date").
6.1 DUE ORGANIZATION. CLC is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and it has the requisite power and authority to carry on its business
as it is now being conducted and as contemplated in the CLC Plan of
Organization. CLC is duly qualified or authorized to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
authorization necessary, except where the failure to be so qualified or
authorized to do business would not have a Material Adverse Effect. True,
complete and correct copies of the Certificate of Incorporation and By-laws, as
proposed to be amended, of CLC (the "CLC Charter Documents") are attached
hereto as Annex II.
6.2 AUTHORIZATION. (i) The officers of CLC executing this Agreement
have the authority to enter into and bind CLC to the terms of this Agreement
and (ii) CLC has the full legal right, power and authority to enter into and
perform this Agreement. Copies of the most recent resolutions adopted by the
Board of Directors of CLC, which approve this Agreement and the transactions
contemplated herein in all respects, certified by the Secretary or an Assistant
Secretary of CLC, as the case may be, as being in full force and effect on the
date hereof, are attached hereto as Schedule 6.2.
6.3 CAPITAL STOCK OF CLC. As of the date of this Agreement, the
authorized capital stock of CLC is as set forth in the Draft Registration
Statement. Immediately prior to the Closing Date and the Consummation Date,
all of the issued and outstanding shares of the capital stock of CLC will be as
set forth in the Registration Statement, free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind other than any restrictions
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<PAGE> 32
described in the Registration Statement. All of the issued and outstanding
shares of the capital stock of CLC has been duly authorized and validly issued,
are fully paid and nonassessable and such shares were offered, issued, sold and
delivered by CLC in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present Stockholder
of CLC.
6.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except
for the Other Agreements and except as set forth in the Draft Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates CLC to issue any of its authorized but unissued
capital stock; and (ii) CLC has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. The outstanding options, warrants or other rights to acquire shares
of the stock of CLC will be as described in the Registration Statement.
6.5 SUBSIDIARIES. CLC has no subsidiaries CLC does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest
in any corporation, association or business entity, and CLC, directly or
indirectly, is not a participant in any joint venture, partnership or other
non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of CLC included
in the Draft Registration Statement (the "CLC Financial Statements") have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods indicated (except as noted thereon), and the balance sheet included
therein presents fairly the financial position of CLC as of its date. To the
knowledge of CLC, the pro forma consolidated financial data included in the
Draft Registration Statement presents fairly the financial condition and
operation of the Founding Companies and CLC on a consolidated basis at the
respective date or for the respective periods to which they apply; such pro
forma consolidated financial data have been prepared in each case in accordance
with GAAP consistently applied throughout the periods involved except as
otherwise indicated in the Draft Registration Statement, and as required by the
1933 Act and the regulations thereunder.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, CLC has no material liabilities or obligations of any
kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business and consistent with past practices, liabilities or
obligations set forth in or contemplated in this Agreement and the Other
Agreements and except for fees incurred in connection with the transactions
contemplated herein and therein.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
in the Draft Registration Statement, CLC is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and its stockholders and, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of CLC, threatened
against or affecting CLC, at
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<PAGE> 33
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. CLC has
conducted and is conducting its business in compliance in all material respects
with the requirements, standards, criteria and conditions set forth in
applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation, in
any material respect, of any of the foregoing.
6.9 NO VIOLATIONS. (a) CLC is not in violation of any CLC Charter
Document. Neither CLC or, to the best knowledge of CLC, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which CLC is a party, or by which CLC, or any of its properties, is
bound (collectively, the "CLC Documents").
(b) The execution and delivery of this Agreement by CLC does not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of CLC under any of the terms,
conditions or provisions of (i) the CLC Charter Documents, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to CLC or
any of its properties or assets, or (iii) any CLC Document. The consummation
by CLC of the transactions contemplated herein will not result in any material
violation, conflict, breach, right of termination or acceleration or creation
of liens under any of the terms, conditions or provisions of the items
described in clauses (i) through (iii) of the preceding sentence, subject, in
the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) such consents as
may be required from commercial lenders, lessors or other third parties.
(c) Except for (i) the filings with the SEC pursuant to the 1933 Act
in connection with the IPO and the purchase and sale of the Company Stock, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the transactions contemplated by the CLC Plan
of Organization, none of the CLC Documents requires notice to, or the consent
or approval of, any governmental agency or other third party with respect to
the consummation by CLC of any of the transactions contemplated herein in order
to remain in full force and effect, and consummation by CLC of the transactions
contemplated herein will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit.
(d) Except for (i) the filings with the SEC pursuant to the 1933 Act
in connection with the IPO and the purchase and sale of the Company Stock, (ii)
the declaration of the effectiveness thereof by the SEC and filings with
various state blue sky authorities, and (iii) any filings required under the
Hart-Scott Act in connection with the transactions contemplated in the CLC Plan
of Organization, no declaration, filing or registration with, or notice to, or
authorization, consent or
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approval of, any governmental or regulatory body or authority is necessary for
the execution and delivery of this Agreement by CLC or the consummation by CLC
of the transactions contemplated herein.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by CLC and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of CLC and this
Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of CLC.
6.11 CLC STOCK. At the time of issuance thereof and delivery to the
Stockholders, the CLC Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid, duly authorized and legally issued shares
of CLC, fully paid and nonassessable, and with the exception of restrictions
upon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which
it is printed or the presence or absence of a CUSIP number on any such
certificate) to the CLC Stock issued and outstanding as of the date hereof by
reason of the provisions of the Delaware GCL. The CLC Stock issued and
delivered to the Stockholders shall at the time of such issuance and delivery
be free and clear of any liens, claims or encumbrances of any kind or
character. The shares of CLC Stock to be issued to the Stockholders pursuant
to this Agreement will not be registered under the 1933 Act, except as provided
in Section 17 hereof.
6.12 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. CLC was formed in
July 1997 and has conducted only limited operations since that time. CLC has
not conducted any material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, CLC does not own or has at any
time owned any real property or any material personal property or is a party to
any other material agreement other than the Other Agreements, the agreements
contemplated hereby and such agreements as will be filed as Exhibits to the
Registration Statement. Except as set forth in the Registration Statement, CLC
has not entered into any material agreement with any of the Founding Companies
or any of the Stockholders of the Founding Companies other than the Other
Agreements and the agreements contemplated in each of the Other Agreements and
the Registration Statement, including the employment agreements and leases
referred to herein or entered into in connection with the transactions
contemplated herein and therein.
6.13 RELATIONS WITH GOVERNMENTS. Neither CLC nor any of its officers
has given or offered anything of value to any government official, political
party or candidate for government office nor has it or any of them otherwise
taken any action which would cause CLC to be in violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any law of similar effect.
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6.14 INVESTMENT REPRESENTATIONS. CLC represents that the Company
Stock is being acquired by CLC for its own account for investment purposes only
and not with a view to the distribution thereof within the meaning of the
Securities Act of 1933, as amended.
6.15 OTHER AGREEMENTS. The Other Agreements have been duly
authorized, executed and delivered by CLC and constitute the legal, valid and
binding obligation of CLC enforceable against CLC in accordance with their
respective terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, liquidation or other similar
laws and equity principles relating to creditors' rights generally.
6.16 TAXES. CLC has timely filed all requisite federal, state and
other Tax Returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims pending against CLC for federal, state and other Taxes (including
penalties and interest) for any period or periods prior to and including the
Balance Sheet Date and no notice of any claim for Taxes, whether pending or
threatened, has been received. All Tax, including interest and penalties
(whether or not shown on any Tax Return) owed by CLC, any member of an
affiliated or consolidated group which includes or included CLC, or with
respect to any payment made or deemed made by CLC herein has been paid. The
amounts shown as accruals for Taxes on the financial statements for CLC are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
CLC is not an investment company as defined in Section 351(e)(1) of the Code.
6.17 DISCLOSURE.
(a) Neither the Draft Registration Statement delivered to the Company
and the Stockholders, nor the representations and warranties of CLC set forth
in this Agreement, contains an untrue statement of a material fact or omit to
state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that the foregoing does not apply to statements contained in
or omitted from any of such documents in reliance upon information furnished in
writing by the Company or the Stockholders or the Other Founding Companies or
the stockholders thereof specifically for inclusion in the Registration
Statement.
(b) Based on and assuming the accuracy in all material respects of
(i) the representations and warranties, covenants and agreements of the
Stockholders contained herein and (ii) the written information furnished to CLC
by the Stockholders, the offering and issuance of shares of CLC Stock to the
Stockholders and to the stockholders of the Other Founding Companies pursuant
to this Agreement and to the Other Agreements have been made in compliance with
all applicable federal and state securities laws.
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7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.
(a) Between the date of this Agreement and the Consummation Date,
the Company will afford to the officers and authorized representatives of CLC
reasonable access during normal business hours to all of the Company's sites,
properties, books and records and will furnish CLC with such additional
financial and operating data and other information as to the business and
properties of the Company as CLC may from time to time reasonably request. The
Company will cooperate with CLC, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. CLC
will treat all information obtained in connection with the negotiation and
performance of this Agreement or the due diligence investigations conducted
with respect to the Company as confidential in accordance with the provisions
of Section 14 hereof.
(b) Between the date of this Agreement and the Consummation Date, CLC
will afford to the officers and authorized representatives of the Company
and/or the Stockholders access to all of CLC's sites, properties, books and
records and will furnish the Company and/or the Stockholders with such
additional financial and operating data and other information as to the
business and properties of CLC as the Company and/or the Stockholders may from
time to time reasonably request. CLC will cooperate with the Company and/or
the Stockholders, their representatives, auditors and counsel in the
preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. The
Company and/or the Stockholders will cause all information obtained in
connection with the negotiation and performance of this Agreement (including
information regarding each of the Other Founding Companies) to be treated as
confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Except as set forth on
Schedule 7.2, between the date of this Agreement and the Consummation Date,
the Company will:
(i) carry on its respective businesses in the ordinary course,
consistent with past practice, and not introduce any material new method
or changes in management, operation or accounting;
(ii) maintain its respective properties, equipment and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform all of its obligations under agreements relating
to or affecting its assets, properties, equipment or rights, the
nonperformance of which could have a Material Adverse Effect on the
Company;
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(iv) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(v) use reasonable efforts to maintain and preserve its
business organization intact, retain its respective key employees and
maintain its respective material relationships with suppliers, customers
and others having business relations with the Company;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities, the
noncompliance with which could have a Material Adverse Effect on the
Company;
(vii) maintain present debt and lease instruments in accordance
with their terms and not enter into new or amended debt or lease
instruments without the knowledge and written consent of CLC (which
consent shall not be unreasonably withheld);
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except for ordinary
and customary bonus and salary increases for employees in accordance
with past practices; and
(ix) maintain the Company's Operating Capital, including cash,
at or above the level set forth on Annex I as agreed by CLC.
7.3 PROHIBITED ACTIVITIES. Except as set forth on Schedule 7.3 or on
Annex I to this Agreement, between the date hereof and the Consummation Date,
the Company will not, without prior written consent of CLC:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than
in connection with the exercise of options or warrants listed in
Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or
involves an amount, in the aggregate, not in excess of $250,000;
(v) create or assume to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with
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respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of
$250,000 necessary or desirable for the conduct of the businesses of the
Company, (2) (A) liens for taxes either not yet due or being contested
in good faith and by appropriate proceedings (and for which contested
taxes adequate reserves have been established and are being maintained)
or (B) materialmen's, mechanics', workers', repairmen's, employees' or
other like liens arising in the ordinary course of business (the liens
set forth in clause (2) being referred to herein as "Statutory Liens"),
or (3) liens set forth on Schedule 5.10, 5.15(b) and/or 5.16 hereto;
(vi) except as set forth in Schedule 7.3(vi), sell, assign,
lease or otherwise transfer or dispose of any property or equipment with
a net book value in excess of $25,000 except in the normal course of
business;
(vii) consummate or enter into any commitment for the
acquisition of any business or the start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(ix) waive any material rights or claims of the Company,
provided that the Company may negotiate and adjust bills and accounts in
the course of good faith disputes with customers in a manner consistent
with past practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 5.11 unless specifically listed
thereon;
(x) commit a material breach of or amend or terminate any
material agreement, permit, license or other right of the Company; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than CLC or
its authorized agents relating to,
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any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, the Company or a merger, consolidation, share exchange
or business combination of the Company.
7.5 AGREEMENTS. Except as disclosed on Schedule 7.5, the
Stockholders and the Company shall terminate (i) any stockholders agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the Company and any employee listed on Schedule 9.11 hereto and (ii)
except as otherwise provided in this Agreement, any existing agreement between
the Company and any Stockholder, on or prior to the Consummation Date. Such
termination agreements are listed on Schedule 7.5 and copies thereof are
attached thereto. In addition, either prior to or within 30 days of the
Consummation Date, all notes payable to the Stockholders by the Company and all
notes payable to the Company by the Stockholders shall be paid in full.
7.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to CLC of the Company's or any Stockholder's
knowledge of (i) the occurrence or non-occurrence of any event the occurrence
or nonoccurrence of which would be likely to cause any representation or
warranty of the Company or the Stockholders contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of any Stockholder or the Company to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by such
person hereunder. CLC shall give prompt notice to the Company of CLC's
knowledge of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would be likely to cause any representation or
warranty of CLC contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of CLC 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 7.6 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.7, (ii) modify the conditions set forth in Sections
8 and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 24 hours prior
to the anticipated effectiveness of the Registration Statement to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Schedules or which may have been omitted from the schedules previously provided
by the Company; provided however, that supplements and amendments to Schedules
5.10, 5.11, 5.14, 5.15(a), and 5.15(b) shall only have to be delivered at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the ordinary course of business. Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the Company may be made unless CLC consents to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by CLC that constitutes or reflects an event or
occurrence that would have
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a Material Adverse Effect on CLC may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.7. In the event that the Company seeks to amend or
supplement a Schedule pursuant to this Section 7.7 to reflect an item not known
to the Company or the Stockholders at the time of entering into this Agreement
or an event occurring after the date of this Agreement, and CLC does not
consent, in its reasonable discretion, to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that CLC seeks to amend or supplement a Schedule
pursuant to this Section 7.7 and a majority of the Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party
to this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.7 with respect to an
attempt to supplement or amend a Schedule to reflect an item not known to the
Company or Stockholders at the time of execution or occurring after the date of
execution of this Agreement.
7.8 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Company and the Stockholders shall furnish or use reasonable efforts to cause
to be furnished to CLC and the Underwriters all of the information concerning
the Company and the Stockholders and their Affiliates as CLC may reasonably
request required for inclusion in, and will cooperate with CLC and the
Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including audited and unaudited financial
statements, prepared in accordance with GAAP, in form suitable for inclusion in
the Registration Statement). The parties hereto agree that the disclosure of
information with respect to the Company and the Stockholders and their
Affiliates in the Registration Statement and while marketing the securities of
CLC in the IPO shall not be a violation of any confidentiality agreement,
including Article 14 of this Agreement, among the parties hereto or their
officers or stockholders. The Company and the Stockholders agree promptly to
advise CLC if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the 1933 Act, any information
contained in the prospectus concerning the Company or the Stockholders or their
Affiliates becomes incorrect or incomplete in any material respect and to
provide the information needed to correct such inaccuracy. The Company and the
Stockholders shall have the right to review and approve in advance any
statements made about the Company or the Stockholders in the Registration
Statement. Subject to the Company's and the Stockholder's review and approval
of such information in the Registration Statement, insofar as the information
relates solely to the Company or the Stockholders or their Affiliates, the
Company represents and warrants as to such information with respect to itself,
and each Stockholder represents and warrants, as to such information with
respect to the Company and himself or herself, that the Registration Statement
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. CLC represents and warrants that the Registration Statement will
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the
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circumstances under which they were made, not misleading, provided that this
representation and warranty shall not extend to the accuracy of any information
included in the Registration Statement that was provided by the Company or the
Stockholders in writing specifically for inclusion in the Registration
Statement.
7.9 FINAL FINANCIAL STATEMENTS. The Company shall provide at least
10 days prior to the Consummation Date the unaudited consolidated balance
sheets of the Company as of the end of all fiscal quarters following the
Balance Sheet Date and ending at least 30 days prior to the Consummation Date,
and the unaudited consolidated statement of income, cash flows and retained
earnings of the Company for all such fiscal quarters. Such financial
statements shall have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated (except as noted therein).
Except as noted in such financial statements, all of such financial statements
will be prepared in accordance with GAAP and will present fairly the results of
operations of the Company for the periods indicated therein.
7.10 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
appropriate to carry out the transactions contemplated herein.
7.11 COMPLIANCE WITH THE HART-SCOTT ACT. All parties to this
Agreement hereby recognize that one or more filings under the Hart-Scott Act
may be required in connection with the transactions contemplated herein. If it
is determined by the parties to this Agreement that filings under the Hart-
Scott Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott Act, (ii) such
compliance by the Stockholders and the Company shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 9 of
this Agreement, and such compliance by CLC shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of
this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made. If
filings under the Hart-Scott Act are required, the costs and expenses thereof
(including filing fees) shall be borne by CLC. The obligation of each party to
consummate the transactions contemplated in this Agreement is subject to the
expiration or termination of the waiting period under the Hart-Scott Act, if
applicable.
7.12 TRANSFERS OF PERMITS AND INTANGIBLES. The Stockholders shall
use commercially reasonable efforts to cause all trademarks, trade names,
patents, patent applications, copyrights and other intellectual property owned
or held by employees of the Company which are material to the operations of the
business of the Company to be assigned or licensed to the Company for no
additional consideration.
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7.13 DIVIDENDS. The Company may, after the Balance Sheet Date and
before the Consummation Date, pay to the Stockholder only the dividends or
distributions expressly permitted by Annex I hereto.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions,
except Section 8.8. The obligations of the Stockholders and the Company with
respect to actions to be taken on the Consummation Date are subject to the
satisfaction or waiver on or prior to the Consummation Date of the conditions
set forth in Sections 8.1, 8.2, 8.5, 8.6, 8.7 and 8.8. As of the Closing Date
or, with respect to the conditions set forth in Sections 8.1, 8.2, 8.5, 8.6,
8.7 and 8.8, as of the Consummation Date, if any such conditions have not been
satisfied, the Stockholders (acting in unison) shall have the right to
terminate this Agreement, or in the alternative, waive any condition not so
satisfied. Any act or action of the Stockholders in consummating the Closing
or delivering the certificates representing Company Stock as of the
Consummation Date shall constitute a waiver of any conditions not so satisfied.
However, no such waiver shall be deemed to affect the survival of the
representations and warranties of CLC contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of CLC contained in this Agreement shall be true
and correct in all material respects as of the Closing Date and the
Consummation Date as though such representations and warranties had been made
as of that time; all of the terms, covenants and conditions of this Agreement
to be complied with and performed by CLC on or before the Closing Date and the
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Consummation Date, respectively, and signed by the President or
any Vice President of CLC shall have been delivered to the Stockholders.
8.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO or
the consummation of the Other Agreements in a manner that would have a Material
Adverse Effect upon CLC.
8.3 OPINION OF COUNSEL. The Company shall have received an opinion
from counsel for CLC, dated the Closing Date, in the form annexed hereto as
Annex III, and an opinion in a form satisfactory to the Stockholders and their
counsel that the CLC Plan of Organization will qualify as a tax-free transfer
of property under Section 351 of the Code and that the Stockholders will not
recognize gain to the extent the Stockholders exchange stock of the Company for
CLC Stock (but not cash or other property) pursuant to the CLC Plan of
Organization.
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8.4 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC and not subject to any stop order
proceedings and the underwriters named therein shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of CLC Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I.
8.5 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
8.6 GOOD STANDING CERTIFICATES. CLC shall have delivered to the
Company a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which CLC is authorized to do business, showing that CLC is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for CLC for all periods prior to the Closing have been filed
and paid and CLC shall be in good standing in such states on the Closing Date
and the Consummation Date.
8.7 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to CLC which would constitute a Material Adverse Effect.
8.8 CLOSING OF IPO. The closing of the sale of the CLC Stock to the
Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder.
8.9 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of CLC, certifying the truth and correctness of attached copies of CLC's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if
required, the stockholders of CLC approving CLC's entering into this Agreement
and the consummation of the transactions contemplated herein.
8.10 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.11 shall have been offered an employment agreement substantially in the form
of Annex V hereto.
8.11 BELLMEADE TRANSFER RESTRICTIONS. Bellmeade Capital Partners
L.L.C. and its Affiliates shall have entered into an agreement with CLC
containing substantially the same terms and conditions as are contained in
Section 15.1; provided, however, that transfers to third parties in connection
with any financing of the expenses of the transactions contemplated by this
Agreement and the Registration Statement shall be permitted.
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLC
The obligations of CLC with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except Section 9.12. The
obligations of CLC with respect to actions to be taken on the Consummation
Date are subject to the satisfaction or waiver on or prior to the Consummation
Date of the conditions set forth in Sections 9.1, 9.2, 9.4, 9.7 and 9.12. As of
the Closing Date or, with respect to the conditions set forth in Sections 9.1,
9.2, 9.4, 9.7 and 9.12, as of the Consummation Date, if any such conditions
have not been satisfied, CLC shall have the right to terminate this Agreement,
or waive any such condition, but no such waiver shall be deemed to affect the
survival of the representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date and the Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and the Company on or before the
Closing Date or the Consummation Date, as the case may be, shall have been
duly performed or complied with in all material respects; and the Stockholders
shall have delivered to CLC certificates dated the Closing Date and the
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the purchase and sale of the Company Stock or the IPO.
9.3 SECRETARY'S CERTIFICATE. CLC shall have received a certificate,
dated the Closing Date and signed by the secretary of the Company, certifying
the truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of
the transactions contemplated herein.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
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9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to
CLC an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Consummation Date releasing the Company from (i) any and all
claims of the Stockholders against the Company and CLC and (ii) obligations of
the Company and CLC to the Stockholders, except for (x) items specifically
identified on Schedules 5.10, 5.16 as being claims of or obligations to the
Stockholders, (y) continuing obligations to Stockholders relating to their
employment by the Company and (z) obligations arising under this Agreement or
the transactions contemplated herein. In the event that the Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.6, all existing agreements between the Company and the Stockholders
(and between the Company and entities controlled by the Stockholders) shall
have been canceled effective prior to or as of the Consummation Date.
9.7 OPINION OF COUNSEL. CLC and the Underwriters shall have received
an opinion from Counsel to the Company and the Stockholders, dated the Closing
Date, substantially in the form annexed hereto as Annex IV.
9.8 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained; and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the purchase and sale of the Company Stock and no
governmental agency or body shall have taken any other action or made any
request of CLC as a result of which CLC deems it inadvisable to proceed with
the transactions hereunder.
9.9 GOOD STANDING CERTIFICATES. The Company shall have delivered to
CLC a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
State of Incorporation and, unless waived by CLC, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have
been filed and paid.
9.10 REGISTRATION STATEMENT. The Registration Statement shall have
been declared effective by the SEC.
9.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
9.11 shall have entered into an employment agreement substantially in the form
of Annex V hereto.
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9.12 CLOSING OF IPO. The closing of the sale of the CLC Stock to the
Underwriters in the IPO shall have occurred simultaneously with the
Consummation Date hereunder and the Stockholders shall have delivered to the
Underwriters such customary closing documents as they may reasonably request.
9.13 FIRPTA CERTIFICATE. Each Stockholder (other than the
stockholders which are foreign entities or foreign residents) shall have
delivered to CLC a certificate to the effect that he is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
9.14 RESIGNATIONS OF DIRECTORS; APPOINTMENT OF OFFICER. Any directors
of the Company, other than those identified on Schedule 2.1, shall have
resigned as directors of the Company. CLC's Chief Financial Officer shall have
been elected a Vice President and Secretary of the Company effective as of the
Consummation Date.
9.15 AMENDMENTS TO CHARTER DOCUMENTS. Any amendments to the Charter
Documents necessary to reduce or increase, as the case may be, the number of
directors of the Company to two shall be in effect as of the Consummation Date.
9.16 REGISTRATION STATEMENT CERTIFICATE. Each Stockholder shall have
delivered to CLC a certificate, in a form satisfactory to CLC, certifying as to
the information provided to CLC and its counsel by the Company and the
Stockholders for inclusion in the Registration Statement.
10. COVENANTS OF CLC AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.
Within one hundred and twenty (120) days of the Consummation Date, CLC shall
use commercially reasonable efforts to have the Stockholders released from any
and all guarantees of the Company's indebtedness, including bond obligations,
identified on Schedule 10.1. In the event that CLC cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule
10.1 on or prior to 120 days subsequent to the Consummation Date, CLC shall
promptly pay off or otherwise refinance or retire such indebtedness such that
the Stockholders' personal liability shall be released. CLC will indemnify the
Stockholders against any loss or damage suffered as a result of the personal
guarantees following the Closing Date.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the
Consummation Date, CLC shall not and shall not permit any of its Subsidiaries
to undertake any act that would jeopardize the tax-free status of the exchange
of Company Stock for CLC Stock (but not cash or other property), including
without limitation:
(a) the retirement or reacquisition, directly or indirectly,
of all or part of the CLC Stock issued in connection with the transactions
contemplated herein; or
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(b) the entering into of financial arrangements for the
benefit of the Stockholders other than as described in the Registration
Statement or as described in this Agreement.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders
shall file or cause to be filed all income Tax Returns (federal, state,
local or otherwise) of the Company and its Subsidiaries for all taxable
periods that end on or before the Consummation Date, and shall permit
CLC to review all such Tax Returns prior to such filings except with
respect to information pertaining to members of a consolidated group
other than the Company. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in
excess of all amounts already paid with respect thereto or properly
accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) CLC shall file or cause to be filed all separate Returns
of, or that include, the Company and its Subsidiaries for all taxable
periods ending after the Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries
and 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. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide 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
of filing such Returns.
(iv) Each of the Company, CLC and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax-free contribution under Section 351(a) of the Code
subject to gain, if any, recognized on the receipt of cash or other
property under Sections 351(b) or 357(c) of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall
be appointed as directors and elected as officers of CLC, as and to the extent
set forth in the Registration Statement, promptly following the Consummation
Date.
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10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the
Consummation Date, CLC shall not terminate any health insurance, life insurance
or 401(k) plan in effect at the Company until such time as CLC is able to
replace such plan with a plan that is applicable to CLC and all of its then
existing subsidiaries, provided that CLC shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing
plans, provided, further, that any new health insurance plan shall provide for
coverage for preexisting conditions.
11. INDEMNIFICATION
The Stockholders and CLC each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless CLC and the Company at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages (including consequential, punitive or exemplary), actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees, consulting
fees and expenses of investigation and environmental response) incurred by CLC
and the Company as a result of or arising from (i) any breach of the
representations and warranties of the Stockholders or the Company set forth
herein or on the schedules or certificates delivered in connection herewith,
except for the representations and warranties of the Stockholders set forth in
Section 5.13 and Schedule 5.13, if any, (ii) any breach of any agreement on the
part of the Stockholders or the Company under this Agreement, or (iii) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to the
Company or the Stockholders which was based upon and in conformity with
information provided in writing to CLC or its counsel by the Company or the
Stockholders expressly for use in the Registration Statement or any prospectus
forming a part thereof and is contained in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein not
misleading to the extent such omission or alleged omission is based upon the
failure of the Company or the Stockholders to provide to CLC the information
containing that fact in any Schedule hereto or otherwise to provide the
information to CLC in writing, but such indemnity shall not inure to the
benefit of CLC or the Company to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholders provided, in
writing, corrected information to CLC counsel and to CLC for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent solely
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
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CLC acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
CLC and the Company further acknowledge and agree that their sole and
exclusive remedy with respect to any and all claims relating to this Agreement
and the transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. CLC and the Company
hereby waive to the fullest extent permitted under applicable law, any and all
other rights, claims and causes of action they or any indemnified person may
have against the Company or any Stockholder relating to this Agreement or the
transactions arising under or based upon any federal, state, local or foreign
statute, law, rule, regulation or otherwise.
11.2 ENVIRONMENTAL INDEMNIFICATION BY THE STOCKHOLDERS.
(a) The sole indemnity obligations of the Stockholders with respect
to any Environmental Liability are set forth in this Section
11.2. CLC has retained URS Greiner Woodward-Clyde
("Woodward-Clyde") to prepare a phase I environmental assessment
of the properties and facilities of the Company (the
"Woodward-Clyde Assessment"). CLC will provide the Stockholders
a copy of the Woodward-Clyde Assessment promptly after it is
received by CLC. Based on the Woodward-Clyde Assessment and
other information known to the Stockholders and CLC, the
Stockholders and CLC will prepare Schedule 11.2, which schedule
shall list (i) conditions existing as of the Consummation Date on
the Company's properties or facilities that require or would
require Environmental Response Measures as of the Consummation
Date if all facts were made known to the governmental agency
without regard to any historic contamination defense, (ii)
violations of Environmental Law by the Company occurring prior to
the Consummation Date, and (iii) other Environmental Liabilities
of the Company or conditions existing prior to the Consummation
Date that require or would require Environmental Response
Measures as of the Consummation Date if all facts were made known
to a governmental agency without regard to any historic
contamination defense (collectively referred to as the "Scheduled
Environmental Liabilities").
(b) The Stockholders covenant and agree that they, jointly and
severally, will indemnify, defend, protect and hold harmless CLC
and the Company from and after the Consummation Date from and
against:
(i) any and all Scheduled Environmental Liabilities, as set
forth on Schedule 11.2 to this Agreement; and
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(ii) any and all Environmental Liabilities, other than those
described in and covered by Section 11.2(b)(i), arising
from or incurred in connection with the business
operations of the Company prior to the Consummation Date.
(c) Notwithstanding the foregoing, Stockholders shall have no
obligation to indemnify CLC and the Company pursuant to Section
11.2(b)(ii) until the aggregate amount of Environmental
Liabilities sustained by such companies for which indemnification
would be provided under Section 11.2(b)(ii) exceeds on a
cumulative basis $100,000 (the "Basket Amount"). After the Basket
Amount has been exceeded, the Stockholders shall indemnify CLC
and the Company for 50% of the next $400,000 of Environmental
Liabilities sustained by such companies that are subject to
indemnification under Section 11.2(b)(ii) and for 100% of such
Environmental Liabilities in excess of $500,000. Further, the
indemnity obligation of the Stockholders under Section
11.2(b)(ii) shall only apply to Environmental Liabilities for
which a notice of claim is provided to the Stockholders by CLC
within five years of the Consummation Date.
(d) The aggregate liability of the Stockholders pursuant to this
Section 11.2, exclusive of Environmental Insurance proceeds
applied pursuant to Section 11.2(e), shall not exceed the lesser
of $5.0 million or 40% of the Acquisition Consideration.
(e) CLC, the Company and the Stockholders (collectively referred to
as the "Insuring Parties") shall secure environmental legal
liability insurance and environmental pollution insurance for
unknown conditions ("Environmental Insurance") as follows:
(i) The insurance shall be a term of five years from the
Consummation Date, shall provide coverage of $25.0 million
per incident and aggregate coverage of $70.0 million, and
shall have a deductible of $25,000 per incident.
(ii) CLC shall pay 75% of the insurance premiums payable for
the Environmental Insurance, and the Stockholders and the
Stockholders of the Other Founding Companies shall pay the
remaining 25% of such insurance premiums. The obligation
of the Stockholders and the stockholders of the Other
Founding Companies to pay the insurance premium under this
section shall be allocated among such parties based upon
an allocation to be determined by the Stockholders and the
stockholders of the Other Founding Companies and
communicated in writing by such parties to CLC prior to
the Closing. The Stockholders agree that the portion of
the insurance premium payable by them may be withheld by
CLC from the cash portion of the Acquisition Consideration
payable to them.
(iii) The insurance shall cover risks from inception of the
Company's business forward through the term of the
insurance. The Insuring Parties shall
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cooperate fully in complying with insurance underwriting
requirements. The Stockholders shall be named insureds
under the Environmental Insurance.
The amount of any Environmental Insurance proceeds shall be
applied to reduce the loss that is subject to indemnification
under this Section 11.2, but the Environmental Insurance proceeds
shall not serve to reduce the aggregate liability of the
Stockholders pursuant to this Section 11.2 nor to otherwise
modify the indemnification obligations. Any Environmental
Insurance proceeds shall not serve to reduce the Basket Amount
threshold. In the event of a coverage dispute or other
insurance-related litigation, the Insuring Parties other than the
Stockholders shall be entitled to control any such dispute, and
shall incur the expenses related to such dispute, if the dispute
does not concern an Environmental Liability that would be
indemnifiable by the Stockholders under Section 11.2(b). If the
coverage dispute or other insurance-related litigation concerns
an Environmental Liability that would be indemnifiable by the
Stockholders under Section 11.2(b), the Insuring Parties shall
cooperate in the prosecution and resolution of such dispute and
the Insuring Parties shall pay the expenses related to such
dispute in proportion to their projected recovery on the claim.
The expenses related to such dispute shall not be treated as an
Environmental Liability covered by Section 11.2(b)(ii) of this
Agreement.
(f) If the actions of any person other than the Stockholders after
the Closing Date contribute to an Environmental Liability for
which Stockholders are required to indemnify CLC or the Company
pursuant to this Section 11.2, Stockholders' obligations to
indemnify CLC and the Company shall be reduced only to the extent
that such contribution actually increased the cost of
Environmental Response Measures.
(g) The Environmental Response Measures shall be designed consistent
with the industrial use of the property and shall take advantage
of any applicable risk reduction principles (including voluntary
compliance or voluntary cleanup programs) designed to mitigate
costs.
(h) "Environmental Liability" or "Environmental Liabilities" shall
mean all claims, damages, actions, suits, proceedings, demands,
assessments, judgments, decrees, consent orders, unilateral
administrative orders, settlements, natural resource damage
claims and assessments, governmental oversight costs, orphan
shares, notices of violation, notices of deficiencies, financial
assurances, permit fees, discharge or emission fees, civil and
criminal penalties, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees,
consulting fees and expenses of investigation and environmental
response whatsoever) incurred by or demanded from CLC and/or the
Company (i) to comply with a requirement of Environmental Law,
(ii) to correct a violation of Environmental Law, or (iii) to
respond to an order, demand or other claim of a governmental
entity or any party
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other than CLC or the Company under any Environmental Law. No
indemnity is granted for lost profits, salaries and
administration costs (other than those necessary to address the
condition or violation), capital improvements (other than those
associated with remediation activities), financing obligations,
and consequential, special or punitive damages other than
consequential, special or punitive damages recovered by a third
party.
(i) In consideration for the agreements of the Parties to indemnify
and defend the others in the manner provided in this agreement,
each Party hereby releases, acquits, and forever discharges the
others from any claim, demand or cause of action it may have
against the others for right of contribution or cost recovery
provided under any Environmental Law, except as expressly set
forth in this Section 11.2; provided, however, that (i) this
release shall not affect in any way any Party's liability for
contribution or cost recovery to any third party; and (ii) this
release shall be inoperative and void in the event of fraud or
willful misconduct. To the extent the parties actually pay any
Environmental Response Measure for which a claim for
contribution, reimbursement or other similar action against any
third party may lie, the parties hereby mutually cross-assign and
convey such contribution, reimbursement or other similar claim to
the party making such payment.
(j) CLC and the Company, jointly and severally, will indemnify,
defend, protect and hold harmless the Stockholders from and after
the Closing Date from and against any and all Environmental
Liabilities arising from or incurred in connection with the
business operations of the Company, except to the extent the
Stockholders are required to indemnify CLC and the Company for
such Environmental Liabilities pursuant to this Section 11.2;
provided, however, that this indemnity shall be null and void in
the event of fraud or willful misconduct on the part of the
Stockholder(s).
11.3 INDEMNIFICATION BY CLC. CLC covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and
against all claims, damages (including consequential, punitive or exemplary),
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and expenses of investigation) incurred by the Stockholders as a result of
or arising from (i) any breach by CLC of their representations and warranties
set forth herein or on the schedules or certificates attached hereto, (ii) any
breach of any agreement on the part of CLC under this Agreement; or (iii) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to CLC or any
of the Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to CLC
or any of the Other Founding Companies required to be stated therein or
necessary to make the statements therein not misleading, except to the extent
such
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relates to information provided in writing by either the Company or the
Stockholders specifically for inclusion in the Registration Statement.
11.4 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being
made against any party obligated to provide indemnification pursuant to Section
11.1, 11.2, 11.3 or 11.7 hereof (hereinafter the "Indemnifying Party"), give
the Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such notice shall state the nature and the basis of such
claim and a reasonable estimate of the amount thereof. The Indemnifying Party
shall have the right to defend and settle, at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not
settle any criminal proceeding without the written consent of the Indemnified
Party. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel
in the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing Indemnified Party, Indemnified Party shall
have the right to participate in such matter through counsel of its own
choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any
such asserted liability, and for so long as the Indemnifying Party diligently
pursues such defense, the Indemnifying Party shall not be liable for any
additional legal expenses incurred by the Indemnified Party in connection with
any defense or settlement of such asserted liability, except (i) as set forth
in the preceding sentence and (ii) to the extent such participation is
requested by the Indemnifying Party, in which event the Indemnified Party shall
be reimbursed by the Indemnifying Party for reasonable additional legal
expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person.
Upon agreement as to such settlement between said Third Person and the
Indemnifying Party, the Indemnifying Party shall, in exchange for a complete
release from the Indemnified Party, promptly pay to the Indemnified Party the
amount agreed to in such settlement and the Indemnified Party shall, from that
moment on, bear full responsibility for any additional costs of defense which
it subsequently incurs with respect to such claim and all additional costs of
settlement or judgment. If the Indemnifying Party does not undertake to defend
such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party
may undertake such defense through counsel of its choice, at the cost and
expense of the Indemnifying Party, and the
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Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements
hereunder shall effect a complete release of the Indemnified Party, unless the
Indemnified Party otherwise agrees in writing.
11.5 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in any
action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement.
11.6 LIMITATIONS ON INDEMNIFICATION. CLC and the other persons or
entities indemnified pursuant to Section 11.1 shall not assert any claim for
indemnification pursuant to Section 11.1 against the Stockholders until such
time as the aggregate of all claims which such persons may have against such
Stockholders pursuant to Section 11.1 shall exceed one percent of the sum of
(i) the cash paid to the Stockholders pursuant to Section 3.1 and (ii) the
value of the CLC Stock delivered to the Stockholders pursuant to Section 3.1
valued at the initial public offering price as set forth in the Registration
Statement, and then only to the extent of claims in excess of such sum.
Stockholders shall not assert any claim for indemnification under Section 11.3
against CLC until such time as the aggregate of all claims which Stockholders
may have against CLC shall exceed $100,000.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
The Stockholders may pay any indemnification obligation under Section 11
with cash or a combination of cash and CLC Stock; provided that the percentage
of the obligation satisfied with CLC Stock does not exceed the percentage of
the CLC Stock comprising the total Acquisition Consideration received by the
Stockholder paying such indemnification obligation (i.e., the percentage of the
obligation payable in CLC Stock will be determined on a Stockholder by
Stockholder basis using the Acquisition Consideration received by the
Stockholder in question). For the purpose of crediting Stockholders for
payments made pursuant to this Section 11 in CLC Stock, the CLC Stock shall be
valued at the greater of (i) the initial public offering price as set forth in
the Registration Statement and (ii) the average of the closing prices of the
CLC Stock (rounded to the nearest one thousandth) on the twenty trading days
preceding the date on which the indemnification obligation is paid by the
Stockholder, as reported in The Wall Street Journal.
No Stockholder shall be liable under this Section 11 for an aggregate
amount which exceeds the Acquisition Consideration received by such Stockholder
in connection with the purchase and sale of the Company Stock. For purposes of
calculating the value of the CLC Stock paid to the
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Stockholders as Acquisition Consideration to determine the aggregate amount of
the indemnity obligations of any Stockholder, the CLC Stock shall be valued at
the initial public offering price as set forth in the Registration Statement.
Notwithstanding any other term of this Agreement, CLC shall not be liable under
this Section 11 for an amount which exceeds the amount of Acquisition
Consideration (valued using the initial public offering price as set forth in
the Registration Statement) paid to the Stockholders in connection with the
purchase and sale of the Company Stock.
The limitations set forth in this Section 11.6 shall apply to all
breaches of representations, warranties or covenants except for those
representations and warranties set forth in Sections 5.3, 5.22 and 5.29(c).
The parties hereto will make appropriate adjustments for insurance
proceeds and tax benefits actually received by CLC and/or the Company in
determining the amount of any indemnification obligation in this Section 11.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior
to the Consummation Date solely:
(i) by mutual consent of the boards of directors of CLC and
the Company;
(ii) by the Stockholders or the Company (acting through its
board of directors), on the one hand, or by CLC (acting through its
board of directors), on the other hand, if the transactions contemplated
by this Agreement to take place at the Closing shall not have been
consummated by November 30, 1998, unless the failure of such
transactions to be consummated is due to the willful failure of the
party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed
by it prior to or on the Consummation Date;
(iii) by the Stockholders or the Company, on the one hand, or by
CLC, on the other hand, if a material breach or default shall be made by
the other party in the observance or in the due and timely performance
of any of the covenants or agreements contained herein, and the curing
of such default shall not have been made on or before the Consummation
Date or by the Stockholders or the Company, if the conditions set forth
in Section 8 hereof have not been satisfied or waived as of the Closing
Date or the Consummation Date, as applicable, or by CLC, if the
conditions set forth in Section 9 hereof have not been satisfied or
waived as of the Closing Date or the Consummation Date, as applicable;
or
(iv) pursuant to Section 4 hereof.
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12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 7.7, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except for the activities of the
Stockholders and their Affiliates as set forth in Schedule 13.1 (which shall be
deemed to be permitted activities under this Section 13.1), the Stockholders
will not, without the prior written consent of CLC, for a period of five (5)
years following the Consummation Date, for any reason whatsoever, directly or
indirectly, for themselves or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business or operation selling any products or
services in direct competition with any products or services sold by CLC
or any of the subsidiaries thereof, within 100 miles of where any
Company entity conducted business prior to the Effective Time (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of CLC or any subsidiary thereof in a sales
representative or managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of CLC or any
subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Consummation Date, a
customer of CLC or any subsidiary thereof, of the Company or of any of
the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in direct competition with
any products or services sold by CLC or any subsidiary thereof within
the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor which candidate
was, to the actual knowledge of such Stockholder after reasonable
inquiry, either called upon by CLC or any subsidiary thereof or for
which CLC or any subsidiary thereof made an acquisition analysis, for
the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the Company to any person, firm, partnership, corporation or business
for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for
valid business reasons.
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Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment (i) not more
than two percent (2%) of the capital stock of a competing business whose stock
is traded on a national securities exchange, the NASDAQ Stock Market or on an
over-the-counter or similar market, or (ii) not more than five percent (5%) of
the capital stock of a competing business whose stock is not publicly traded.
13.2 DAMAGES. Because of the difficulty of measuring economic losses
to CLC as a result of a breach of the covenant set forth in Section 13.1, and
because of the immediate and irreparable damage that could be caused to CLC for
which it would have no other adequate remedy, each Stockholder agrees that the
covenant set forth in Section 13.1 may be enforced by CLC, in the event of
breach by such Stockholder, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of CLC and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of CLC; but it is also the intent of CLC and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of CLC and its subsidiaries throughout the
term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
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 Stockholder
against CLC or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by CLC of such
covenants. It is specifically agreed that the period of five (5) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each Stockholder made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated in this Agreement are not consummated.
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13.6 MATERIALITY. The Company and the Stockholders hereby agree that
this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the Other Founding
Companies, and/or CLC, such as operational policies, customer lists, and
pricing and cost policies that are valuable, special and unique assets of the
Company's, the Other Founding Companies' and/or CLC's respective businesses.
The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
CLC, provided that such representatives agree to the confidentiality provisions
of this Section 14.1, (b) following the Closing, such information may be
disclosed by the Stockholders as is required in the course of performing their
duties for CLC or the Company and (c) to counsel and other advisers, provided
that such advisers (other than counsel) agree to the confidentiality provisions
of this Section 14.1, unless (i) such information becomes known to the public
generally through no fault of the Stockholders, (ii) disclosure is required 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), the
Stockholders shall, if possible, give prior written notice thereof to CLC and
provide CLC 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 of the Stockholders of the
provisions of this Section, CLC shall be entitled to an injunction restraining
such Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting CLC from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated
in this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company.
14.2 CLC. CLC recognizes and acknowledges that it had in the past and
currently has access to certain confidential information of the Company and the
Stockholders, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. CLC agrees
that, prior to the Closing, or if the transactions contemplated in this
Agreement are not consummated, it will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Company, provided that such representatives agree to the confidentiality
provisions of this Section 14.2, (b) to counsel and other advisers, provided
that such advisers (other than counsel) agree to the confidentiality provisions
of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of CLC, (ii) disclosure is
required 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), CLC shall, if possible, give prior written notice thereof to the Company
and the Stockholders and provide the Company and the Stockholders
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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, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of CLC as a publicly held entity after the IPO. In the event of a
breach or threatened breach by CLC of the provisions of this Section, the
Company and the Stockholders shall be entitled to an injunction restraining CLC
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Section 14.1 and 14.2,
and because of the immediate and irreparable damage that would be caused for
which they would have no other adequate remedy, the parties hereto agree that,
in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by CLC, except
for transfers to other persons who have agreed to be bound by the restrictions
set forth in this Section 15.1 or transfers to family members who agree to be
bound by the restrictions set forth in this Section 15.1 (or trusts or family
limited partnerships for the benefit of the Stockholders or family members, or
trusts in which a Stockholder is both the grantor and the beneficiary, the
trustees of which so agree), for a period of two years from the Closing, except
pursuant to Sections 11.6 and 17 hereof, none of the Stockholders shall offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of CLC Stock or any securities convertible into or exercisable or
exchangeable for CLC Stock (including, without limitation, shares of CLC Stock
or securities convertible into or exercisable or exchangeable for CLC Stock
which may be deemed to be beneficially owned by the undersigned in accordance
with the rules and regulations of the Securities and Exchange Commission by
virtue of the undersigned's power to dispose, or direct the disposition of,
such shares or securities). The certificates evidencing the CLC Stock
delivered to the Stockholders pursuant to Section 3 of this Agreement will bear
a legend substantially in the form set forth below and containing such other
information as CLC may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF WITHOUT
THE WRITTEN CONSENT OF THE ISSUER OR PURSUANT TO CERTAIN LIMITED EXCEPTIONS
CONTAINED IN SECTION 15.1
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TO THAT CERTAIN STOCK PURCHASE AGREEMENT AMONG CLC, AND THE
STOCKHOLDERS OF DATED JULY 20, 1998, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO [INSERT THE ACTUAL
SECOND ANNIVERSARY OF CLOSING DATE] EXCEPT FOR THE ABOVE-REFERENCED LIMITED
EXCEPTIONS. UPON 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 DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the
shares of CLC Stock to be delivered to the Stockholders pursuant to this
Agreement have not been and will not be registered under the 1933 Act (except
as provided in Section 17 hereof) and therefore may not be resold without
compliance with the 1933 Act. The CLC Stock to be acquired by such
Stockholders pursuant to this Agreement is being acquired solely for their own
respective accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. The Stockholders covenant, warrant and represent that
none of the shares of CLC Stock issued to such Stockholders will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and regulations of the SEC or pursuant to exceptions
therefrom. All the CLC Stock shall bear the following legend in addition to
the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW OR SUCH SHARES ARE
SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION THEREFROM.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear
the economic risk of an investment in the CLC Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment. Each
Stockholder has substantial knowledge and experience in making investment
decisions of this type (or is relying on qualified purchaser representatives
with such knowledge and experience in making this decision), and is capable,
either individually or with such purchaser representatives, of evaluating the
merits and risks of this investment. The Stockholders party hereto have had an
adequate opportunity to ask questions and receive answers from the officers of
CLC concerning any and all matters relating to the transactions described
herein including, without limitation, the background and experience of the
current and proposed officers and directors of CLC, the plans for the
operations of the business of CLC, the business, operations and financial
condition of the Founding Companies other than the Company, and any plans for
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additional acquisitions and the like. The Stockholders have asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to their satisfaction. Except as set forth on Schedule
16.2, each Stockholder is an "accredited investor" as defined in Rule 501 of
the 1933 Act.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
Consummation Date, whenever CLC proposes to register any CLC Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by CLC and (ii) registrations relating to
employee benefit plans, CLC shall give each of the Stockholders written notice
of its intent to do so. Upon the written request of any of the Stockholders
given within 10 days after receipt of such notice, CLC shall cause to be
included in such registration all of the CLC Stock issued to such Stockholders
pursuant to this Agreement (including any stock issued as or issuable upon the
conversion or exchange of any convertible security, warrant, right or other
security which is issued by CLC as a stock split, dividend or other
distribution with respect to, or in exchange for, or in replacement of such CLC
Stock) which any such Stockholder requests, other than shares of CLC Stock
which may be sold under Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act, and other than shares of CLC Stock that have
been theretofore sold by the Stockholder in accordance with the 1933 Act,
provided that CLC shall have the right to reduce pro rata the number of shares
of each Selling Stockholder included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to CLC or
its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
organization under Section 351 of the Code. In addition, if CLC is advised in
writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 17.1 that the number of shares to be sold by persons other than
CLC is greater than the number of such shares which can be offered without
adversely affecting the success of the offering, CLC may reduce pro rata (among
the Stockholders and all other selling security holders in the offering) the
number of shares offered for the accounts of such persons (based upon the
number of shares held by such person) to a number deemed satisfactory by such
managing underwriter.
17.2 REGISTRATION PROCEDURES. Whenever CLC is required to register
shares of CLC Stock pursuant to Sections 17.1, CLC will, as expeditiously as
possible:
(i) Prepare and file with the SEC a registration statement
with respect to such shares and use commercially reasonable efforts to
cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments
or supplements or term sheets thereto, CLC will furnish a representative
of the Stockholders with copies of all such documents proposed to be
filed and provide the Stockholders an opportunity to comment on the
information therein relating to the Stockholders) as promptly as
practical;
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(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 120 days;
(iii) Furnish to each Stockholder who so requests such number of
copies of such registration statement, each amendment and supplement
thereto and the prospectus included in such registration statement
(including each preliminary prospectus and any term sheet associated
therewith), and such other documents as such Stockholder may reasonably
request in order to facilitate the disposition of the relevant shares;
(iv) Use commercially reasonable efforts to register or qualify
the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Stockholders, and to keep such registration or
qualification effective during the period such registration statement is
required to be kept effective, provided that CLC shall not be required
to become subject to taxation, to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions;
(v) Cause all such shares of CLC Stock to be listed or
included on any securities exchanges or trading systems on which similar
securities issued by CLC are then listed or included; and
(vi) Notify each Stockholder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within
the period that CLC is required to keep the registration statement
effective of the happening of any event as a result of which the
prospectus included in such registration statement (as then in effect),
together with any associated term sheet, contains an untrue statement of
a material fact or omits any fact not misleading, and, at the request of
such Stockholder, CLC will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of the
covered shares, such prospectus will not contain an untrue statement of
material fact or omit to state any fact not misleading.
All expenses incurred in connection with the registration under this
Article 17 and compliance with securities and blue sky laws (including all
registration, filing, listing, escrow agent, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts), shall
be borne by CLC.
17.3 INDEMNIFICATION.
(a) In connection with any registration under Section 17.1,
CLC shall indemnify, to the extent permitted by law, each selling Stockholder
(an "Indemnified Stockholder") against all losses, claims, damages, liabilities
and expenses arising out of or resulting from any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or
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preliminary prospectus or associated term sheet or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in or omitted from any information furnished in
writing to CLC by such Indemnified Stockholder expressly for use therein or by
any Indemnified Stockholder's failure to deliver a copy of the registration
statement or prospectus or any amendment or supplements thereto after CLC has
furnished such Indemnified Stockholder with a sufficient number of copies of
the same.
(b) In connection with any registration under Section 17.1,
each Stockholder shall furnish to CLC in writing such information as is
reasonably requested by CLC for use in any such registration statement or
prospectus and will indemnify, to the extent permitted by law, CLC, its
directors and officers and each person who controls CLC (within the meaning of
the 1933 Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement or material fact or any
omission or alleged omission of a material fact required to be stated in the
registration statement or prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein not misleading, but only to
the extent that such untrue or alleged untrue statement or omission or alleged
omission is contained in or omitted from information so furnished in writing by
such Stockholder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of a Stockholder under this
Section 17.3 shall be limited to an amount equal to the net proceeds actually
received by such Stockholder from the sale of the relevant shares covered by
the registration statement.
(c) Any person entitled to indemnification hereunder will (i)
give prompt notice to the indemnifying party of any claim with respect to which
it seeks indemnification and (ii) unless in such indemnified parties'
reasonable judgment, a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Any failure to give prompt notice shall
deprive a party of its right to indemnification hereunder only to the extent
that such failure shall have adversely affected the indemnifying party. If the
defense of any claim is assumed, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party that is not
entitled or elects not, to assume the defense of a claim, will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party, a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 covering an underwritten registered offering, CLC and
each participating Stockholder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CLC's size and investment stature,
including a customary indemnification agreement.
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17.5 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the SEC that may permit the sale of CLC
stock to the public without registration, CLC agrees to use commercially
reasonable efforts to:
(i) make and keep public information regarding CLC available
as those terms are understood and defined in Rule 144 under the 1933 Act
for a period of four years beginning 90 days following the effective
date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of CLC under the 1933 Act and the 1934 Act at any
time after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted CLC Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by CLC as to its compliance with the current public
information requirements of Rule 144 (at any time from and after 90 days
following the effective date of the Registration Statement, and of the
1933 Act and the 1934 Act (any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of CLC, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or
regulation of the SEC allowing a Stockholder to sell any such shares
without registration.
17.6 AVAILABILITY OF RULE 144. CLC shall not be obligated to register
shares of CLC Common Stock held by a Stockholder at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such Stockholder.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders and CLC shall each
deliver or cause to be delivered to the other on the Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate
with CLC on and after the Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the
Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of CLC, and the heirs and legal representatives of the Stockholders.
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18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
Stockholders, the Company and CLC and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholders, the Company
and CLC, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes
of any other Schedule required hereby, provided that the Company shall make a
good faith effort to cross reference disclosure, as necessary or advisable,
between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument. A
telecopied facsimile of an executed counterpart of this Agreement shall be
sufficient to evidence the binding agreement of each party to the terms hereof.
However, each party agrees to return to the other parties an original, duly
executed counterpart of this Agreement promptly after delivery of a telecopied
facsimile thereof.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying
party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, CLC will pay or reimburse Bellmeade Capital Partners
L.L.C. for the fees, expenses and disbursements of CLC and its agents,
representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto and the IPO,
including all costs and expenses incurred in the performance and compliance
with all conditions to be performed by CLC under this Agreement, the fees and
expenses of Arthur Andersen, LLP, Andrews & Kurth L.L.P., and any other person
or entity retained by CLC or Bellmeade Capital Partners L.L.C., and the costs
of preparing the Registration Statement. All expenses incurred by the
Stockholders shall be paid by the Stockholders. Each Stockholder shall pay all
sales, use, transfer, real property transfer, recording, gains, stock transfer
and other similar taxes and fees ("Transfer Taxes") imposed in connection with
the purchase and sale of the Company Stock, other than Transfer Taxes, if any,
imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition,
each Stockholder acknowledges that he, and not the Company or CLC, will pay all
taxes due by him upon receipt of the consideration payable pursuant to Section
3 hereof. The Stockholders acknowledge that the risks of the transactions
contemplated herein include tax risks.
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18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to CLC addressed to them at:
Chemical Logistics Corporation
808 Travis, Suite 1135
Houston, Texas 77002
Attention: Bruce W. Wilkinson
with copies to:
Melissa M. Baldwin
Andrew & Kurth L.L.P.
600 Travis, Suite 4200
Houston, Texas 77002
(b) If to the Stockholders, addressed to them at their addresses set
forth on the signature pages hereto, with copies to:
(c) If to the Company, addressed to it at:
with copies to:
and
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware, excluding any conflicts of law, rule
or principle that might refer same to the laws of another jurisdiction.
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18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated
herein and any examination on behalf of the parties.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed 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 deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it 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, and if such modification
is not possible, such 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. No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
18.13 REMEDIES CUMULATIVE. 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.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of CLC, the Company and Stockholders who hold or held
at least 51% of the Company Stock. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon each of the parties
hereto, any other person receiving CLC Stock in connection with the purchase
and sale of the Company Stock and each future holder of such CLC Stock.
18.16 DISPUTE RESOLUTION. Except with respect to disputes involving
parties other than the parties to this Agreement, no party to this Agreement
shall institute a proceeding in any court or administrative agency to resolve a
dispute arising under this Agreement before that party has sought to resolve
the dispute through direct negotiation with the other party or parties. If the
dispute is not resolved within two weeks after a demand for direct negotiation,
the parties shall attempt to resolve the dispute through mediation. In the
case of all disputes other than those involving real
-60-
<PAGE> 68
property, if the parties do not promptly agree on a mediator, the parties shall
request the Association of Attorney Mediators in Harris County, Texas to
appoint a mediator certified by the Supreme Court of Texas. In the case of
disputes involving real property, if the parties do not promptly agree on a
mediator, the parties shall request that the Association of Attorney Mediators
(or a body serving a similar purpose) in the county where the real property is
located appoint a mediator certified by the appropriate governing body of the
state where the real property is located. If the mediator is unable to
facilitate a settlement of the dispute within a reasonable period of time, as
determined by the mediator, the mediator shall issue a written statement to the
parties to that effect and any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators in Houston, Texas,
in the case of all disputes other than those involving real property, or a city
in the state where the real property is located, in the case of disputes
involving real property, in accordance with the rules promulgated by the
American Arbitration Association then in effect. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on
the arbitrators' award in any court having jurisdiction. The costs and
expenses, including reasonable attorneys' fees, of the prevailing party in any
dispute arising under this Agreement will be promptly paid by the other party
or parties.
18.17 REFERENCES, GENDER, NUMBER. All references in this Agreement to
a "Section," or "subsection" shall be to a Section, or subsection of this
Agreement, unless the context requires otherwise. Unless the context otherwise
requires, the words "this Agreement," "hereof," "hereunder," "herein," or words
of similar import shall refer to this Agreement as a whole and not to a
particular Section, subsection, clause or other subdivision hereof. Whenever
the context requires, the words used herein shall include the masculine,
feminine and neuter gender, and the singular and the plural.
18.18 SCHEDULES AND ANNEXES. Each schedule and annex attached to this
Agreement is incorporated herein by reference and made a part hereof. The
disclosures made on any schedule or annex hereto with respect to any
representation or warranty shall be deemed to be made with respect to any other
representation or warranty requiring the same or similar disclosure to the
extent that the relevance of such disclosure to other representations and
warranties is evident from the face of such schedule or annex.
-61-
<PAGE> 69
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHEMICAL LOGISTICS CORPORATION
By: /s/ Bruce W. Wilkinson
----------------------------------
Name: Bruce W. Wilkinson
Title: Chief Executive Officer
-62-
<PAGE> 70
SCHEDULE TO
FORM OF STOCK PURCHASE AGREEMENT
Nine Stock Purchase Agreements in the form attached hereto have
been executed by the parties listed below, and attached hereto is the Annex I
to each of the Agreements which reflects specific consideration terms for each
Agreement.
1. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, G.S. Robins & Company, and all of
the Stockholders of G.S. Robins & Company.
2. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, Industrial Chemicals, Inc., and
all of the Stockholders of Industrial Chemicals, Inc.
3. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, Houston Solvents & Chemicals Co.,
Inc. d/b/a Southwest Solvents & Chemicals, SS & C Properties,
Inc. and Dallas Solvents and Chemicals Co., Inc., and all of the
Stockholders of Southwest Solvents & Chemicals.
4. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, Chemical Solvents, Inc. and
Pavlish Real Estate Holding Company, and all of the Stockholders
of Chemical Solvents, Inc. and Pavlish Real Estate Holding
Company.
5. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, Tilley Chemical Co., Inc. and
D.J.J. Equity Corporation, and all of the Stockholders of Tilley
Chemical Co., Inc. and D.J.J. Equity Corporation.
6. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, Cron Chemical Corporation,
Magnolia Chemicals & Solvents, Inc., Rayver, Inc., and all of the
Stockholders of Cron Chemical Corporation, Magnolia Chemicals &
Solvents, Inc., Rayver, Inc.
7. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, Brown Chemical Co., Inc., Brown
Realty Incorporated, and all of the Stockholders of Brown
Chemical Co., Inc. and Brown Realty Incorporated.
<PAGE> 71
8. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, Tarr, Inc. and Tarr, Inc. of
Arizona, and all of the Stockholders of Tarr, Inc. and Tarr, Inc.
of Arizona.
9. Stock Purchase Agreement dated as of July 20, 1998 by and among
Chemical Logistics Corporation, A.C.C., Inc. t/a American
Chemicals Co., Inc., and all of the Stockholders of A.C.C., Inc.
t/a American Chemicals Co., Inc.
-2-
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHEMICAL LOGISTICS CORPORATION
By:
-----------------------------
Name:
Title:
HOUSTON SOLVENTS & CHEMICALS
CO., INC. d/b/a SOUTHWEST
SOLVENTS & CHEMICALS
By: /s/ JAMES M. CLEPPER
-----------------------------
James M. Clepper
President
SS&C PROPERTIES, INC.
By: /s/ JAMES M. CLEPPER
-----------------------------
James M. Clepper
President
DALLAS SOLVENTS and CHEMICALS
COMPANY, INC.
By: /s/ JAMES M. CLEPPER
-----------------------------
James M. Clepper
President
<PAGE> 73
HOUSTON SOLVENTS & CHEMICALS CO., INC. STOCKHOLDER:
/s/ JAMES M. CLEPPER
- -------------------------------------- -----------------------------------
James M. Clepper Social Security Number
Shares Owned: 200
3 Wynden Oaks Court
Houston, Texas 77056
Spousal Consent and Acknowledgment:
/s/ VICKI L. CLEPPER
- -------------------------------------- -----------------------------------
Vicki L. Clepper Social Security Number
3 Wynden Oaks Court
Houston, Texas 77056
SS&C PROPERTIES, INC. STOCKHOLDER:
/s/ JAMES M. CLEPPER
- -------------------------------------- -----------------------------------
James M. Clepper Social Security Number
Shares Owned: 1,000
3 Wynden Oaks Court
Houston, Texas 77056
Spousal Consent and Acknowledgment:
/s/ VICKI L. CLEPPER
- -------------------------------------- -----------------------------------
Vicki L. Clepper Social Security Number
3 Wynden Oaks Court
Houston, Texas 77056
<PAGE> 74
DALLAS SOLVENTS AND CHEMICALS COMPANY, INC. STOCKHOLDER:
/s/ JAMES M. CLEPPER
- -------------------------------------- -----------------------------------
James M. Clepper Social Security Number
Shares Owned: 1,000
3 Wynden Oaks Court
Houston, Texas 77056
Spousal Consent and Acknowledgment:
/s/ VICKI L. CLEPPER
- -------------------------------------- -----------------------------------
Vicki L. Clepper Social Security Number
3 Wynden Oaks Court
Houston, Texas 77056
<PAGE> 75
ANNEX I
TO THE STOCK PURCHASE AGREEMENT (the "Agreement")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
HOUSTON SOLVENTS AND CHEMICAL COMPANY, INC.
d/b/a SOUTHWEST SOLVENTS & CHEMICALS, SS & C
PROPERTIES, INC., DALLAS SOLVENTS AND CHEMICALS CO., INC.
AND ALL OF THE STOCKHOLDERS OF
HOUSTON SOLVENTS AND CHEMICAL COMPANY, INC.
d/b/a SOUTHWEST SOLVENTS & CHEMICALS, SS & C
PROPERTIES, INC., and DALLAS SOLVENTS AND CHEMICALS CO., INC.
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the Agreement
have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$16,855,995(1) ("Acquisition Consideration"), consisting of 786,613 shares of
CLC Stock, $1,717,800 in cash ("Cash Consideration"), and $3,339,000 in
distributions of balances present in the accumulated adjustments account of the
Company ("AAA"), it being agreed by CLC and the Stockholders that the actual
number of shares of CLC Stock and the amount of AAA shall remain unchanged while
the amount of Cash Consideration described in this Annex I will depend on the
actual initial public offering price of the CLC Stock, which may be more or less
than $15.00 per share; provided, however that the total Acquisition
Consideration shall not be less than the minimum value set forth below. In the
event the initial public offering price of CLC Stock is not $15.00 per share,
the sum of Cash Consideration and AAA ("Aggregate Cash") will be multiplied by
the actual initial public offering price per share divided by $15.00. The total
increase or decrease in Aggregate Cash resulting from this calculation will be
added to or subtracted from, as the case may be, Cash Consideration. AAA will
remain fixed.
- ----------------
(1) Assuming an initial public offering price of $15.00 per share.
Page 1 of Annex I
<PAGE> 76
ANNEX I
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Percentage of Shares of CLC
Company Common Cash Aggregate
Shareholder[s] Shares Owned Stock Consideration AAA Cash
- -------------- ------------ ------------- ------------- --- ---------
<S> <C> <C> <C> <C> <C>
J. M. Clepper 100% 786,613 $ 1,717,800 3,339,000 $ 5,056,800
MINIMUM $ 12,641,996 (9/12 of Acquisition Consideration)
VALUE -------------
</TABLE>
- -----------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST $ 1,986,000 IN OPERATING
CAPITAL WILL BE PRESENT IN THE COMPANY AT CLOSING.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders agree
that the following assets may be removed from the Company prior to
Closing, such assets to become the property of the Stockholders:
Cars, farm related assets, miscellaneous artwork, and other items not
used in the operation of the business.
ALLOWABLE DIVIDENDS: With the exception of the following, since March
31, 1998 no dividends have been or will be paid by the Company:
1) A distribution of S-Corporation profits (AAA distribution of
$3,339,000).
2) Pretax profits for the quarter ended June 30, 1998.
3) Taxes on S-Corporation profits for the period from June 30,
1998 to closing.
Page 2 of Annex I
<PAGE> 77
OTHER:
Owner may remove approximately $109,000 cash from SS&C Properties.
Company may eliminate $66,000 receivable from JMC Aviation before
closing.
Debt owed to the owner by the company will be paid within 15 days of
closing.
STOCKHOLDER
/s/ J. M. CLEPPER
------------------------------
J. M. CLEPPER
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
------------------------------
Name: Bruce W. Wilkinson
-------------------------
Title Chief Executive Officer
-------------------------
Page 3 of Annex I
<PAGE> 78
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHEMICAL LOGISTICS CORPORATION
By:
------------------------------
Name:
Title:
TILLEY CHEMICAL CO., INC.
By: /s/ JOHN M. TILLEY
------------------------------
John M. Tilley
President
D.J.J. EQUITY CORPORATION
By: /s/ DAVID K. TILLEY
------------------------------
David K. Tilley
Chairman of the Board
<PAGE> 79
TILLEY CHEMICAL CO., INC. STOCKHOLDERS:
/s/ DAVID H. TILLEY
- -------------------------------------- -----------------------------------
David H. Tilley Social Security Number
Shares Owned: 1,997
12450 Barnard Way
West Friendship, Maryland 21794
/s/ JOHN M. TILLEY
- -------------------------------------- -----------------------------------
John M. Tilley Social Security Number
Shares Owned: 4,502
15549 Carroll Road
Monkton, Maryland 21111
TILLEY FAMILY, LLC:
By: /s/ DAVID H. TILLEY
----------------------------------- -----------------------------------
Name: David H. Tilley EIN
Title: Managing Member
Shares Owned: 30,810
12450 Barnard Way
West Friendship, Maryland 21794
<PAGE> 80
D.J.J. EQUITY CORPORATION STOCKHOLDERS:
/s/ DAVID K. TILLEY
- -------------------------------------- -----------------------------------
David K. Tilley Social Security Number
Shares Owned: 94,547
3405 Greenway, #102
Baltimore, Maryland 21218
/s/ JANET M. HORA
- -------------------------------------- -----------------------------------
Janet M. Hora Social Security Number
Shares Owned: 94,547
Address:
/s/ JOHN M. TILLEY
- -------------------------------------- -----------------------------------
John M. Tilley Social Security Number
Shares Owned: 94,546
15549 Carroll Road
Monkton, Maryland 21111
<PAGE> 81
ANNEX I
TO THE STOCK PURCHASE AGREEMENT (THE "AGREEMENT")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
TILLEY CHEMICAL CO., INC.
D.J.J. EQUITY CORPORATION
AND ALL OF THE STOCKHOLDERS OF
TILLEY CHEMICAL CO., INC.
AND D.J.J. EQUITY CORPORATION
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the Agreement
have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$17,290,669(1) ("Acquisition Consideration"), consisting of 806,898 shares of
CLC Stock, $5,145,199 in cash ("Cash Consideration"), and $42,000 in
distributions of balances present in the accumulated adjustments account of the
Company ("AAA"), it being agreed by CLC and the Stockholders that the actual
number of shares of CLC Stock and the amount of AAA shall remain unchanged while
the amount of Cash Consideration described in this Annex I will depend on the
actual initial public offering price of the CLC Stock, which may be more or less
than $15.00 per share; provided, however that the total Acquisition
Consideration shall not be less than the minimum value set forth below. In the
event the initial public offering price of CLC Stock is not $15.00 per share,
the sum of Cash Consideration and AAA ("Aggregate Cash") will be multiplied by
the actual initial public offering price per share divided by $15.00. The total
increase or decrease in Aggregate Cash resulting from this calculation will be
added to or subtracted from, as the case may be, Cash Consideration. AAA will
remain fixed.
- --------
(1) Assuming a public offering price of $15.00 per share.
Page 1 of Annex I
<PAGE> 82
ANNEX I
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of
Company Shares of CLC Cash Aggregate
Stockholders Shares Owned Common Stock(1) Consideration AAA Cash
- ------------ ------------ --------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Tilley Chemical Co., Inc. (80%)
David H. Tilley 1,997 34,552 $ 222,120 $ 0 $ 222,120
John M. Tilley 4,502 77,893 500,743 0 500,743
Tilley Family, LLC 30,810 533,073 3,426,896 0 3,426,896
D.J.J. Equity Corporation (20%)
David K. Tilley 94,547 53,793 $ 331,815 $ 14,000 $ 345,815
Janet M. Hora 94,547 53,794 $ 331,814 $ 14,000 $ 345,814
John M. Tilley 94,546 53,793 $ 331,811 $ 14,000 $ 345,811
------- ------------- ---------- -------------
Total 806,898 $ 5,145,199 $ 42,000 $ 5,187,199
======= ============= ========== =============
MINIMUM VALUE $12,968,002 (9/12 of Acquisition Consideration)
</TABLE>
- ------------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST $3,937,000 IN OPERATING CAPITAL
WILL BE PRESENT IN THE COMPANY AT THE CONSUMMATION DATE.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders agree
that the following assets may be removed from the Company prior to
Closing, such assets to become the property of the Stockholders:
Owners' cars and other personal effects not used in the business.
- --------------------------------------------------------------------------------
ALLOWABLE DIVIDENDS: With the exception of the following, since March
31, 1998, no dividends have been or will be paid by the Company:
1) A $42,000 dividend of S-Corporation profits from D.J.J. Equity
Corporation will be paid to its shareholders prior to closing.
Page 2 of Annex I
<PAGE> 83
2) After-tax earnings for Tilley Chemical Co., Inc. and pretax
earnings for D.J.J. Equity Corporation for the quarter ended
June 30, 1998.
3) A dividend equal to the taxes on S-Corporation profits at
D.J.J. Equity Corporation for the period from June 30, 1998
through closing may be paid.
STOCKHOLDERS
/s/ DAVID H. TILLEY
---------------------------------------------
David H. Tilley
/s/ JOHN M. TILLEY
---------------------------------------------
John M. Tilley
/s/ JANET M. HORA
---------------------------------------------
Janet M. Hora
/s/ DAVID K. TILLEY
---------------------------------------------
David K. Tilley
TILLEY FAMILY, LLC
By: /s/ DAVID M. TILLEY
----------------------------------------
Name: David M. Tilley
----------------------------------------
Title: Managing Member
----------------------------------------
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
---------------------------------------
Name: Bruce W. Wilkinson
---------------------------------------
Title: Chief Executive Officer
---------------------------------------
Page 3 of Annex I
<PAGE> 84
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CHEMICAL LOGISTICS CORPORATION
By:
-------------------------------------
Name:
Title:
TARR, INC.
By: /s/ BYRON C. TARR, SR.
-------------------------------------
Byron C. Tarr, Sr.
Chairman of the Board
TARR, INC. OF ARIZONA
By: /s/ BYRON C. TARR, SR.
-------------------------------------
Byron C. Tarr, Sr.
President
<PAGE> 85
TARR, INC. STOCKHOLDERS:
/s/ BYRON C. TARR
- ---------------------------------------- ------------------------------
Name: Byron C. Tarr Social Security Number
Shares Owned: 1,195.75
Address: 12302 N. 136th Place
Scottsdale, Arizona 85258
Spousal Consent and Acknowledgment:
/s/ BARBARA BASSETT-TARR
- ---------------------------------------- ------------------------------
Barbara Bassett-Tarr Social Security Number
12302 N. 136th Place
Scottsdale, Arizona 85258
/s/ BYRON C. TARR, JR.
- ---------------------------------------- ------------------------------
Name: Byron C. Tarr, Jr. Social Security Number
Shares Owned: 298.94
Address: 11 Tanglewood
Lake Oswego, Oregon 97034
TARR, INC. OF ARIZONA STOCKHOLDERS:
- ----------------------------------
/s/ BYRON C. TARR, JR.
- ---------------------------------------- ------------------------------
Name: Byron C. Tarr, Jr. Social Security Number
Shares Owned: 12 shares
Address: 12302 N. 136th Place
Scottsdale, Arizona 85258
/s/ BYRON C. TARR
- ---------------------------------------- ------------------------------
Name: Byron C. Tarr Social Security Number
Shares Owned: 88 shares
Address: 11 Tanglewood
Lake Oswego, Oregon 97034
<PAGE> 86
ANNEX I
TO THE STOCK PURCHASE AGREEMENT (THE "AGREEMENT")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
TARR, INC. AND TARR, INC. OF ARIZONA
AND ALL OF THE STOCKHOLDERS OF
TARR, INC. AND TARR, INC. OF ARIZONA
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the
Agreement have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$11,029,669(1) ("Acquisition Consideration"), consisting of 514,718 shares of
CLC Stock, $2,427,371 in cash ("Cash Consideration"), and $881,528 in
distributions of balances present in the accumulated adjustments account of the
Company ("AAA"), it being agreed by CLC and the Stockholders that the actual
number of shares of CLC Stock and the amount of AAA shall remain unchanged while
the amount of Cash Consideration described in this Annex I will depend on the
actual initial public offering price of the CLC Stock, which may be more or less
than $15.00 per share; provided, however that the total Acquisition
Consideration shall not be less than the minimum value set forth below. In the
event the initial public offering price of CLC Stock is not $15.00 per share,
the sum of Cash Consideration and AAA ("Aggregate Cash") will be multiplied by
the actual initial public offering price per share divided by $15.00. The total
increase or decrease in Aggregate Cash resulting from this calculation will be
added to or subtracted from, as the case may be, Cash Consideration. AAA will
remain fixed.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Percentage of
Company Shares of CLC Cash Aggregate
Stockholder[s] Shares Owned Common Stock(1) Consideration AAA Cash
-------------- ------------ -------------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Tarr, Inc. (85%)
----------
Byron C. Tarr 80% 350,008 1,544,829 $705,222 $2,250,051
Byron C. Tarr, Jr. 20% 87,502 386,207 176,306 562,513
Tarr, Inc. of AZ (15%)
----------------
</TABLE>
----------------
(1) Assuming a public offering price of $15.00 per share.
Page 1 of Annex I
<PAGE> 87
ANNEX I
<TABLE>
<S> <C> <C> <C> <C> <C>
Byron C. Tarr 80% 61,766 $397,068 0 $397,068
Byron C. Tarr, Jr. 20% 15,442 99,267 0 99,267
-------- ---------- -------- ----------
514,718 $2,427,371 $881,528 $3,308,899
======== ========== ======== ==========
</TABLE>
Minimum Value $8,272,252 (9/12 of Acquisition Consideration)
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST ($1,607,000) IN OPERATING
CAPITAL WILL BE PRESENT IN THE COMPANY AT THE CONSUMMATION DATE.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders
agree that the following assets may be removed from the Company
prior to Closing, such assets to become the property of the
Stockholders:
Owners' cars, other personal items not used in the business.
ALLOWABLE DIVIDENDS: With the exception of the following, since
March 31, 1998, no dividends have been or will be paid by the
Company:
(1) S-Corporation AAA dividends of $881,528.
(2) Pretax earnings for Tarr, Inc., and after-tax earnings for
Tarr, Inc. of Arizona for the quarter ended June 30, 1998.
(3) Taxes on S-Corporation profits for the period from June 30,
1998 to closing.
STOCKHOLDERS
/s/ BYRON C. TARR
----------------------------------------
Byron C. Tarr
/s/ BYRON C. TARR, JR.
----------------------------------------
Byron C. Tarr, Jr.
Page 2 of Annex I
<PAGE> 88
ANNEX I
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
-------------------------------------
Name: Bruce W. Wilkinson
-----------------------------------
Title: Chief Executive Officer
----------------------------------
Page 3 of Annex I
<PAGE> 89
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHEMICAL LOGISTICS CORPORATION
By:
----------------------------------
Name:
Title:
INDUSTRIAL CHEMICALS, INC.
By: /s/ WILLIAM L. WELCH
----------------------------------
William L. Welch
President
<PAGE> 90
Industrial Chemicals, Inc. Stockholders:
/s/ WILLIAM L. WELCH
- -------------------------------- --------------------------------
William L. Welch Social Security Number
Shares Owned: 2,306
P. O. Box 660404
Birmingham, Alabama 35266
/s/ LONNIE BURTON WELCH
- -------------------------------- --------------------------------
Lonnie Burton Welch Social Security Number
Shares Owned: 1,030
239 Big Springs Drive
Birmingham, Alabama 35216
/s/ WILLIAM L. WELCH, JR.
- -------------------------------- --------------------------------
William L. Welch, Jr. Social Security Number
Shares Owned: 172
P.O. Box 660404
Birmingham, Alabama 35266
/s/ CHRISTOPHER S. WELCH
- -------------------------------- --------------------------------
Christopher S. Welch Social Security Number
Shares Owned: 172
P.O. Box 660404
Birmingham, Alabama 35266
/s/ RHONDA WELCH ANTHONY
- -------------------------------- --------------------------------
Rhonda Welch Anthony Social Security Number
Shares Owned: 232
239 Big Springs Drive
Birmingham, Alabama 35216
<PAGE> 91
/s/ GREGORY A. WELCH
- -------------------------------- --------------------------------
Gregory A. Welch Social Security Number
Shares Owned: 232
239 Big Springs Drive
Birmingham, Alabama 35216
/s/ WILLIAM G. WELCH
- -------------------------------- --------------------------------
William G. Welch Social Security Number
Shares Owned: 232
239 Big Springs Drive
Birmingham, Alabama 35216
/s/ WAYNE B. WELCH
- -------------------------------- --------------------------------
Wayne B. Welch Social Security Number
Shares Owned: 232
239 Big Springs Drive
Birmingham, Alabama 35216
<PAGE> 92
ANNEX I
TO THE STOCK PURCHASE AGREEMENT (the "Agreement")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
INDUSTRIAL CHEMICALS, INC.
AND ALL OF THE STOCKHOLDERS OF INDUSTRIAL CHEMICALS, INC.
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the Agreement
have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$25,204,995(1) ("Acquisition Consideration"), consisting of 1,176,233 shares of
CLC Stock, $6,962,051 in cash ("Cash Consideration"), and $599,449 in
distributions of balances present in the accumulated adjustments account of the
Company ("AAA"), it being agreed by CLC and the Stockholders that the actual
number of shares of CLC Stock and the amount of AAA shall remain unchanged while
the amount of Cash Consideration described in this Annex I will depend on the
actual initial public offering price of the CLC Stock, which may be more or less
than $15.00 per share; provided, however that the total Acquisition
Consideration shall not be less than the minimum value set forth below. In the
event the initial public offering price of CLC Stock is not $15.00 per share,
the sum of Cash Consideration and AAA ("Aggregate Cash") will be multiplied by
the actual initial public offering price per share divided by $15.00. The total
increase or decrease in Aggregate Cash resulting from this calculation will be
added to or subtracted from, as the case may be, Cash Consideration. AAA will
remain fixed.
- --------------------
(1) Assuming a public offering price of $15.00 per share.
Page 1 of Annex I
<PAGE> 93
ANNEX I
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of Shares of CLC
Company Common Cash Aggregate
Shareholder Shares Owned Stock Consideration AAA Cash
- ----------- ------------ ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
William L. Welch 2,306 588,626 $3,484,047 299,984 3,784,031
Lonnie Burton Welch 1,030 262,917 1,556,188 133,991 1,690,179
William L. Welch, Jr 172 43,905 259,868 22,375 282,243
Christopher S. Welch 172 43,905 259,868 22,375 282,243
Rhonda Welch Anthony 232 59,220 350,520 30,181 380,701
Gregory A. Welch 232 59,220 350,520 30,181 380,701
William G. Welch 232 59,220 350,520 30,181 380,701
Wayne B. Welch 232 59,220 350,520 30,181 380,701
------------ ---------- ---------- ---------- ----------
Total 4,608 1,176,233 $6,962,051 $ 599,449 $7,561,500
============ ========== ========== ========== ==========
MINIMUM VALUE $ 18,903,746 (9/12 of Acquisition Consideration)
------------
</TABLE>
- -----------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST $ 611,000 IN OPERATING CAPITAL
WILL BE PRESENT IN THE COMPANY AT CLOSING.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders agree
that the following assets may be removed from the Company prior to
Closing, such assets to become the property of the Stockholders:
Six cars, personal items not used in the business.
Page 2 of Annex I
<PAGE> 94
ANNEX I
Allowable Dividends: With the exception of the following, no dividends will be
paid subsequent to March 31, 1998:
1) S-Corporation dividends of $599,449 relative to earnings prior
to March 31, 1998.
2) Pretax profits for the quarter ended June 30, 1998.
3) Taxes on S-Corporation earnings for the period between
June 30, 1998 and closing.
STOCKHOLDERS
/s/ WILLIAM L. WELCH
---------------------------------------
William L. Welch
/s/ LONNIE BURTON WELCH
---------------------------------------
Lonnie Burton Welch
/s/ WILLIAM L. WELCH, JR.
---------------------------------------
William L. Welch, Jr.
/s/ CHRISTOPHER S. WELCH
---------------------------------------
Christopher S. Welch
/s/ RHONDA WELCH ANTHONY
---------------------------------------
Rhonda Welch Anthony
/s/ GREGORY A. WELCH
---------------------------------------
Gregory A. Welch
/s/ WILLIAM G. WELCH
---------------------------------------
William G. Welch
/s/ WAYNE B. WELCH
---------------------------------------
Wayne B. Welch
CHEMICAL LOGISTICS CORPORATION
/s/ BRUCE W. WILKINSON
---------------------------------------
Name: Bruce W. Wilkinson
----------------------------------
Title: Chief Executive Officer
----------------------------------
Page 3 of Annex I
<PAGE> 95
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHEMICAL LOGISTICS CORPORATION
By:
----------------------------------
Edward H. Pavlish
President
CHEMICAL SOLVENTS, INC.
By: /s/ EDWARD H. PAVLISH
----------------------------------
Name: Edward H. Pavlish
Title: President
PAVLISH REAL ESTATE HOLDING
COMPANY
By: /s/ EDWARD H. PAVLISH
----------------------------------
Name: Edward H. Pavlish
Title: President
<PAGE> 96
CHEMICALS SOLVENTS, INC. STOCKHOLDER:
/s/ EDWARD H. PAVLISH
- ------------------------------------- ----------------------
Edward H. Pavlish Social Security Number
Shares Owned: 100 shares
5265 SOM Center Road
Solon, Ohio 44139
PAVLISH REAL ESTATE HOLDING COMPANY STOCKHOLDER:
/s/ EDWARD H. PAVLISH
- ------------------------------------- ----------------------
Edward H. Pavlish Social Security Number
Shares Owned: 750 shares
5265 SOM Center Road
Solon, Ohio 44139
<PAGE> 97
ANNEX I
TO THE STOCK PURCHASE AGREEMENT (the "Agreement")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
CHEMICAL SOLVENTS, INC., AND PAVLISH REAL ESTATE HOLDING COMPANY
AND ALL OF THE STOCKHOLDERS OF
CHEMICAL SOLVENTS, INC. AND PAVLISH REAL ESTATE HOLDING COMPANY
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the Agreement
have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$13,913,374(1) ("Acquisition Consideration"), consisting of 602,624 shares of
CLC Stock, $0 cash ("Cash Consideration"), $3,874,014 in distributions of
balances present in the accumulated adjustments account of the Company ("AAA"),
and $1,000,000 in Contingent Consideration, it being agreed by CLC and the
Stockholders that the actual number of shares of CLC Stock, the amount of AAA
and the value of Contingent Consideration shall remain unchanged while the
amount of Cash Consideration described in this Annex I will depend on the
actual initial public offering price of the CLC Stock, which may be more or
less than $15.00 per share; provided, however that the total Acquisition
Consideration shall not be less than the minimum value set forth below. In the
event the initial public offering price of CLC Stock is not $15.00 per share,
the sum of Cash Consideration, AAA and Contingent Consideration ("Aggregate
Cash") will be multiplied by the actual initial public offering price per share
divided by $15.00. The total increase or decrease in Aggregate Cash resulting
from this calculation will be added to or subtracted from, as the case may be,
Cash Consideration. AAA and the Contingent Consideration will remain fixed. If
Cash Consideration, calculated based on the formula set forth above, is a
negative amount, then the Stockholders shall pay such amount to CLC on the
Consummation Date.
- --------------
(1) Assuming an initial public offering price of $15.00 per share. Of
such consideration, $1.0 million shall be retained by CLC pursuant to the terms
of the Contingent Consideration Agreement ("Contingent Consideration") and the
remainder will be paid on the Consummation Date.
Page 1 of Annex I
<PAGE> 98
ANNEX I
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Percentage of
Company Shares of CLC Cash Aggregate
Shareholder Shares Owned Stock Consideration AAA Cash
- ----------- ------------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Edward Pavlish 100% 602,624 $ 0 $3,874,014 $ 3,874,014
MINIMUM
VALUE $ 10,435,031 (9/12 of Acquisition Consideration)
------------
</TABLE>
- ---------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST $(8,026) IN OPERATING CAPITAL
WILL BE PRESENT IN THE COMPANY AT CLOSING.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders agree
that the following assets may be removed from the Company prior to
Closing, such assets to become the property of the Stockholders:
Owners' cars, other personal assets not used in the business.
ALLOWABLE DIVIDENDS: With the exception of the following, since
March 31, 1998 no dividends have been or will be paid by the Company:
1) S-Corporation AAA dividends of $3,874,014.
2) Pretax profits for the quarter ended June 30, 1998, less any
distributions of profits for the period already taken.
Page 2 of Annex I
<PAGE> 99
3) Taxes on S-Corporation profits for the period from June 30, 1998
to closing.
4) $25,000 per month in distributions until closing.
STOCKHOLDER
/s/ EDWARD PAVLISH
-----------------------------------
Edward Pavlish
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
--------------------------------
Name: Bruce W. Wilkinson
------------------------------
Title: Chief Executive Officer
-----------------------------
Page 3 of Annex I
<PAGE> 100
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CHEMICAL LOGISTICS CORPORATION
By:
---------------------------------
Name:
Title:
CRON CHEMICAL CORPORATION
By: /s/ JAMES J. SETTE
---------------------------------
James J. Sette
President
MAGNOLIA CHEMICAL & SOLVENTS, INC.
By: /s/ JAMES J. SETTE
---------------------------------
James J. Sette
Chief Executive Officer
RAYVER, INC.
By: /s/ JAMES J. SETTE
---------------------------------
James J. Sette
Chief Executive Officer
<PAGE> 101
CRON CHEMICAL CORPORATION STOCKHOLDER:
Amalgamet, Inc.
- --------------------------------- ---------------------------------
Name: EIN:
Title:
Shares Owned: 1,000
36 Mileed Way
CN 911
Avenel, New Jersey 07001-0911
MAGNOLIA CHEMICAL & SOLVENTS, INC. STOCKHOLDER:
Amalgamet, Inc.
- --------------------------------- ---------------------------------
Name: EIN:
Title:
Shares Owned: 367.5
36 Mileed Way
CN 911
Avenel, New Jersey 07001-0911
RAYVER, INC. STOCKHOLDER:
Amalgamet, Inc.
- --------------------------------- ---------------------------------
Name: EIN:
Title:
Shares Owned: 100
36 Mileed Way
CN 911
Avenel, New Jersey 07001-0911
<PAGE> 102
ANNEX I
TO THE STOCK PURCHASE AGREEMENT (THE "AGREEMENT")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
CRON CHEMICAL CORPORATION,
MAGNOLIA CHEMICAL & SOLVENTS, INC.,
RAYVER, INC. AND ALL OF THE STOCKHOLDERS OF
CRON CHEMICAL CORPORATION,
MAGNOLIA CHEMICAL & SOLVENTS, INC.,
AND RAYVER, INC.
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the Agreement
have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$7,692,985(1) ("Acquisition Consideration"), consisting of 359,006 shares of CLC
Stock and $2,307,895 in cash ("Cash Consideration"), it being agreed by CLC and
the Stockholders that the actual number of shares of CLC Stock shall remain
unchanged while the amount of Cash Consideration described in this Annex I will
depend on the actual initial public offering price of the CLC Stock, which may
be more or less than $15.00 per share; provided, however that the total
Acquisition Consideration shall not be less than the minimum value set forth
below. In the event the initial public offering price of CLC Stock is not $15.00
per share, the actual Cash Consideration to be paid will be determined by
multiplying Cash Consideration, as calculated assuming an initial public
offering price of $15.00 per share, by the actual initial public offering price
per share divided by $15.00.
- ----------
(1) Assuming a public offering price of $15.00 per share.
<PAGE> 103
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Percentage of
Company Shares of CLC Cash
Stockholders Shares Owned Common Stock(1) Consideration
------------ ------------ --------------- -------------
<S> <C> <C> <C>
Amalgamet, Inc. 100% 359,006 $ 2,307,895
</TABLE>
The actual consideration received by Amalgamet, Inc. will be allocated
by Amalgamet, Inc. as follows: $250,000 cash plus sufficient shares of CLC
Common Stock to give a total consideration for all the Stock of Rayver, Inc. of
$550,000 will be allocated in respect of all the Stock of Rayver, Inc.; the
balance of the actual consideration received will be allocated by value 58% to
all the Stock of Cron Chemical Corporation and 42% to all the Stock of Magnolia
Chemicals and Solvents, Inc., comprising as regards the Stock of Cron Chemical
Corporation, firstly, the balance of all the cash received from CLC and then
shares of CLC Common Stock, and, as regards the Stock of Magnolia, shares of CLC
Common Stock only.
MINIMUM VALUE $5,769,739 (9/12 of Acquisition Consideration)
- ----------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST $641,000 IN OPERATING CAPITAL WILL
BE PRESENT IN THE COMPANY AT CLOSING.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders agree that
the following assets may be removed from the Company prior to Closing, such
assets to become the property of the Stockholders:
None.
ALLOWABLE DIVIDENDS: With the exception of the following, no dividends will
be paid subsequent to March 31, 1998:
1) Dividends of $1,286,446.18, in respect of which provision has been
made in the Accounts as at March 31, 1998, have been paid in cash by
the Company subsequent to March 31, 1998; particulars are given in
Schedule 5.30.
2) Subsequent to March 31, 1998 Cron Chemical Corporation ("Cron")
dividended to the Stockholder, a $1 million working capital note and a
$1 million real estate note and Rayver, Inc. ("Rayver") dividended to
the Stockholder a $1 million real estate note. All
<PAGE> 104
such notes bear interest at 8% and become repayable within 90 days of
a change of control of the issuer; see also Schedule 5.30. CLC will
ensure Cron and Rayver repay such notes in full on time or will repay
them itself. CLC will also assume or repay any other company
indebtedness owed by the Company to the Stockholder or bank debt
supported by the Stockholder within 30 days of the Consummation Date.
3) In addition to the above dividends, Cron/Magnolia will declare and pay
a further dividend of (or dividends which the aggregate) US $207,000
after March 31, 1998 to the Stockholder in respect of the profits
earned during the quarter ended June 30, 1998.
OTHER:
1) Cron and/or Magnolia Chemicals & Solvents Inc. ("Magnolia") will pay
up to $190,000 in special management bonuses to certain key employees
prior to the Consummation Date. In addition bonuses of up to $53,000
have been accrued in respect of salesmen and management (other than
key employees receiving special management bonus) in respect of their
performance for the period October 1, 1997 to March 31, 1998, and such
will be paid on the authority of Mr. J.J. Sette after the Consummation
Date but not later than December 31, 1998 provided such employees have
not resigned or been terminated for cause before the Consummation
Date; see also Schedule 5.30.
2) The Stockholder will receive from Cron and/or Magnolia a management
fee of $47,000 for management services for the three month period from
April 1, 1998 to June 30, 1998.
3) As from the Consummation Date amounts may be (or become) due to the
Stockholder from the Company (i) for tax due under the Tax Sharing
Agreement (referred to in Schedule 5.30) in respect of the fiscal
period(s) from October 1, 1997 to the Consummation Date; and (ii) for
contributions due to the Stockholder's pension plan (referred to in
Schedules 5.19 and 5.30 and in which Cron and Magnolia are
participating companies) in respect of eligible employees of the
Company in relation to the calendar year 1998. CLC will ensure such
amounts are paid by the Company to the Stockholder.
AMALGAMET, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
---------------------------------
Name: Bruce W. Wilkinson
-------------------------------
Title: Chief Executive Officer
------------------------------
<PAGE> 105
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHEMICAL LOGISTICS CORPORATION
By:
-------------------------------------
Bruce W. Wilkinson
Chairman and Chief Executive Officer
A.C.C., INC. t/a AMERICAN CHEMICAL
COMPANY, INC.
EIN: 22-2086634
By: /s/ Stephen B. Fiverson
-------------------------------------
Stephen B. Fiverson
President
The undersigned hereby unconditionally and irrevocably guarantees to
CLC and the Company, and their respective successors and assigns, the
performance of all covenants, agreements, indemnification obligations and other
obligations owing by Colt Corporation now or hereafter existing under the
Agreement (all such obligations being the "Guaranteed Obligations"), and agrees
to pay any and all expenses (including reasonable counsel fees and expenses)
incurred by CLC or the Company in enforcing any rights under this guarantee.
Without limiting the generality of the foregoing, the undersigned's liability
shall extend to all amounts that constitute part of the Guaranteed Obligations
and would be owed by Colt Corporation to CLC or the Company under the
Agreement but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
Colt Corporation. CLC and the Company shall be required to exhaust their
remedies against Colt Corporation with respect to a Guaranteed Obligation
before making any claim or seeking to enforce any rights under this guaranty
against the undersigned with respect to that Guaranteed Obligation.
/s/ STEPHEN B. FIVERSON
------------------------------------
Stephen B. Fiverson
<PAGE> 106
ANNEX I
TO THE STOCK PURCHASE AGREEMENT (THE "AGREEMENT")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
A.C.C., INC., T/A AMERICAN CHEMICALS CO., INC.
AND ALL OF THE STOCKHOLDERS OF A.C.C., INC.
T/A AMERICAN CHEMICALS CO., INC.
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the
Agreement have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$7,706,616(1) ("Acquisition Consideration"), consisting of 462,397 shares of CLC
Stock and $770,661 in cash ("Cash Consideration"), it being agreed by CLC and
the Stockholders that the actual number of shares of CLC Stock shall remain
unchanged while the amount of Cash Consideration described in this Annex I will
depend on the actual initial public offering price of the CLC Stock, which may
be more or less than $15.00 per share; provided, however that the total
Acquisition Consideration shall not be less than the minimum value set forth
below. In the event the initial public offering price of CLC Stock is not
$15.00 per share, the actual Cash Consideration to be paid will be determined
by multiplying Cash Consideration, as calculated assuming an initial public
offering price of $15.00 per share, by the actual initial public offering price
per share divided by $15.00.
Consideration to be paid to the STOCKHOLDER[S]:
<TABLE>
<CAPTION>
Percentage of
Company Shares of CLC CASH
STOCKHOLDER[S] Shares Owned Common Stock(1) CONSIDERATION
-------------- ------------- --------------- -------------
<S> <C> <C> <C>
Colt Corporation 100% 462,397 $ 770,661
MINIMUM VALUE $ 5,779,962 (9/12 of Acquisition Consideration)
-------------- --------------- ---------------------------------
</TABLE>
- ---------------
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
- ---------------
(1) Assuming a public offering price of $15.00 per share.
Page 1 of Annex I
<PAGE> 107
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST $1,492,000 IN OPERATING CAPITAL
WILL BE PRESENT IN THE COMPANY AT THE CONSUMMATION DATE.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders agree
that the following assets may be removed from the Company prior to
Closing, such assets to become the property of the Stockholders:
Owners' cars, other personal assets not used in the business.
-----------------------------------------------------------------------
ALLOWABLE DIVIDENDS: With the exception of the following, since March
31, 1998, no dividends have been or will be paid by the Company:
After-tax profits for the quarter ending June 30, 1998.
COLT CORPORATION
By: /s/ STEPHEN B. FIVERSON
-------------------------------------
Name: Stephen B. Fiverson
-----------------------------------
Title:
----------------------------------
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
-------------------------------------
Name: Bruce W. Wilkinson
-----------------------------------
Title: Chief Executive Officer
----------------------------------
Page 2 of Annex I
<PAGE> 108
BROWN CHEMICAL CO., INC. STOCKHOLDERS:
The Brown Family LLC
<TABLE>
<S> <C>
By: /s/ ARTHUR H. BROWN
--------------------------------- ----------------------------
Arthur H. Brown EIN
Managing Director
302 West Oakland Avenue
Oakland, New Jersey 07436
/s/ ARTHUR H. BROWN
- ------------------------------------ ----------------------------
Arthur H. Brown Social Security Number
480 Carlton Road
Wyckoff, New Jersey 07481
/s/ DOUGLAS A. BROWN
- ------------------------------------ ----------------------------
Douglas A. Brown Social Security Number
10 Pinewood Drive
Ringwood, New Jersey 07456
/s/ PATRICK J. BROWN
- ------------------------------------ ----------------------------
Patrick J. Brown Social Security Number
19 Green Way
Mahwah, New Jersey 07430
</TABLE>
_
<PAGE> 109
<TABLE>
<S> <C>
/s/ MARIE C. LYLE
- ------------------------------------ ----------------------------
Marie C. Lyle Social Security Number
Shares Owned: 600
494 Fairfield Road
Wyckoff, New Jersey 07481
/s/ DAVID C. LYLE
- ------------------------------------ ----------------------------
David C. Lyle Social Security Number
Shares Owned: 1,400
150 West Oak Street
Ramsey, New Jersey 07446
BROWN REALTY INCORPORATED STOCKHOLDERS:
- --------------------------------------
Brown Chemical Co., Inc.
By: /s/ ARTHUR H. BROWN
--------------------------------- ----------------------------
Arthur H. Brown EIN
Chairman of the Board
Shares Owned: 83 1/3%
302 West Oakland
Oakland, New Jersey 07436
The Lyle Family Trust
By: /s/ DAVID C. LYLE
----------------------------
David C. Lyle EIN
Trustee
By: /s/ CYNTHIA RYMER
---------------------------------
Cynthia Rymer
Trustee
By: /s/ SUSAN DIORIO
---------------------------------
Susan Diorio
Trustee
Shares Owned: 16 2/3%
c/o David C. Lyle
150 West Oak Street
Ramsey, New Jersey 07446
</TABLE>
<PAGE> 110
TO THE STOCK PURCHASE AGREEMENT (THE "AGREEMENT")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
BROWN CHEMICAL CO., INC., BROWN REALTY INCORPORATED
AND ALL OF THE STOCKHOLDERS OF
BROWN CHEMICAL, CO., INC., BROWN REALTY INCORPORATED
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the
Agreement have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$15,355,9951 ("Acquisition Consideration"), consisting of 716,613 shares of CLC
Stock and $4,606,800 in cash ("Cash Consideration"), it being agreed by CLC and
the Stockholders that the actual number of shares of CLC Stock shall remain
unchanged while the amount of Cash Consideration described in this Annex I will
depend on the actual initial public offering price of the CLC Stock, which may
be more or less than $15.00 per share; provided, however that the total
Acquisition Consideration shall not be less than the minimum value set forth
below. In the event the initial public offering price of CLC Stock is not
$15.00 per share, the actual Cash Consideration to be paid will be determined
by multiplying Cash Consideration, as calculated assuming an initial public
offering price of $15.00 per share, by the actual initial public offering price
per share divided by $15.00.
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
Number of Percentage of
Company Company Shares of CLC Cash
Stockholder[s] Shares Owned Shares Owned Common Stock(1) Consideration
- -------------- ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
Arthur H. Brown 600 11.2% 20,000.00 1,419,871.42
Douglas A. Brown 1,200 22.4% 190,651.64 579,968.61
Patrick J. Brown 1,200 22.4% 190,651.64 579,968.61
</TABLE>
- --------------------
1 Assuming a public offering price of $15.00 per share.
Page 1 of Annex I
<PAGE> 111
ANNEX I
<TABLE>
<S> <C> <C> <C> <C>
Marie C. Lyle 600 11.2% 30,000.00 1,269,871.39
David C. Lyle 1,400 26.1% 237,297.00 447,915.23
Irrevocable trust for
two daughters of
Marie C. Lyle; David
C. Lyle Trustee 357 6.7% 48,012.72 309,204.74
----- ------ ---------- -------------
Total 5,357 100.0% 716,613.00 $4,606,800.00
===== ====== ========== =============
</TABLE>
MINIMUM VALUE $11,516,996 (9/12 of Acquisition Consideration)
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
(2) Share count is a proxy to bring the ratio between Brown/Lyle ownership
to 56% and 44%, respectively.
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST $4,269,000 IN OPERATING CAPITAL
WILL BE PRESENT IN THE COMPANY AT CLOSING.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders agree
that the following assets may be removed from the Company prior to
Closing, such assets to become the property of the Stockholders:
Owners' cars, personal property not used in the operation of the
business.
-----------------------------------------------------------------------
ALLOWABLE DIVIDENDS: With the exception of the following, no dividends
will be paid subsequent to March 31, 1998:
Dividend of after-tax profits for the quarter ended June 30, 1998.
OTHER:
1) The salary continuation agreement for Art Brown will be
settled with an $800,000 cash payment at closing.
2) The salary continuation agreement for Marie Lyle will be
settled with a $700,000 cash payment at closing.
3) Art Brown will receive a two-year consulting contract calling
for payments to him of $50,000 per year.
4) Certain insurance policies will be kept in force under the
terms of the Life Insurance Agreement.
<PAGE> 112
ANNEX I
<TABLE>
<S> <C>
STOCKHOLDERS
THE BROWN FAMILY L.L.C.
By: /s/ ARTHUR H. BROWN
---------------------------------
Arthur H. Brown
Managing Director
/s/ ARTHUR H. BROWN
------------------------------------
Arthur H. Brown
/s/ DOUGLAS A. BROWN
------------------------------------
Douglas A. Brown
/s/ PATRICK J. BROWN
---------------------------------
Patrick J. Brown
/s/ MARIE C. LYLE
---------------------------------
Marie C. Lyle
/s/ DAVID C. LYLE
---------------------------------
David C. Lyle
BROWN CHEMICAL CO., INC.
By: /s/ ARTHUR H. BROWN
------------------------------
Arthur H. Brown
Chairman of the Board
</TABLE>
<PAGE> 113
ANNEX I
<TABLE>
<S> <C>
THE LYLE FAMILY TRUST
By: /s/ DAVID C. LYLE
------------------------------
David C. Lyle
Trustee
By: /s/ CYNTHIA RYMER
------------------------------
Cynthia Rymer
Trustee
By: /s/ SUSAN DIORIO
------------------------------
Susan Diorio
Trustee
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
---------------------------------
Name: Bruce W. Wilkinson
-------------------------------
Title: Chief Executive Officer
------------------------------
</TABLE>
<PAGE> 114
G.S. ROBINS & COMPANY STOCKHOLDERS:
G. Stephen Robins Revocable Trust
Dated April 10, 1992
By: G. Stephen Robins, Trustee
<TABLE>
<S> <C>
/s/ G. STEPHEN ROBINS
- -------------------------------------- ----------------------------
G. Stephen Robins Social Security Number
8 Huntleigh Downs
St. Louis, Missouri 63131
/s/ SETH A. ROBINS
- -------------------------------------- ----------------------------
Seth A. Robins Social Security Number
2533 S. Warson
St. Louis, Missouri 63124
"Boatmen's Trust Company CO
TR G.K. ROBINS TRUST U/W FBO
Marjorie M. Robins"
By: Nationsbank, Trustee
/s/ WILLIS WOMACK
- -------------------------------------- ----------------------------
Name: Willis Womack EIN
Title: Vice President
Nationsbank
P.O. Box 14633
St. Louis, Missouri 63178-4633
Co-Trustee
/s/ MARJORIE M. ROBINS
- --------------------------------------
Marjorie M. Robins
45 Loren Woods
Ladue, Missouri 63124
</TABLE>
<PAGE> 115
<TABLE>
<S> <C>
/s/ EUGENE S. WEIL
- -------------------------------------- ----------------------------
Eugene S. Weil Social Security Number
1056 Franz Drive
Lake Forest, Illinois 60045-3647
/s/ NANCY W. STEELE
- -------------------------------------- ----------------------------
Nancy W. Steele Social Security Number
18 Morwood Lane
St. Louis, Missouri 63141
/s/ DONALD R. CONROY
- -------------------------------------- ----------------------------
Donald R. Conroy Social Security Number
1949 Roth Lane
St. Louis, Missouri 63131
/s/ DEBORAH M. ROBINS
- -------------------------------------- ----------------------------
Deborah M. Robins Social Security Number
8 Huntleigh Downs
St. Louis, Missouri 63131
/s/ DOUGLAS M. KUTZ
- -------------------------------------- ----------------------------
Douglas M. Kutz Social Security Number
13 Fircrest
Fenton, Missouri 63026
/s/ CARL B. COCHRAN
- -------------------------------------- ----------------------------
Carl B. Cochran Social Security Number
7733 Kingsbury
St. Louis, Missouri 63105
</TABLE>
<PAGE> 116
ANNEX I
TO THE STOCK PURCHASE AGREEMENT (THE "AGREEMENT")
DATED AS OF JULY 20, 1998
BY AND AMONG
CHEMICAL LOGISTICS CORPORATION ("CLC")
G.S. ROBINS AND COMPANY
AND ALL OF THE STOCKHOLDERS OF G.S. ROBINS & COMPANY
ACQUISITION CONSIDERATION TO BE PAID
TO THE STOCKHOLDERS BY CLC
This is the Annex I referred to in the Agreement. Terms defined in the
Agreement have the same meaning herein unless stated otherwise.
THE AGGREGATE ACQUISITION CONSIDERATION TO BE PAID TO STOCKHOLDERS BY CLC SHALL
(SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT) BE:
$23,962,0051 ("Acquisition Consideration"), consisting of 1,118,227 shares of
CLC Stock and $7,188,600 in cash ("Cash Consideration"), it being agreed by CLC
and the Stockholders that the actual number of shares of CLC Stock shall remain
unchanged while the amount of Cash Consideration described in this Annex I will
depend on the actual initial public offering price of the CLC Stock, which may
be more or less than $15.00 per share; provided, however that the total
Acquisition Consideration shall not be less than the minimum value set forth
below. In the event the initial public offering price of CLC Stock is not
$15.00 per share, the actual Cash Consideration to be paid will be determined
by multiplying Cash Consideration, as calculated assuming an initial public
offering price of $15.00 per share, by the actual initial public offering price
per share divided by $15.00.
____________________
(1) Assuming an initial public offering price of $15.00 per share.
Page 1 of Annex I
<PAGE> 117
ANNEX I
Consideration to be paid to the STOCKHOLDERS:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
COMPANY COMPANY SHARES OF CLC CASH
STOCKHOLDERS SHARES OWNED SHARES OWNED COMMON STOCK(1) CONSIDERATION
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
G. Stephen Robins
Revocable Trust
Dated April 10, 1992 10,398 67.8% 757,726 $4,871,103
Seth A. Robins 3,334 21.7% 242,957 1,561,864
Boatmen's Trust
Company CO TR
G.K. ROBINS TRUST
U/W FBO
Marjorie M. Robins 787 5.1% 57,351 368,682
Eugene S. Well 352 2.3% 25,651 164,900
Nancy W. Steele 176 1.1% 12,826 82,450
Donald R. Conroy 231 1.5% 16,834 108,215
Deborah M. Robins 31 0.2% 2,259 14,522
Douglas M. Kutz 20 0.1% 1,457 9,369
Carl B. Cochran 16 0.1% 1,166 7,495
------ ------ --------- ----------
15,345 100.0% 1,118,227 $7,188,600
====== ====== ========= ==========
</TABLE>
MINIMUM VALUE $ 17,971,504 (9/12 of Acquisition Consideration)
(1) After giving effect to the proposed stock split described in the Draft
Registration Statement.
REQUIRED COMPANY OPERATING CAPITAL: AT LEAST $5,850,000 IN OPERATING
CAPITAL WILL BE PRESENT IN THE COMPANY AT THE CONSUMMATION DATE.
ASSETS TO BE REMOVED FROM THE COMPANY: CLC and the Stockholders agree
that the following assets may be removed from the Company prior to
Closing, such assets to become the property of the Stockholders:
Owners' cars, personal effects not used in the business.
ALLOWABLE DIVIDENDS: With the exception of the following, since March
31, 1998, no dividends have been or will be paid by the Company:
Page 2 of Annex I
<PAGE> 118
ANNEX I
1) A distribution of approximately $30,000 relating to 1997
S-Corporation profits.
2) Pretax profits for the quarter ended June 30, 1998.
3) Taxes on S-Corporation profits for the period June 30, 1998
through closing.
OTHER:
1) Approximately $1,705,000 will be paid from the Company to a
former shareholder to settle a noncompete agreement,
consulting obligation and a note.
2) $823,000 in cash will be paid from the company to settle
bonus, severance, tax grossup and other obligations to owners.
3) Approximately $90,000 will be used to purchase company cars
which will be transferred to shareholders.
STOCKHOLDERS
G. Stephen Robins Revocable Trust Dated April 10, 1992
By: G. Stephen Robins, Trustee
/s/ G. STEPHEN ROBINS
------------------------------------------------
G. Stephen Robins
/s/ SETH A. ROBINS
-------------------------------------------------------
Seth A. Robins
"Boatmen's Trust Company CO TR G.K. ROBINS TRUST
U/W FBO Marjorie M. Robins"
By: Nationsbank, Trustee
/s/ WILLIS WOMACK
------------------------------------------------
Willis Womack
Vice President
Co-Trustee
/s/ MARJORIE M. ROBINS
------------------------------------------------
Page 3 of Annex I
<PAGE> 119
ANNEX I
<TABLE>
<S> <C>
Marjorie M. Robins
/s/ EUGENE S. WEIL
-----------------------------------------------
Eugene S. Weil
/s/ NANCY W. STEELE
-----------------------------------------------
Nancy W. Steele
/s/ DONALD R. CONROY
-----------------------------------------------
Donald R. Conroy
/s/ DEBORAH M. ROBINS
-----------------------------------------------
Deborah M. Robins
/s/ DOUGLAS M. KUTZ
-----------------------------------------------
Douglas M. Kutz
/s/ CARL B. COCHRAN
-----------------------------------------------
Carl B. Cochran
</TABLE>
Page 4 of Annex I
<PAGE> 120
ANNEX I
<TABLE>
<S> <C>
CHEMICAL LOGISTICS CORPORATION
By: /s/ BRUCE W. WILKINSON
--------------------------------------------
Name: Bruce W. Wilkinson
-----------------------------------------
Title: Chief Executive Officer
----------------------------------------
</TABLE>
Page 5 of Annex I
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
CHEMICAL LOGISTICS CORPORATION
Chemical Logistics Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware ("DGCL"), hereby certifies as follows pursuant to
Sections 242 and 245 of the DGCL:
1. The original Certificate of Incorporation of the Corporation was filed
under the name of National Powerboat Co., Inc. in the Office of the Secretary
of State of the State of Delaware (the "Secretary of State") on July 15, 1997.
Certificates of Amendment were filed with the Secretary of State on February 6,
1998 and February 17, 1998. The Amended and Restated Certificate of
Incorporation was filed with the Secretary of State on March 12, 1998.
2. The director and the stockholders of the Corporation, in accordance
with Sections 242 and 245 of the DGCL, adopted and approved this Amended and
Restated Certificate of Incorporation (including the amendments to the
Corporation's Certificate of Incorporation effected hereby).
3. Effective immediately upon the filing of this Second Amended and
Restated Certificate of Incorporation in the office of the Secretary of State,
each outstanding share of previously existing Common Stock, par value $0.01 per
share, shall be and hereby is converted into and reclassified as 16.59366
shares of Common Stock, par value $0.01 per share, each fractional share to be
rounded to the next whole number of shares. Certificates representing
reclassified shares are hereby canceled and upon presentation of the canceled
certificates to the Corporation, the holders thereof shall be entitled to
receive certificate(s) representing the new shares into which such canceled
shares have been converted.
4. The Certificate of Incorporation of the Corporation is hereby amended
and restated to read in its entirety as follows:
1. The name of the Corporation is Chemical Logistics Corporation.
2. The address of its registered office in the State of Delaware
is 1209 Orange Street, Wilmington County of New Castle, Delaware 19801. The
name of its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Laws of the State of Delaware.
4. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is sixty million (60,000,000),
consisting of ten million (10,000,000) shares of
<PAGE> 2
preferred stock par value $.01 per share (hereinafter called "Preferred
Stock"), and fifty million (50,000,000) shares of common stock, par value $.01
per share (hereinafter called "Common Stock").
(a) The Preferred Stock may be issued from time to time
in one or more series and in such amounts as may be determined by the
Board of Directors. The voting powers, designations, preferences and
relative, participating, optional or other special rights, if any, and
the qualifications, limitations, or restrictions thereof, if any, of
the Preferred Stock of each series shall be such as are fixed by the
Board of Directors, authority so to do being hereby expressly granted,
and as are stated and expressed in a resolution or resolutions adopted
by the Board of Directors providing for the issue of such series of
Preferred Stock (herein called the "Directors' Resolution"). The
Directors' Resolution as to any series shall (1) designate the series,
(2) fix the dividend rate, if any, of such series, establish whether
dividends shall be cumulative or non-cumulative, fix the payment dates
for dividends on shares of such series and the date or dates, or the
method of determining the date or dates, if any, from which dividends
on shares of such series shall be cumulative, (3) fix the amount or
amounts payable on shares of such series upon voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, and (4) state the price or prices or rate or rates, and
adjustments, if any, at which, the time or times and the terms and
conditions upon which, the shares of such series may be redeemed at
the option of the Corporation or at the option of the holder or
holders of shares of such series or upon the occurrence of a specified
event, and state whether such shares may be redeemed for cash,
property or rights, including securities of the Corporation or another
entity; and such Directors' Resolutions may (i) limit the number of
shares of such series that may be issued, (ii) provide for a sinking
fund for the purchase or redemption of shares of such series and
specify the terms and conditions governing the operations of any such
fund, (iii) grant voting rights to the holders of shares of such
series, (iv) impose conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance of additional
Preferred Stock or other capital stock ranking on a parity therewith,
or prior thereto, with respect to dividends or distributions of assets
upon liquidation, (v) impose conditions or restrictions upon the
payment of dividends upon, or the making of other distributions to, or
the acquisition of, shares ranking junior to the Preferred Stock or to
any series thereof with respect to dividends or distributions of
assets upon liquidation, (vi) state the time or times, the price or
prices or the rate or rates of exchange and other terms, conditions
and adjustments upon which shares of any such series may be made
convertible into, or exchangeable for, at the option of the holder or
the Corporation or upon the occurrence of a specified event, shares of
any other class or classes or of any other series of Preferred Stock
or any other class or classes of stock or other securities of the
Corporation, and (vii) grant such other special rights and impose such
qualifications, limitations or restrictions thereon as shall be fixed
by the Board of Directors, to the extent not inconsistent with this
Section 4 and to the full extent now or hereafter permitted by the
laws of the State of Delaware.
-2-
<PAGE> 3
Except as by law expressly provided, or except as may be
provided in any Directors' Resolution, the Preferred Stock shall have
no right or power to vote on any question or in any proceeding or to
be represented at, or to receive notice of, any meeting of
stockholders of the Corporation.
Preferred Stock that is redeemed, purchased or retired by the
Corporation shall assume the status of authorized but unissued
Preferred Stock and may thereafter, subject to the provisions of any
Directors' Resolution providing for the issue of any particular series
of Preferred Stock, be reissued in the same manner as authorized but
unissued Preferred Stock.
(b) Subject to the preferred rights of the holders of
shares of any class or series of Preferred Stock as provided by the
Board of Directors with respect to any such class or series of
Preferred Stock, the holders of the Common Stock shall be entitled to
receive, as and when declared by the Board of Directors out of the
funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may
from time to time determine, payable to stockholders of record on such
dates, not exceeding 60 days preceding the dividend payment dates, as
shall be fixed for such purpose by the Board of Directors in advance of
payment of each particular dividend.
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after the
distribution or payment to the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with
respect to any such class or series of Preferred Stock, the remaining
assets of the Corporation available for distribution to stockholders
shall be distributed among and paid to the holders of Common Stock
ratably in proportion to the number of shares of Common Stock held by
them.
Except as otherwise required by law, each holder of shares of
Common Stock shall be entitled to one vote for each share of Common
Stock standing in such holder's name on the books of the Corporation.
(c) The Corporation shall be entitled to treat the person
in whose name any share of its stock is registered as the owner
thereof for all purposes and shall not be bound to recognize any
equitable or other claim to, or interest in, such share on the part of
any other person, whether or not the Corporation shall have notice
thereof, except as expressly provided by applicable laws.
5. The Board of Directors is hereby authorized to create and
issue, whether or not in connection with the issuance and sale of any of its
stock or other securities, rights (the "Rights") entitling the holders thereof
to purchase from the Corporation shares of capital stock or other securities.
The times at which and the terms upon which the Rights are to be issued will be
determined by the Board of Directors and set forth in the contracts or
instruments that evidence the
-3-
<PAGE> 4
Rights. The authority of the Board of Directors with respect to the Rights
shall include, but not be limited to, determination of the following:
(a) The initial purchase price per share of the capital
stock or other securities of the Corporation to be purchased upon
exercise of the Rights;
(b) Provisions relating to the times at which and the
circumstances under which the Rights may be exercised or sold or
otherwise transferred, either together with or separately from, any
other securities of the Corporation;
(c) Provisions that adjust the number or exercise price
of the Rights or amount or nature of the securities or other property
receivable upon exercise of the Rights in the event of a combination,
split or recapitalization of any capital stock of the Corporation, a
change in ownership of the Corporation's securities or a
reorganization, merger, consolidation, sale of assets or other
occurrence relating to the Corporation or any capital stock of the
Corporation, and provisions restricting the ability of the Corporation
to enter into any such transaction absent an assumption by the other
party or parties thereto of the obligations of the Corporation under
such Rights;
(d) Provisions that deny the holder of a specified
percentage of the outstanding securities of the Corporation the right
to exercise the Rights and/or cause the Rights held by such holder to
become void;
(e) Provisions that permit the Corporation to redeem the
Rights; and
(f) The appointment of a Rights Agent with respect to the
Rights;
and such other provisions relating to the Rights as may be determined
by the Board of Directors.
6. No holder of stock of the Corporation shall be entitled as of
right to purchase or subscribe for any part of any unissued stock of the
Corporation or any additional stock to be issued whether or not by reason of
any increase of the authorized capital stock of the Corporation, or any bonds,
certificates of indebtedness, debentures or other securities convertible into
stock or such additional authorized issuance of new stock, but rather such
stock, bonds, certificates of indebtedness, debentures and other securities may
be issued and disposed of pursuant to resolution of the Board of Directors to
such persons, firms, corporations or associations, and upon such terms as may
be deemed advisable by the Board of Directors in the exercise of their
discretion.
7. The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
creating, defining, limiting and regulating the powers of the Corporation, the
directors and the stockholders.
-4-
<PAGE> 5
(a) Subject to any limitation contained in the bylaws,
the Board of Directors may make bylaws, and from time to time may
alter, amend or repeal any bylaws, but any bylaws made by the Board of
Directors may be altered, amended or repealed by the stockholders at
any meeting of stockholders by the affirmative vote of the holders of
at least 66 2/3% of the outstanding shares entitled to vote thereon,
provided notice that an amendment is to be considered and acted upon
is inserted in the notice of waiver of notice of such meeting.
(b) Any vote or votes authorizing liquidation of the
Corporation or proceedings for its dissolution may provide, subject to
(i) any agreements among and between stockholders, (ii) the rights of
creditors and (iii) rights expressly provided for particular classes
or series of stocks, for the distribution pro rata among the
stockholders of the Corporation of the assets of the Corporation,
wholly or in part in kind, whether such assets be in cash or other
property, and may authorize the Board of Directors of the Corporation
to determine the value of the different assets of the Corporation for
the purpose of such liquidation and may divide such assets or any part
thereof among the stockholders of the Corporation in such manner that
every stockholder will receive a proportionate amount in value
(determined as aforesaid) of cash or property of the Corporation upon
such liquidation or dissolution even though each stockholder may not
receive a strictly proportionate part of each such asset.
(c) The Corporation shall, to the maximum extent
permitted from time to time under the General Corporation Law of the
State of Delaware, indemnify and upon request shall advance expenses
to any person who is or was a party or is threatened to be made a
party to any threatened, pending or contemplated action, suit,
proceeding or claim, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was or has agreed
to be a director or officer of the Corporation, or while a director or
officer 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, including
service with respect to employee benefit plans, against expenses
(including attorneys' fees and expenses), judgments, fines, penalties
and amounts paid in settlement or incurred in connection with the
investigation, preparation to defend or defense of such action, suit,
proceeding or claim, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was or has agreed
to be a director or officer of the Corporation, or while a director or
officer 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, including
service with respect to employee benefit plans, against expenses
(including attorneys' fees and expenses), judgments, fines, penalties
and amounts paid in settlement or incurred in connection with the
investigation, preparation to defend or defense of such action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such
person. Such indemnification shall not be exclusive of other
indemnification rights arising under any bylaw, agreement, vote of
directors or stockholders or otherwise and shall inure to the benefit
of the heirs and legal representatives of such person. Any repeal or
modification of the foregoing provisions of this Section 7(c) shall be
prospective only, and shall not adversely
-5-
<PAGE> 6
affect any right or protection of a director or officer of the
Corporation existing at the time of such repeal or modification.
(d) A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law
of the State of Delaware, as so amended. Any repeal or modification
of this Section by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the
time of such repeal or modification.
8. Subject to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional directors under specific circumstances:
(a) after October 31, 1998, any action required or
permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders of
the Corporation and may not be effected by any consent in writing of
such stockholders;
(b) special meetings of the stockholders of the
Corporation may be called only by the Chairman of the Board of
Directors and shall be called within ten (10) days after receipt of
the written request of the Board of Directors, pursuant to a
resolution approved by a majority of the whole Board of Directors; and
(c) the business permitted to be conducted at any special
meeting of the stockholders is limited to the business brought before
the meeting by the Chairman or by the Secretary at the request of a
majority of the Board of Directors.
9. The number of directors which shall constitute the whole board
shall be such as from time to time shall be fixed by, or in the manner provided
in, the bylaws, but in no case shall the number be less than two nor more than
15.
The directors shall be classified with respect to the time for which
they shall severally hold office by dividing them into three classes which
classes shall consist of an equal, or as near to equal as possible, number of
directors. As to the initial election, the director or directors of the first
class
-6-
<PAGE> 7
shall be elected for a term expiring at the annual meeting of stockholders to
be held in 1999; the director or directors of the second class for a term
expiring at the annual meeting to be held in 2000; and the director or
directors of the third class for a term expiring at the annual meeting to be
held in 2001. At each annual meeting, commencing with the annual meeting in
1999, the successor or successors to the class of directors whose term shall
expire in that year shall be elected to hold office for the term of three
years, so that the term of office or one class of directors shall expire in
each year. Any increase or decrease in the number of directors constituting
the Board shall be apportioned among the classes so as to maintain the number
of directors in each class as near as possible to one-third the whole number of
directors as so adjusted. Any director elected or appointed to fill a vacancy
shall hold office for the remaining term of the class to which such
directorship is assigned. No decrease in the number of directors constituting
the Corporation's Board of Directors shall shorten the term of any incumbent
director. Any vacancy in the Board of Directors, whether arising through
death, resignation or removal of a director, or through an increase in the
number of directors of any class, shall be filled by the majority vote of the
remaining directors, although less than a quorum, or by a sole remaining
director. The bylaws may contain any provision regarding classification of the
Corporation's directors not inconsistent with the terms hereof. The right to
cumulate votes in the election of directors is expressly prohibited.
A director of the Corporation may be removed only for cause
and only upon the affirmative vote of the holders of 66 2/3 percent of the
outstanding capital stock of the Corporation entitled to vote at an election of
directors, subject to further restrictions on removal, not inconsistent with
this Section 9, as may be contained in the bylaws.
Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of the Directors' Resolutions applicable thereto, and such
directors so elected shall not be subject to the provisions of this Section 9
unless expressly provided by such terms.
10. Election of directors need not be by written ballot
unless the bylaws of the Corporation shall so provide. Meetings of
stockholders may be held within or without the State of Delaware, as the bylaws
may provide. The books of the Corporation may be kept (subject to any
provisions contained in the statutes of the State of Delaware) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or the bylaws of the Corporation.
11. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation
in the manner set forth below, and all rights and conferred upon the directors
or stockholders of the Corporation herein or in any amendment hereof are
granted subject to this reservation.
-7-
<PAGE> 8
The affirmative vote of the holders of at least 75% of the
then outstanding shares entitled to vote thereon and the affirmative vote of
the holders of at least 75% of the then outstanding shares of each class of
stock of the Corporation voting separately as a class, shall be required to
adopt any amendment to Sections 5, 7, 8, 9 and 11 of the Certificate of
Incorporation of the Corporation.
The affirmative vote of the holders of at least a majority of
the then outstanding shares entitled to vote thereon and the affirmative vote
of the holders of at least a majority of the then outstanding shares of each
class of stock of the Corporation voting separately as a class, shall be
required to adopt any amendment to Sections 1, 2, 3, 4, 6 and 10 of the
Certificate of Incorporation of the Corporation.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed for and on behalf of the Corporation by its
officers thereunto duly authorized as of July 20, 1998.
/s/ BRUCE W. WILKINSON
--------------------------------
Name: Bruce W. Wilkinson
---------------------------
Title: Chief Executive Officer
--------------------------
-8-
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
CHEMICAL LOGISTICS CORPORATION
(AS AMENDED)
<PAGE> 2
ARTICLE I
OFFICES
Section 1. The registered office of Chemical Logistics Corporation
(the "Corporation") shall be in the City of Wilmington, County of New Castle,
State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and without the state of Delaware as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
Directors shall be held at such place as may be fixed from time to time by the
Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof
Section 2. Annual meetings of stockholders shall be held on such date
and at such time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. At the annual meeting, the
stockholders shall elect by a plurality vote the Directors pursuant to Article
III of these Bylaws, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to a
vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting
by or at the direction of the Board of Directors, or (iii) otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given notice thereof in writing to the Secretary of the Corporation in
accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as
amended.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be
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brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 3.
The presiding officer of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with this Section 3, and if the
presiding officer should so determine, the presiding officer shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 5. Special meetings of the stockholders for any purpose may
be called only by the Chairman of the Board of Directors and shall be called
within 10 days after receipt of the written request of the Board of Directors,
pursuant to a resolution approved by a majority of the entire Board of
Directors. The business permitted to be conducted at any special meeting of
the stockholders is limited to the business brought before the meeting by the
Chairman or by the Secretary at the request of a majority of the entire Board
of Directors.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting, and the purpose or purposes for which the meeting
is called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. The holders of a majority of the stock issued, outstanding
and entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented.
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Section 8. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting, except as otherwise required
by this Section 8, if the time and place thereof are announced at the meeting
at which the adjournment is taken. At such adjourned meeting the Corporation
may transact any business which might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. If a quorum exists, action on a matter (other than the
election of directors) shall be approved if the votes cast in favor of the
matter exceed the votes cast opposing the matter. In determining the number of
votes cast, shares abstaining from voting or not voted on a matter will not be
treated as votes cast. The provisions of this paragraph will govern with
respect to all votes of stockholders except as otherwise provided for in these
Bylaws or in the certificate of incorporation or by a specific statutory
provision superseding the provisions contained in these Bylaws or the
certificate of incorporation.
Section 10. Each stockholder shall at every meeting of the
stockholders, subject to any restriction or qualification set forth in the
Certificate of Incorporation, be entitled to one vote in person or by proxy for
each share of the capital stock having voting power held by such stockholder,
but no proxy shall be voted after three years from its date, unless the proxy
provides for a longer period.
Section 11. After October 31, 1998, any action required or permitted
to be taken by the stockholders of the Corporation must be affected at a duly
called annual or special meeting of stockholders of the Corporation and may not
be effected by any consent in writing of such stockholders.
Section 12. At each meeting of stockholders, the Chairman or
Vice-Chairman of the Board of Directors shall preside, and the secretary shall
keep records, and in the absence of either such officer, his duty shall be
performed by a person appointed at the meeting.
ARTICLE III
DIRECTORS
Number, Nomination, Removal
Section 1. The number of Directors shall be fixed from time to time
by the Board of Directors, but shall not be less than two nor more than 15
persons. The Directors shall be elected at the annual meeting of the
stockholders in accordance with the provisions of Section 2 of this Article,
and each Director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
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Section 2. Subject to the rights of holders of any class or series of
stock, nominations for the election of Directors may be made by the Board of
Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of Directors generally. Any
stockholder entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than 80
days prior to the date of any annual or special meeting. In the event that the
date of such annual or special meeting was not publicly announced by the
Corporation by mail, press release or otherwise more than 90 days prior to the
meeting, notice by the stockholder to be timely must be delivered to the
Secretary of the Corporation not later than the close of business on the tenth
day following the day on which such announcement of the date of the meeting was
communicated to the stockholders.
Each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board of Directors, and (e) the consent of each nominee
to serve as a Director of the Corporation if so elected.
If the presiding officer of the meeting for the election of Directors
determines that a nomination of any candidate for election as a Director at
such meeting was not made in accordance with the applicable provisions of these
Bylaws, such nomination shall be void.
Section 3. Subject to the rights of the holders of any class or
series of stock to elect additional Directors under specified circumstances,
newly created directorships resulting from any increase in the number of
Directors and any vacancy on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors. or by a sole
remaining Director. Any Director elected or chosen as provided herein shall
hold office until the sooner of the following events: (i) the expiration of the
term of the directorship to which he is appointed, (ii) such time as his
successor is elected and qualified or (iii) his resignation or removal. No
decrease in the number of Directors constituting the Board of Directors shall
shorten the term of an incumbent Director.
Section 4. Subject to the rights of the holders of any class or
series of stock to elect additional Directors under specified circumstances,
any Director may be removed from office only for cause by the stockholders in
the manner provided in this Section 4. At any annual meeting of the
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stockholders of the Corporation or at any special meeting of the stockholders
of the Corporation, the notice of which shall state that the removal of a
Director or Directors is among the purposes of the meeting, the affirmative
vote of the holders of at least 66 2/3 percent of the combined voting power of
the outstanding shares of Voting Stock (as defined below), voting together as a
single class, may remove such Director or Directors for cause.
For the purpose of this Section 4, "Voting Stock" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors. In any vote required by or provided
for in this Section 4, each share of Voting Stock shall have the number of
votes granted to it generally in the election of Directors.
Section 5. The business of the Corporation shall be managed by its
Board of Directors, which may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the certificate
of incorporation or by these Bylaws directed or required to be exercised or
done by the stockholders.
Meetings of the Board of Directors
Section 6. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 7. Meetings of the Board of Directors may be held at such
time and place as shall be specified in a notice given in the manner
hereinafter provided, or as shall be specified in a written waiver signed by
all of the Directors.
Section 8. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board of Directors.
Section 9. Special meetings of the Board of Directors may be called
by the Chairman of the Board on 24 hours' notice to each Director, either
personally or by telecopy or telegram; special meetings shall be called by the
president, chief executive officer or secretary in like manner and on like
notice on the written request of three Directors.
Section 10. Except as provided in these Bylaws to the contrary, at
all meetings of the board a majority of the total number of Directors shall
constitute a quorum for the transaction of business and the vote of a majority
of the Directors entitled to vote and present at a meeting at which a quorum is
present shall be the act of the Board of Directors, unless the certificate of
incorporation shall require a vote of a greater number. If a quorum shall not
be present at any meeting of the Board of Directors, the Directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any
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committee thereof, may be taken without a meeting, if all members of the board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board of Directors
or committee.
Section 12. At all meetings of the Board of Directors, business shall
be transacted in such order as from time to time the Board of Directors may
determine.
At all meetings of the Board of Directors, the Chairman or
Vice-Chairman of the Board of Directors shall preside, and in the absence of
either such Director a person shall be chosen by the board from among the
Directors present to act as chairman of the meeting.
The secretary of the Corporation shall act as secretary of the meeting
of the Board of Directors, but in the absence of the secretary, the presiding
officer may appoint any person to act as secretary of the meeting.
Executive Committee; Committees of Directors
Section 13. The Company shall have an Executive Committee of the
Board of Directors and Company that shall consist of the following persons
whether or not they are directors of the Company: the Chief Executive Officer,
the President and the Chief Operating Officers. The Executive Committee will
be responsible for, shall meet on a regular basis to consult and make decisions
regarding, and shall have oversight authority of the daily operational
management of the Company. The Executive Committee shall periodically report
to the Board of Directors.
The Board of Directors may, by resolution adopted by a majority of the
whole board, designate one (1) or more additional committees, each committee to
consist of one (1) or more Directors. The board may designate one (1) or more
directors as alternate members of any committee, who may replace any absent or
disqualified member of any meeting of the committee. In the absence or
disqualification of a member, and the alternate or alternates, if any,
designated for such member, of any committee, the member or members thereof
present at the meetings and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another director to act at
the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any bylaw of
the Corporation. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors.
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Section 14. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors.
Compensation of Directors
Section 15. The Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
or retainer as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever notice is required to be given to any Director or
stockholder pursuant to a statutory provision or the certificate of
incorporation or these Bylaws, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
Director or stockholder, at his address as it appears in the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to Directors may also be given personally or by telegram or
telecopy.
Section 2. Whenever notice is required to be given pursuant to a
statutory provision or the certificate of incorporation or Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the
Board of Directors and shall be the Chairman of the Board of Directors, a chief
executive officer, a president, a vice president, a secretary and a treasurer.
The Board of Directors may also appoint a chief operating officer, additional
vice presidents and one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the certificate of
incorporation or these Bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a Chairman of the Board of
Directors, a chief executive officer, a president, a chief operating officer,
one or more vice presidents, a secretary and a treasurer.
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Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
The Chairman of the Board of Directors
Section 6. The Chairman of the Board of Directors of the Corporation
shall preside at all meetings of stockholders and the Board of Directors. He
shall perform such duties and have such powers as usually appertain to the
office or as the Board of Directors may from time to time prescribe.
The Chief Executive Officer
Section 7. The Chief Executive Officer shall be a senior officer of
the Corporation and shall perform such duties and have such powers as usually
appertain to the office or as the Board of Directors may from time to time
prescribe. He shall have the authority to execute all documents and
instruments necessary to carry out the management of the business of the
Corporation. He shall report to the Board of Directors.
The President
Section 8. The president of the Corporation shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. He
shall have the authority to execute all documents and instruments necessary to
carry out the management of the business of the Corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
this Corporation. He shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe. He shall
report to the Board of Directors.
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The Chief Operating Officer
Section 9. The chief operating officer of the Corporation shall be
responsible for the day-to-day operations of the Corporation and shall have the
authority to execute all documents and instruments necessary to carry out such
operations. He shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe. They shall report to
the Board of Directors.
The Vice Presidents
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice president (or in the event there is more
than one, the vice presidents in the order determined by the Board of
Directors, or, if there be no such determination, then in the order of their
election), shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions imposed upon the
president. The vice presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
The Secretary and the Assistant Secretary
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings to be kept for that purpose and shall perform like duties for
the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or president, under whose supervision he shall be. He shall
have custody of the corporate seal of the Corporation, if any such seal be
adopted by resolution of the Board of Directors, and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the signature
of such assistant secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affirming thereof by his signature.
Section 12. The assistant secretary (or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors,
or, if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
The Treasurer and Assistant Treasurer
Section 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. He shall
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disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the president and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as treasurer
and of the financial condition of the Corporation.
Section 14. The assistant treasurer (or, if there shall be more than
one, the assistant treasurers in the order determined by the Board of
Directors, or, if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled
to a certificate, signed by, or in the name of the Corporation by, the Chairman
of the Board, the president or a vice president and the secretary or an
assistant secretary of the Corporation, certifying the number of shares owned
by him in the Corporation. Any signature on the certificate may be a
facsimile. If the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, the designations,
preferences. and relative participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the Corporation shall issue to represent such
class or series of stock, a statement that the Corporation will furnish without
charge to each stockholder who so requests the designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
Section 2. Where a certificate is countersigned (1) by a transfer
agent other than the Corporation or its employee or (2) by a registrar other
than the Corporation or its employee, any signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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Lost Certificates
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Transfers of Stock
Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by a
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Fixing Record Date
Section 5. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting prior to October 31, 1998, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Registered Stock Holders
Section 6. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE VII
GENERAL PROVISIONS
Dividends
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meetings, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of the
Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
Checks
Section 3. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Fiscal Year
Section 4. The fiscal year of the Corporation shall begin on the
first day of January of each year and end on the last day of December of each
year, unless otherwise determined by the Board of Directors.
Seal
Section 5. The corporate seal, if any such seal be adopted by
resolution of the Board of Directors, will be in such form as the Board of
Directors may prescribe. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise placed thereon.
Interested Directors and Officers
Section 6.
(a) No contract or transaction between the Corporation
and one or more of its Directors or officers, or between the Corporation and
any other corporation, partnership, association,
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or other organization in which one or more of its Directors or officers are
Directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the Director or officer is present at
or participates in the meeting of the board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes
are counted for such purposes, if;
(1) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the board or committee in
good faith authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or
(2) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract for
transaction is specifically approved in good faith by vote of the
stockholders; or
(3) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee thereof, or the stockholder.
(b) Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE VIII
AMENDMENTS
These Bylaws may be altered, amended or repealed, or new Bylaws may be
adopted by the affirmative vote of a majority of the entire Board of Directors
at any meeting and without the consent or vote of the stockholders. These
Bylaws may be altered, amended or repealed, or new Bylaws may be adopted by the
stockholders at any regular meeting of the stockholders or at any special
meeting of the stockholders, if notice of such alteration, amendment, repeal or
adoption of new Bylaws is contained in the notice of such meeting, by the
holders of at least 66 2/3% of the total voting power of all shares of stock of
the Corporation entitled to vote in the election of directors, considered for
purposes of this Article VIII as one class.
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ARTICLE IX
INDEMNIFICATION AND INSURANCE
Section 1. The Corporation shall, to the full extent permitted by
Section 145 of Title 8 of the General Corporation Law of the State of Delaware,
as amended from time to time, indemnify all officers and directors of the
Corporation whom it may indemnify pursuant thereto. The provisions of this
Article IX shall apply to acts or omissions occurring before or after the
adoption hereof. The right of indemnification herein provided for shall not be
exclusive of any other right to which any Director or officer may now or
hereafter be entitled under any statute, bylaw, agreement, vote of stockholders
or disinterested Directors or otherwise, shall continue as to a person who has
ceased to be such Director or officer entitled to indemnification pursuant to
this Article IX and shall inure to the benefit of the heirs, executors and
administrators of such Director or officer.
Section 2. The Corporation may purchase and maintain insurance on
behalf of any person who 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 any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article IX or of Section 145 of the
General Corporation Law of the State of Delaware.
Section 3. The indemnification provided by this Article IX shall be
subject to all valid and applicable laws, and, in the event this Article IX or
any of the provisions hereof or the indemnification contemplated hereby are
found to be inconsistent with or contrary to any such valid laws, the latter
shall be deemed to control, and this Article IX shall be regarded as modified
accordingly and, as so modified, shall continue in full force and effect.
-15-
<PAGE> 1
EXHIBIT 23.2
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 part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
July 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) PRO
FORMA F/S INCLUDED IN CLC FORM S-1
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,074
<SECURITIES> 0
<RECEIVABLES> 44,884
<ALLOWANCES> 0
<INVENTORY> 25,862
<CURRENT-ASSETS> 75,864
<PP&E> 32,470
<DEPRECIATION> 0
<TOTAL-ASSETS> 191,269
<CURRENT-LIABILITIES> 52,820
<BONDS> 0
0
0
<COMMON> 121
<OTHER-SE> 113,796
<TOTAL-LIABILITY-AND-EQUITY> 191,269
<SALES> 365,910
<TOTAL-REVENUES> 365,910
<CGS> 293,017
<TOTAL-COSTS> 352,526
<OTHER-EXPENSES> (837)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,059
<INCOME-PRETAX> 12,162
<INCOME-TAX> 5,698
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,464
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Chemical Logistics
Corporation ("CLC") as a director to be appointed after consummation of the
initial public offering of CLC.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 22nd day of July, 1998.
/s/ JAMES M. CLEPPER
------------------------------------
Name: James M. Clepper
<PAGE> 2
EXHIBIT 99.1
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Chemical Logistics
Corporation ("CLC") as a director to be appointed after consummation of the
initial public offering of CLC.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 22nd day of July, 1998.
/s/ DOUGLAS A. BROWN
------------------------------------
Name: Douglas A. Brown
<PAGE> 3
EXHIBIT 99.1
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Chemical Logistics
Corporation ("CLC") as a director to be appointed after consummation of the
initial public offering of CLC.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 22nd day of July, 1998.
/s/ RODNEY R. PROTO
------------------------------------
Name: Rodney R. Proto
<PAGE> 4
EXHIBIT 99.1
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Chemical Logistics
Corporation ("CLC") as a director to be appointed after consummation of the
initial public offering of CLC.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 22nd day of July, 1998.
/s/ G. STEPHEN ROBINS
------------------------------------
Name: G. Stephen Robins
<PAGE> 5
EXHIBIT 99.1
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Chemical Logistics
Corporation ("CLC") as a director to be appointed after consummation of the
initial public offering of CLC.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 22nd day of July, 1998.
/s/ WILLIAM L. WELCH
------------------------------------
Name: William L. Welch
<PAGE> 6
EXHIBIT 99.1
CONSENT
The undersigned hereby consents to being named in the Registration
Statement (the "Registration Statement") on Form S-1 of Chemical Logistics
Corporation ("CLC") as a director to be appointed after consummation of the
initial public offering of CLC.
IN WITNESS WHEREOF, the undersigned has executed this Consent effective as
of the 22nd day of July, 1998.
/s/ JOHN M. TILLEY
------------------------------------
Name: John M. Tilley